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Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Coastal Physician Group, Inc.
(Name of Registrant as Specified in its Charter)
Steven M. Scott, M.D.
(Name of Person Filing Proxy Statement)
------------------------------
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1)
or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated
and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[X] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date Filed:
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PROXY STATEMENT OF DR. STEVEN M. SCOTT
IN OPPOSITION TO
THE BOARD OF DIRECTORS
OF COASTAL PHYSICIAN GROUP, INC.
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 27, 1996
------------------------
This Proxy Statement and the enclosed BLUE Proxy Card are being furnished
by Dr. Steven M. Scott, an individual residing at 3711 Stoneybrook Drive,
Durham, North Carolina 27705, to holders of common stock, par value $.01 per
share (the 'Common Stock'), of Coastal Physician Group, Inc., a Delaware
corporation (the 'Company' or 'Coastal'), in connection with the solicitation of
proxies by Dr. Scott for use at the Company's Annual Meeting of Shareholders, or
any other meeting of shareholders held in lieu thereof, and at any and all
adjournments, postponements, reschedulings or continuations thereof (the
'Meeting'). On July 26, 1996, the Board of Directors of Coastal (the 'Coastal
Board') scheduled the Meeting to be held on September 27, 1996, at 9:00 a.m., at
the Durham Hilton, 3800 Hillsborough Road, Durham, North Carolina, and set
August 21, 1996 as the record date for determining shareholders entitled to
notice of and to vote at such Meeting (the 'Record Date'). The proxy statement
furnished by Coastal to shareholders (the 'Management Proxy Statement') will
contain certain information concerning the Meeting and the Record Date. As of
the date of this Proxy Statement, Dr. Scott was the beneficial owner of
7,146,193 shares of Common Stock, representing approximately 30% of the shares
outstanding. This Proxy Statement and the enclosed BLUE Proxy Card are first
being mailed or furnished to shareholders of the Company on or about August 8,
1996.
THIS SOLICITATION IS BEING MADE BY DR. SCOTT, WHO IS THE FOUNDER AND A
DIRECTOR OF COASTAL, AND NOT ON BEHALF OF THE COASTAL BOARD.
At the Meeting, three persons will be elected as directors of the Company
to hold office for a term of three years and until their successors have been
duly elected and qualified. In opposition to the solicitation of proxies by the
Coastal Board, Dr. Scott is proposing a slate of two independent nominees, Mr.
Mitchell W. Berger and Mr. Henry J. Murphy (the 'Scott Nominees'), for election
as directors of the Company. The Scott Nominees were nominated by Scott Medical
Partners, L.P. ('Scott Medical'), a limited partnership of which Dr. Scott is
the sole general partner. Dr. Scott is also proposing a resolution (the
'Maximize Value Resolution') requesting the Coastal Board to promptly appoint a
new committee (the 'Shareholder Value Committee') consisting of the Company's
four independent, non-management directors (including, if elected, the two Scott
Nominees) to consider and recommend to the full Coastal Board for approval the
best and most expeditious means by which shareholder value may be maximized. If
the Scott Nominees are elected, Dr. Scott believes that the directors eligible
to serve on the Shareholder Value Committee, in addition to the Scott Nominees,
are Dr. Norman H. Chenven, Dr. John P. Mahoney and Mr. John A. Hemingway, as
well as any other director who at the time may be an independent, non-management
director. Dr. Scott does not intend that he personally serve on such Committee
and will not serve on such Committee even if requested to do so by the Coastal
Board. The Maximize Value Resolution was submitted to Coastal by Scott Medical.
Dr. Scott believes that the recent announcement by the Coastal Board of a
plan to dispose of certain non-strategic assets and to continue the
implementation of management's business plan will not succeed in maximizing
shareholder value. Dr. Scott expects that the Shareholder Value Committee would
promptly conduct a review of various alternatives to maximize shareholder value
on an expeditious timetable. Dr. Scott and the Scott Nominees believe that
immediate consideration should be given to a sale of Coastal in its entirety.
Dr. Scott believes that the Company's leadership is weak and ineffective
under the management of Dr. Jacque J. Sokolov, the current Chairman of the
Board, and Mr. Joseph G. Piemont, the Company's current Chief Executive Officer.
In the event that the Coastal Board determines, upon advice from the Shareholder
Value Committee and the Company's financial advisors, that the best plan to
maximize shareholder value is not to sell the Company in its entirety, Dr. Scott
and the two Scott Nominees intend to urge the Coastal Board to commence a prompt
and comprehensive search for a new Chief Executive Officer to lead the Company.
Dr. Scott does not intend that he personally serve as Chief Executive Officer of
the Company, and will not accept the position of Chief Executive Officer even if
such position should be offered to him by the Coastal Board.
Dr. Scott is soliciting proxies FOR the election of the two Scott Nominees
as directors and FOR the adoption of the Maximize Value Resolution.
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In contrast to the Maximize Value Resolution, the Coastal Board is asking
shareholders to support its own resolution (the 'Management Resolution') more
fully described below (see 'PROPOSAL THREE--THE MANAGEMENT RESOLUTION'). Dr.
Scott is soliciting proxies AGAINST the Management Resolution.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN.
PLEASE SIGN AND DATE THE ENCLOSED BLUE PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE PROMPTLY. PROPERLY VOTING THE ENCLOSED BLUE PROXY CARD AUTOMATICALLY
REVOKES ANY PROXY PREVIOUSLY SIGNED BY YOU.
DO NOT RETURN ANY PROXY CARD SENT TO YOU BY COASTAL. Even if you may
previously have voted on Coastal's proxy card, you have every legal right to
change your vote by signing, dating and returning the enclosed BLUE proxy card.
ONLY YOUR LATEST DATED PROXY WILL COUNT AT THE MEETING.
IMPORTANT NOTE: IF YOUR SHARES OF THE COMPANY'S STOCK ARE REGISTERED IN
YOUR OWN NAME, PLEASE SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD TO DR.
SCOTT, C/O GEORGESON & COMPANY, INC., THE FIRM ASSISTING DR. SCOTT IN THE
SOLICITATION OF PROXIES, IN THE POSTAGE-PAID ENVELOPE PROVIDED. IF YOUR SHARES
OF THE COMPANY'S STOCK ARE HELD IN THE NAME OF A BROKERAGE FIRM, BANK, NOMINEE
OR OTHER INSTITUTION, ONLY IT CAN SIGN A BLUE PROXY CARD WITH RESPECT TO YOUR
SHARES, AND ONLY UPON RECEIPT OF SPECIFIC INSTRUCTIONS FROM YOU. ACCORDINGLY,
YOU SHOULD CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS
FOR A BLUE PROXY CARD TO BE SIGNED REPRESENTING YOUR SHARES OF STOCK. DR. SCOTT
URGES YOU TO CONFIRM IN WRITING YOUR INSTRUCTIONS TO THE PERSON RESPONSIBLE FOR
YOUR ACCOUNT AND TO PROVIDE A COPY OF SUCH INSTRUCTIONS TO DR. SCOTT, C/O
GEORGESON & COMPANY, INC. AT THE ADDRESS INDICATED BELOW SO THAT DR. SCOTT WILL
BE AWARE OF ALL INSTRUCTIONS GIVEN AND CAN ATTEMPT TO ENSURE THAT SUCH
INSTRUCTIONS ARE FOLLOWED.
IF YOU HAVE ANY QUESTIONS ABOUT EXECUTING YOUR PROXY OR REQUIRE ASSISTANCE,
PLEASE CONTACT:
GEORGESON & COMPANY, INC.
WALL STREET PLAZA
NEW YORK, NEW YORK 10005
TOLL FREE: (800) 223-2064
Banks and Brokerage Firms please call collect: (212) 440-9800
REASONS FOR THE SOLICITATION
Dr. Scott has determined to solicit proxies for the election of the two
Scott Nominees to serve as directors of the Company and for the adoption of the
Maximize Value Resolution because he is convinced that maximizing shareholder
value as expeditiously as possible is in the best interests of Coastal and all
of its shareholders. Dr. Scott has been a member of the Coastal Board since he
founded the Company in 1977, and is presently the largest holder of shares of
Common Stock (holding approximately 30% of the shares outstanding as of the date
of this Proxy Statement). As such, Dr. Scott believes that his interests in
seeking to have Coastal maximize shareholder value are aligned with the
interests of Coastal's other shareholders. On August 7, 1996, the closing price
of Coastal Common Stock on the New York Stock Exchange Composite Tape was
$4 5/8. Dr. Scott believes that prompt and decisive action must be taken to
increase shareholder value. Dr. Scott further believes that the Coastal Board's
'management action plan' to dispose of certain non-strategic assets on a
piecemeal basis over what he believes would be a substantial period of time will
not succeed in maximizing shareholder value and that any benefits to
shareholders which might eventually result from such sales would be too far in
the future.
Dr. Scott believes that the election of the two Scott Nominees as directors
of the Company and the adoption of the Maximize Value Resolution would send a
strong message to the Coastal Board that Coastal shareholders want to maximize
the value of their investment in the Company on an expeditious timetable,
including through a possible sale of the Company in its entirety, and would make
it more likely that such an outcome will result. However, because Dr. Scott, who
currently is a member of the Coastal Board, and the two Scott Nominees, if such
nominees are elected, will fill only three of the nine seats on the Coastal
Board and because the Maximize Value Resolution is not binding on the Coastal
Board, there can be no assurance that the Coastal Board will seek to solicit or
consider new proposals for maximizing shareholder value even if the two Scott
Nominees are elected and the Maximize Value Resolution is adopted by Coastal
shareholders. Dr. Bertram Walls, a member of the Coastal Board whose term as a
director expires in 1997, has certain relationships with Dr. Scott. See
'PROPOSAL ONE--ELECTION OF DIRECTORS.' Dr. Scott believes that Dr. Walls always
has exercised,
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and will continue to exercise, completely independent judgment in fulfilling his
duties as a director of Coastal, and Dr. Walls is not a participant in Dr.
Scott's solicitation of proxies.
GENERAL
PROXY INFORMATION
As of the date of this Proxy Statement, Dr. Scott was the beneficial owner
of 7,146,193 shares of Common Stock, representing approximately 30% of the
shares outstanding. As of the date of this Proxy Statement, neither of the Scott
Nominees owned any shares of Common Stock. According to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996, as of April
30, 1996, there were 23,835,665 shares of Common Stock outstanding. For
information regarding transactions in the Common Stock by Dr. Scott during the
past two years, see Appendix I annexed to this Proxy Statement.
The shares of Common Stock represented by each BLUE Proxy Card which is
properly executed and returned will be voted at the Meeting in accordance with
the instructions marked thereon. Executed but unmarked BLUE Proxy Cards will be
voted FOR the election of the two Scott Nominees as directors, FOR the adoption
of the Maximize Value Resolution, AGAINST the Management Resolution and FOR the
ratification of independent certified public accountants for the fiscal year
ending December 31, 1996.
With the exception of the election of directors, consideration of the
Maximize Value Resolution, consideration of the Management Resolution and
management's proposal to ratify the action of the Coastal Board in selecting
KPMG Peat Marwick LLP as independent certified public accountants of the Company
for the fiscal year ending December 31, 1996, Dr. Scott is not aware at the
present time of any other matter which is scheduled to be voted upon by
shareholders at the Meeting.
If you hold your shares in the name of one or more brokerage firms, banks
or nominees, only they can vote your shares and only upon receipt of your
specific instructions. Accordingly, you should contact the person responsible
for your account and give instructions to vote the BLUE Proxy Card.
PROXY REVOCATION
Whether or not you plan to attend the Meeting, Dr. Scott urges you to vote
FOR the two Scott Nominees, FOR the Maximize Value Resolution and AGAINST the
Management Resolution by signing, dating and returning the BLUE Proxy Card in
the enclosed envelope. You can do this even if you have already voted on the
proxy card solicited by the Coastal Board. It is the latest dated proxy that
counts.
Execution of a BLUE Proxy Card will not affect your right to attend the
Meeting and to vote in person. Any shareholder granting a proxy (including a
proxy given to the Company) may revoke it at any time before it is voted by (a)
submitting a duly executed new proxy bearing a later date, (b) attending and
voting at the Meeting in person, or (c) at any time before a previously executed
proxy is voted, giving written notice of revocation to either (i) Dr. Scott, c/o
Georgeson & Company, Inc., Wall Street Plaza, New York, New York 10005, or (ii)
the Company, 2828 Croasdaile Drive, Durham, North Carolina 27705, Attention:
Corporate Secretary. Dr. Scott requests that a copy of any revocation sent to
the Company also be sent to Dr. Scott, c/o Georgeson & Company, Inc. at the
above address. Merely attending the Meeting will not revoke any previous proxy
which has been duly executed by you. The BLUE Proxy Card furnished to you by Dr.
Scott, if properly executed and delivered, will revoke all prior proxies.
DR. SCOTT URGES YOU TO SIGN, DATE AND MAIL THE BLUE PROXY CARD IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING WITHIN THE UNITED STATES.
QUORUM AND VOTING
The Management Proxy Statement is required to provide information about the
number of shares of Coastal's stock outstanding and entitled to vote on the
Record Date for the Meeting, and reference is made thereto for such information.
Only shareholders of record at the close of business on the Record Date are
entitled to notice of and to vote on matters that come before the Meeting.
The presence in person or by proxy of the holders of a majority of the
shares of Common Stock issued and outstanding and entitled to vote thereat are
necessary to constitute a quorum at the Meeting. Each holder of Common Stock is
entitled to one vote for each share held, and there is no cumulative voting in
the election of
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directors. Directors will be elected by a plurality of votes cast by
shareholders at the Meeting. Votes not cast at the Meeting because authority to
vote for nominees is withheld and as a result of broker non-votes will not
affect the outcome of the election of directors.
There are two Scott Nominees standing for election to the Coastal Board.
Dr. Scott anticipates that there will be three nominees of the Coastal Board
(the 'Company Nominees') for the three positions being filled at the Meeting. On
August 5, 1996, the Coastal Board nominated three persons to stand for election
at the Meeting, one of whom was Dr. Richard Janeway. By letter dated August 6,
1996, Dr. Janeway informed the Coastal Board that, effective as of August 6,
1996, he was resigning as a director of Coastal due to a 'conflict of interest'
which had just come to his attention. Also, on August 6, 1996, Coastal issued a
press release in which it stated that it intended to announce shortly a nominee
to replace Dr. Janeway. Under the terms of Mr. Piemont's employment agreement
with the Company (see 'BACKGROUND OF THE SOLICITATION' below), the Coastal Board
agreed to nominate Mr. Piemont for election to the Coastal Board as a member of
the management slate at the Meeting in the event that a directorship becomes
available. Accordingly, Dr. Scott anticipates, but cannot be certain, that the
Coastal Board will nominate Mr. Piemont to stand for election as a director at
the Meeting in place of Dr. Janeway. In addition, under the terms of Mr.
Piemont's employment agreement, Dr. Janeway's voluntary resignation as a
director of Coastal appears to permit Mr. Piemont to terminate his employment
for 'good reason,' whereupon Mr. Piemont would become entitled to substantial
payments and benefits. For additional information concerning severance payments
to which Mr. Piemont may be entitled under his employment agreement, see
'BACKGROUND OF THE SOLICITATION' below.
Assuming that the Company nominates Mr. Piemont (or another person) in
place of Dr. Janeway, there will be five nominees (the two Scott Nominees and
the three Company Nominees) for three seats on the Coastal Board, and the three
nominees who receive the greatest number of votes will be elected. Shareholders
who use the BLUE Proxy Card furnished by Dr. Scott will be able to vote for the
two Scott Nominees and one of the Company Nominees. The two Company Nominees
with respect to whom Dr. Scott is not seeking authority to vote and who may not
be voted for on the BLUE Proxy Card are Mr. Hatcher and Mr. Piemont (or such
other person as may be nominated by the Company in place of Dr. Janeway).
Shareholders cannot vote for one or both of the Scott Nominees on Dr. Scott's
BLUE Proxy Card and also vote for one or more of the Company's Nominees using
Coastal's proxy card. Any shareholder who wishes to vote for one or more of the
Scott Nominees and for either or both Mr. Hatcher and Mr. Piemont (or such other
person as may be nominated by the Company in place of Dr. Janeway) will be
required to vote by ballot at the Meeting. Shareholders should refer to the
Management Proxy Statement for information concerning the Company Nominees.
There is no assurance that any of the Company Nominees will serve as directors
if any of the Scott Nominees are elected to the Coastal Board.
In addition to Mr. Hatcher and Mr. Piemont (or such other person as may be
nominated by the Company in place of Dr. Janeway), there is a third Company
Nominee. Dr. Scott is not seeking to oppose the election of such third Company
Nominee and intends to use the BLUE Proxy Card to vote for the election of such
third Company Nominee. However, shareholders will be given the opportunity on
Dr. Scott's BLUE Proxy Card to withhold authority to vote for such third Company
Nominee by writing the name of such nominee in the indicated space on the BLUE
Proxy Card. Shareholders who use Coastal's proxy card will not be able to vote
for either of the Scott Nominees. Accordingly, any shareholder who wishes to
vote for the Scott Nominees should use the BLUE Proxy Card.
With respect to the voting upon the Maximize Value Resolution, the
Management Resolution and the ratification of the Board's selection of
independent public accountants, each share of Common Stock entitles the holder
thereof to one vote, and action requires the affirmative vote of a majority of
the shares represented and entitled to vote at the Meeting. Accordingly,
assuming a quorum is present at the Meeting, abstentions will count as votes
cast against the Maximize Value Resolution, the Management Resolution or the
Board's selection of independent public accountants, as the case may be, and
broker non-votes will have no effect on the outcome of the vote on such
proposals.
PROPOSAL ONE--ELECTION OF DIRECTORS
The Company's Certificate of Incorporation has set the total number of
directors at nine and provides that the Coastal Board shall be divided into
three classes, each having a staggered term of three years. Three directors will
be elected for a term of three years at the Meeting.
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The two Scott Nominees are Mr. Mitchell W. Berger and Mr. Henry J. Murphy.
Each of these nominees has consented to serve as a director if elected, and it
is not contemplated that either of them will be unavailable for election as a
director. If either of the Scott Nominees is unable to serve or is otherwise
unavailable for election and a replacement nominee is required, the persons
named on the enclosed BLUE Proxy Card will vote for a substitute nominee. Dr.
Scott is soliciting proxies for the election of the two Scott Nominees in
opposition to two of the Company Nominees.
DR. SCOTT RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE TWO SCOTT NOMINEES ON THE
ENCLOSED BLUE PROXY CARD.
The information below is provided with respect to the two Scott Nominees
for directors of the Company. Each of the Scott Nominees is a United States
citizen.
<TABLE>
<CAPTION>
NAME, BUSINESS ADDRESS AND AGE PRINCIPAL OCCUPATIONS/DIRECTORSHIPS
- ------------------------------ ------------------------------------------------
<S> <C>
Mitchell W. Berger Mitchell W. Berger is an attorney with Berger &
Suite 400 Davis, P.A., a law firm located in Ft.
100 Northeast Third Avenue Lauderdale and Tallahassee, Florida. Mr.
Ft. Lauderdale, Florida 33301 Berger has been a partner of Berger & Davis
(Age 40) since 1985, and is a member of the Board of
Directors of the Student Loan Marketing
Association (SALLIE MAE).
Henry J. Murphy Henry J. Murphy served as the managing director
622 Belmont Crest Drive of corporate recovery services of Arthur
Marietta, Georgia 30067 Andersen, from 1991 until his retirement in
(Age 60) 1995. Prior to 1991, Mr. Murphy served as
managing partner for the worldwide real estate
practice of Arthur Andersen.
</TABLE>
Neither of the Scott Nominees, as of the date of this Proxy Statement, owns
any shares of Common Stock. Mr. Berger is a member of the law firm Berger &
Davis, P.A., which firm has rendered legal services to Coastal during its last
fiscal year and during the current fiscal year. Mr. Berger's firm also has
rendered legal services to Dr. Scott and certain of his affiliated entities.
If the Scott Nominees are elected to the Coastal Board, the Scott Nominees,
together with Dr. Scott, will constitute only three of nine members of the
Coastal Board. Since Coastal's By-Laws provide that action by the Coastal Board
requires a majority vote of the directors present at a meeting at which a quorum
is present, Dr. Scott and the two Scott Nominees, by themselves, ordinarily will
not be able to cause any action to be taken or not taken by the Coastal Board
(unless only five directors, including Dr. Scott and the two Scott Nominees, are
present at a meeting of the Coastal Board, in which case Dr. Scott and the two
Scott Nominees would constitute a majority of the directors present at such
meeting) unless at least two (assuming all nine directors are present at such a
meeting) other directors agree with the position of Dr. Scott and the two Scott
Nominees. Nevertheless, the two Scott Nominees may, because of their different
backgrounds and expertise, be able to inform and persuade other directors
sufficiently to cause the Coastal Board to take or not take various actions.
If elected, the two Scott Nominees, together with Dr. Scott, intend to seek
to persuade the Coastal Board to take action to maximize shareholder value as
expeditiously as possible. Dr. Scott and the Scott Nominees believe that
immediate consideration should be given to a sale of Coastal in its entirety.
Dr. Scott and the Scott Nominees believe that the election of the two Scott
Nominees and the adoption of the Maximize Value Resolution would send a strong
message to the Coastal Board that Coastal shareholders want to maximize the
value of their investment in the Company, and would make it more likely that
such events will occur. However, because Dr. Scott and the two Scott Nominees,
if such nominees are elected, will fill only three of the nine seats on the
Coastal Board and because the Maximize Value Resolution is not binding on the
Coastal Board, there can be no assurance that the Coastal Board will seek to
further the goals stated in the Maximize Value Resolution even if the Maximize
Value Resolution is adopted and the two Scott Nominees are elected.
Similarly, in the event that the Coastal Board determines, upon the advice
from the Shareholder Value Committee and its financial advisors, that the best
plan to maximize value is not to sell the Company in its entirety, there can be
no assurance that the Coastal Board will follow the recommendation of Dr. Scott
and the two Scott Nominees that the Coastal Board seek to find a new Chief
Executive Officer in place of Mr. Piemont.
Dr. Walls, a Coastal director, is the trustee of certain trusts for the
benefit of Dr. Scott's children, is a plaintiff together with Dr. Scott in a
lawsuit against Coastal, Dr. Sokolov, Mr. Piemont and Stephen D. Corman, a
director and Chief Financial Officer of Coastal, and is the President of Century
American Insurance Company
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('Century'), a company owned by Dr. Scott (see 'PRINCIPAL SHAREHOLDER,' 'CERTAIN
LITIGATION' and 'CERTAIN AGREEMENTS--Other Agreements' below). Dr. Scott
believes that Dr. Walls always has exercised, and will continue to exercise,
completely independent judgment in fulfilling his duties as a director of
Coastal, and Dr. Walls is not a participant in Dr. Scott's solicitation of
proxies. Even if Dr. Walls were to vote together with Dr. Scott and the two
Scott Nominees, such votes would constitute only four votes on Coastal's
nine-member Board of Directors.
PROPOSAL TWO--THE MAXIMIZE VALUE RESOLUTION
The text of the Maximize Value Resolution is as follows:
RESOLVED, that the shareholders of Coastal Physician Group, Inc.
('Coastal'), believing that the value of their investment in Coastal can be
further maximized, hereby request that the Board of Directors of Coastal
promptly proceed to effect such maximization by establishing a new
committee consisting entirely of independent non-management directors to
consider and recommend to the full Coastal Board of Directors for approval
the best available means by which shareholder value may be maximized;
provided, however, that such committee shall be comprised of four persons
and that any Scott Nominees (as such term is defined in the proxy statement
furnished by Dr. Steven M. Scott to shareholders of Coastal) elected to the
Board shall be appointed as members of such committee.
DR. SCOTT RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR'
THE MAXIMIZE VALUE RESOLUTION.
The Maximize Value Resolution sets forth a request of the Coastal Board on
the part of shareholders. Even if approved by a majority of the shares of Common
Stock represented and entitled to vote at the Meeting, the Maximize Value
Resolution will not be binding on the Coastal Board. Dr. Scott believes,
however, that if the Maximize Value Resolution receives substantial support from
shareholders, the Coastal Board may choose to carry out the requests set forth
in the Maximize Value Resolution.
The Maximize Value Resolution requests that the Coastal Board establish the
Shareholder Value Committee, consisting of the Company's four directors who are
independent, non-management directors, including any Scott Nominee elected to
the Coastal Board, to consider and recommend to the full Coastal Board for
approval the best and most expeditious means by which shareholder value may be
maximized. If the Scott Nominees are elected, Dr. Scott believes that the
directors eligible to serve on the Shareholder Value Committee, in addition to
the Scott Nominees, are Dr. Chenven, Dr. Mahoney and Mr. Hemingway, as well as
any other director who at the time may be an independent, non-management
director. Dr. Scott also believes that directors who are officers or employees
of the Company may have potential conflicts of interest in considering strategic
alternatives for the Company, and should not serve on the Shareholder Value
Committee. Dr. Scott understands that effective August 1, 1996, Mr. Hemingway
ceased to be an executive of Coastal. Since Mr. Hemingway was recently an
executive of Coastal, Dr. Scott will recommend that Mr. Hemingway not serve on
such Committee. Dr. Scott does not intend that he personally serve on the
Shareholder Value Committee, and will not serve on such Committee even if
requested to do so by the Coastal Board.
Dr. Scott believes it is important that the Shareholder Value Committee
promptly conduct a review of alternatives to maximize shareholder value,
including a possible sale of the Company. He also believes that given the
current market price of the Company's Common Stock (which closed at $4 5/8 on
August 7, 1996), it is important that steps to maximize shareholder value be
taken promptly. Neither Dr. Scott nor the Scott Nominees, nor any of their
respective affiliates, have any current plans or intentions to engage in any
transaction with the Company or any of its affiliates in connection with their
efforts to maximize shareholder value. However, in the event that the
Shareholder Value Committee recommends, and the full Board approves, a sale of
the Company in its entirety, Dr. Scott reserves the right to participate as a
potential buyer in any auction or other sale process implemented by the Company.
Dr. Scott and the Scott Nominees intend to recommend that the Shareholder
Value Committee promptly engage a financial advisor (which may or may not be the
Company's current financial advisor), in order to assist the Shareholder Value
Committee in determining the most appropriate means to maximize shareholder
value. Such means could include a sale of the Company in its entirety through an
auction or other sale process.
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Dr. Scott, based on his considerable familiarity with Coastal since he
founded it in 1977, believes that management's current plan to dispose of
certain non-strategic assets on a piecemeal basis over what Dr. Scott believes
would be a substantial period of time, will not succeed in maximizing
shareholder value and that any benefits to shareholders which might eventually
result from such sales would occur too far in the future. Dr. Scott has become
increasingly concerned about the market value of the shares of the Company's
Common Stock, which has significantly declined in value since Coastal publicly
announced its plan to dispose of certain non-strategic assets. On July 9, 1996,
the date on which such announcement was made after the close of the stock
market, Coastal shares closed at $7. On August 7, 1996, Coastal shares closed at
$4 5/8, a decline of 34%. Dr. Scott also believes that Coastal is currently
operating under a significant overhead burden which is too great given the
Company's size and results of operations. He is concerned that the continuation
of overhead expenses at current levels while the Company engages in its efforts
to dispose of certain non-strategic assets over what he believes would be a
substantial period of time would serve to further weaken the Company's financial
condition. Dr. Scott also is concerned that the piecemeal sale of assets will
create customer anxiety, alienate physician contractors, inhibit revenue growth
in all lines of business and harm employee morale. Dr. Scott believes that
Coastal faces a significant risk that key employees may seek other employment
opportunities as a more attractive alternative than awaiting the possible sale
of their business units.
Dr. Scott believes that approval of the Maximize Value Resolution, together
with the election of the two Scott Nominees, would send a strong message to the
Coastal Board that Coastal shareholders want to maximize the value of their
investment in the Company on an expeditious timetable, and would make it more
likely that such an outcome will result. Dr. Scott further believes that if the
Maximize Value Resolution is adopted, the Coastal Board and Coastal's management
will interpret such adoption as a message from the Company's shareholders that
it is no longer acceptable for the Coastal Board to continue with its current
management business plans and strategies.
If shareholders desire to send a strong message to the Coastal Board that
they want to maximize the value of their investment, Coastal shareholders should
vote FOR the Maximize Value Resolution (Proposal 2).
PROPOSAL THREE--THE MANAGEMENT RESOLUTION
According to a revised preliminary proxy statement filed by Coastal with
the Securities and Exchange Commission (the 'SEC'), the Coastal Board intends to
present the Management Resolution set forth below for a vote at the Meeting.
DR. SCOTT RECOMMENDS THAT SHAREHOLDERS VOTE 'AGAINST'
THE MANAGEMENT RESOLUTION.
The text of the Management Resolution is as follows:
'RESOLVED, that the shareholders of Coastal Physician Group, Inc.
('Coastal'), believing that the most effective way to restore the
profitability of, and maximize the value of their investment in, Coastal is
to follow the Comprehensive Business Plan approved and adopted by the Board
of Directors, hereby approve the continued implementation of the
Comprehensive Business Plan.'
By presenting the Management Resolution for a shareholder vote, the Coastal
Board is requesting shareholders to endorse its proposed sales of certain
non-strategic assets on a piecemeal basis over what Dr. Scott believes would be
a substantial period of time. For the reasons set forth under the caption
'Proposal Two--The Maximize Value Resolution' above, Dr. Scott believes that the
sale of such assets on a piecemeal basis will not maximize shareholder value,
will not result in any benefits for shareholders in the foreseeable future and,
in certain respects, could be detrimental to Coastal. Dr. Scott also believes
that given the current level of the Coastal's stock price, action must be taken
promptly to maximize shareholder value.
Dr. Scott believes that if shareholders desire to send a strong message to
the Coastal Board that they want to maximize the value of their investment,
Coastal shareholders should vote FOR the Maximize Value Resolution (Proposal 2)
and AGAINST the Management Resolution (Proposal 3).
7
<PAGE>
PROPOSAL FOUR--RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG Peat Marwick LLP, independent certified public
accountants, has been the Company's auditor since 1987. The Coastal Board, of
which Dr. Scott is a member, on the recommendation of Coastal's Audit Committee,
has selected KPMG Peat Marwick LLP as the Company's independent certified public
accountants for the year ending December 31, 1996, subject to the approval of
the Company's shareholders.
DR. SCOTT RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE RATIFICATION OF SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER MATTERS TO BE CONSIDERED AT THE MEETING
Dr. Scott is not presently aware of any matters to be presented for a vote
of shareholders at the Meeting other than the election of directors, the
Maximize Value Resolution, the Management Resolution and the ratification of the
Board's selection of KPMG Peat Marwick LLP as the Company's independent
certified public accountants for the fiscal year ending December 31, 1996. If
any other matter properly comes before the Meeting, the persons named as proxies
on the enclosed BLUE Proxy Card will have discretionary authority to vote all
shares covered by such proxies in accordance with their best judgment with
respect to such matter, unless they are directed by a proxy to do otherwise.
PRINCIPAL SHAREHOLDER
The following table sets forth, as of the date of this Proxy Statement, the
number and percent of outstanding shares of Common Stock beneficially owned by
Dr. Scott:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF SHAREHOLDER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------- ------------------ --------------------
<S> <C> <C>
Steven M. Scott.... 7,146,193(1) 29.98%
</TABLE>
- ------------------
(1) Includes 6,369,120 shares held by Scott Medical, a limited partnership, of
which Dr. Scott is the sole general partner. Also includes 582,863 shares
held by two partnerships, the partners of which are Dr. Scott and certain
trusts established for the benefit of Dr. Scott's children. Dr. Scott has
sole investment power with respect to these shares, but has sole voting
power with respect to only 410,961 of such shares. Voting power with respect
to the remaining 145,100 shares is held by Dr. Bertram Walls, as trustee of
the trusts. Dr. Walls is currently a director of the Company and is a
plaintiff, together with Dr. Scott, in a lawsuit against the Company and
certain of its directors and officers described under 'CERTAIN LITIGATION.'
Also includes 74,110 shares held by a foundation with respect to which Dr.
Scott shares voting and investment power. Also includes 120,000 shares held
by Century American Insurance Company ('Century') over which Dr. Scott may
be deemed to share voting and investment power. Dr. Scott disclaims
beneficial ownership of the shares held by Century. The remaining 100 shares
are held directly by Dr. Scott. Dr. Scott's address is 3711 Stoneybrook
Drive, Durham, North Carolina 27705.
The Management Proxy Statement is required to set forth information as to
the number and percentage of outstanding shares beneficially owned by (i) each
person known by Coastal to own more than 5% of the outstanding Common Stock,
(ii) each director of Coastal, (iii) each of the five most highly paid executive
officers of Coastal, and (iv) all executive officers and directors of Coastal as
a group, and reference is made thereto for such information.
INFORMATION ABOUT PARTICIPANTS IN DR. SCOTT'S
PROXY SOLICITATION
The proxies solicited hereby are solicited by Dr. Scott. In addition to Dr.
Scott, the two Scott Nominees, Mr. Mitchell W. Berger and Mr. Henry J. Murphy,
may be deemed 'participants' in this solicitation, as that term is defined in
Schedule 14A under the Securities Exchange Act of 1934, as amended. The present
principal occupations of Dr. Scott and the two Scott Nominees are set forth in
'PROPOSAL ONE--ELECTION OF
8
<PAGE>
DIRECTORS' and 'BACKGROUND OF THE SOLICITATION' herein. Scott Medical is a
limited partnership and its business address is Two Market Street, Suite 208,
Chattanooga, Tennessee 37401. Dr. Scott is the sole general partner of Scott
Medical, and its limited partners, in addition to Dr. Scott, are Dr. Scott's
wife, Mrs. Rebecca Scott, and The Steven M. Scott Tennessee IV Grantor Retained
Annuity Trust, of which Dr. Scott and his children are beneficiaries.
As described above, as of the date of this Proxy Statement, Dr. Scott was
the beneficial owner of 7,146,193 shares of Common Stock, representing
approximately 30% of the shares outstanding. The shares of Common Stock acquired
by Dr. Scott during the past two years were acquired as set forth in Appendix I
hereto.
BACKGROUND OF THE SOLICITATION
Dr. Scott is the founder the Company, and served as Chairman of the Coastal
Board from the Company's formation in 1977 until 1994. In addition, Dr. Scott
served as President and Chief Executive Officer of the Company from 1977 until
May 1996. Dr. Scott is currently a member of the Coastal Board with a term of
office expiring in 1998, and he is not standing for election as a director at
the Meeting. As the Company's founder and largest shareholder, Dr. Scott has an
abiding interest in maximizing the value of the Company for all shareholders.
As a result of certain disagreements between Dr. Scott and Coastal's
management concerning various operational and strategic issues, on May 29, 1996,
the Coastal Board by a 6-3 vote, adopted certain resolutions (the 'Resolutions')
which, among other things, purported to place Dr. Scott on an involuntary
'sabbatical leave of absence' from his position as President and Chief Executive
Officer of the Company. The Resolutions also purported to preclude Dr. Scott
from communicating with professional advisors and personnel of the Company. Dr.
Scott believes that such Resolutions not only breach the terms of his Employment
Agreement with the Company (see 'CERTAIN AGREEMENTS--Dr. Scott's Employment
Agreement' below), but have improperly impeded his ability to carry out his
fiduciary duties as a member of the Coastal Board. Immediately following its
approval of the Resolutions, the Coastal Board appointed Mr. Piemont as
President and Chief Executive Officer, and on June 20, 1996, the Board awarded
Mr. Piemont an employment/golden parachute agreement that Dr. Scott opposed and
is challenging in court as excessive and inappropriate (see 'CERTAIN LITIGATION'
below).
On July 8, 1996, the Coastal Board approved a plan to divest certain
non-strategic assets. Dr. Scott, Dr. Walls and Mr. Hemingway did not vote in
favor of this plan. Dr. Scott does not believe that management's plan to dispose
of certain non-strategic assets on a piecemeal basis over what he believes would
be a substantial period of time adequately addresses the issue of maximizing
shareholder value. Dr. Scott also believes that the Coastal Board acted hastily
in approving this divestiture plan, and did not give adequate consideration to
other more desirable means of maximizing shareholder value.
Dr. Scott believes that the Company's leadership is weak and ineffective
under the management of Dr. Sokolov, the current Chairman of the Board, and Mr.
Piemont, the current Chief Executive Officer. In the event that the Coastal
Board determines, upon advice from the Shareholder Value Committee and the
Company's financial advisors, that the best plan to maximize shareholder value
is not to sell the Company in its entirety, Dr. Scott and the two Scott Nominees
intend to urge the Coastal Board to commence a prompt and comprehensive search
for a new Chief Executive Officer to lead the Company. Dr. Scott does not intend
that he personally serve as Chief Executive Officer of the Company, and will not
accept the position of Chief Executive Officer even if such position should be
offered to him by the Coastal Board.
In the event that Mr. Piemont's employment as Chief Executive Officer is
terminated prior to certain dates, he is entitled to various 'golden parachute'
severance payments and other benefits under the terms of his employment
agreement with Coastal dated and effective as of June 1, 1996. Dr. Scott
believes that Mr. Piemont's employment agreement provides for excess payments
and benefits, and has challenged such employment agreement in a lawsuit (see
'CERTAIN LITIGATION' below).
Under the terms of his employment agreement, Mr. Piemont's annual base
salary is currently $350,000. Such salary may be increased (but not decreased
without Mr. Piemont's consent) at any time in an amount substantially consistent
with base salary increases awarded in the ordinary course of business to other
peer
9
<PAGE>
executives of Coastal and its affiliates. In addition, Mr. Piemont's employment
agreement awards him incentive compensation at the end of each fiscal year,
which amount, if any, may not exceed more than 50% of Mr. Piemont's base salary
for the fiscal year just ended. Upon execution of his employment agreement, Mr.
Piemont was also granted options to purchase 200,000 shares of Coastal Common
Stock at the then fair market value of such stock. Such options are exercisable
for ten years, and vest at the rate of options to purchase 5,555 shares a month
for 36 months. Mr. Piemont was also permitted to retain the options to purchase
71,751 shares he already held at the time his employment agreement was executed.
Any extension of Mr. Piemont's employment agreement by Coastal will result in
the granting of additional options, the exact amount of which will be determined
by Coastal's Compensation Committee. Finally, Mr. Piemont is entitled to all
benefits (e.g., medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans)
applicable generally to other peer executives of Coastal and its affiliates.
Mr. Piemont's employment agreement further provides that if the Company
terminates his employment without 'cause' or if Mr. Piemont terminates his
employment for 'good reason,' or if the Company fails to renew the agreement so
that it continues in effect through May 31, 1999, then Mr. Piemont will receive
a lump sum payment equal to (i) in the event of termination on or before May 31,
1997, an amount equal to his then current base salary and last incentive
compensation, payable for the period from the date of termination through May
31, 1999, and (ii) in the event of termination after May 31, 1997, an amount
equal to two times his then current base salary and incentive compensation paid
in the prior year. In addition, all unvested options (71,751 plus any unvested
portion of the 200,000 granted to him under his employment agreement) would
become fully vested and exercisable and Mr. Piemont would continue to receive
all benefits until May 31, 1999. Assuming Mr. Piemont's current base salary of
$350,000 remains in effect, and assuming he received the maximum incentive
compensation possible of fifty percent of such salary, any termination of Mr.
Piemont as Chief Executive Officer prior to May 31, 1997 could result in a lump
sum payment to Mr. Piemont equal to $525,000 multiplied by the number of years
and portions of years remaining until May 31, 1999. For example, if Mr.
Piemont's employment terminated on November 30, 1996, two and one-half years
prior to May 31, 1999, Mr. Piemont could receive a lump sum severance payment of
$1,312,500. Any termination after May 31, 1997 could result in a lump sum
payment to Mr. Piemont of $1,050,000 payable for the period through May 31,
1999.
For purposes of Mr. Piemont's employment agreement, 'cause' includes fraud,
dishonesty, substantial and continuing nonperformance by Mr. Piemont of assigned
duties, certain criminal conduct and a material breach of the employment
agreement. 'Good reason' includes the assignment of duties inconsistent with his
position or the reduction in his duties or positions, relocation, a breach or
noncompliance of the agreement by the Company not immediately remedied and
certain changes in the composition of the Coastal Board such that independent
directors as of April 4, 1996 do not continue to serve as members of the Coastal
Board or any new member is elected or appointed to be a director who was not
approved by a majority of such independent directors. It appears that under the
terms of Mr. Piemont's employment agreement, Dr. Janeway's voluntary resignation
as a director of Coastal on August 6, 1996 or the election of one or both of the
Scott Nominees constitutes 'good reason.'
Following the determination of the Coastal Board on July 8, 1996 to pursue
its plan to dispose of certain non-strategic assets on a piecemeal basis, Dr.
Scott determined to solicit proxies for the election of the two Scott Nominees
as directors of the Company and for the adoption of the Maximize Value
Resolution. Dr. Scott believes that the election of the Scott Nominees as
directors of the Company and the adoption of the Maximize Value Resolution would
send a strong message to the Coastal Board that Coastal shareholders want to
maximize the value of their investment in the Company and would make it more
likely that such an outcome will result.
CERTAIN LITIGATION
On July 9, 1996, Dr. Scott and Dr. Walls filed a complaint in the General
Court of Justice, Superior Court Division, of North Carolina, Durham County,
asserting claims on their own behalf and asserting other claims on behalf of
Coastal, against certain other members of the Coastal Board for, among other
things, breach of their fiduciary duties in connection with, among other things,
the adoption of a series of resolutions authorizing management to pursue the
disposition of certain non-strategic assets and the adoption of a 'lavish and
wasteful' employment agreement with Mr. Piemont, which designates Mr. Piemont as
the Company's Chief Executive
10
<PAGE>
Officer and President. In addition, the complaint, among other things, asserts a
claim that the Resolutions, which purport to limit Dr. Scott's ability to
communicate with Coastal advisors and employees in the exercise of his fiduciary
duty as a director (as described under 'BACKGROUND OF THE SOLICITATION'), are
contrary to public policy, are invalid under Delaware law and should be declared
unenforceable.
In addition, Dr. Scott and Dr. Walls assert a claim on behalf of Coastal
for the failure to bring before the Board an insurance contract with Century.
Dr. Scott and Dr. Walls allege that the failure to ratify the contract with
Century will result in the potential loss of Coastal clients and such failure to
act is not in the best interests of Coastal.
Mr. Piemont has been sued in his individual capacity for aiding and
abetting the alleged breach of fiduciary duties by Mr. Sokolov and Mr. Corman.
On July 26, 1996, Coastal filed its answer to the complaint and asserted
counterclaims against Dr. Scott for, among other things, alleged breach of his
fiduciary duty and for maintaining the action referred to above. Coastal has
denied the allegations contained in the complaint and has asserted various
defenses, including lack of subject matter jurisdiction and improper venue, and
challenges Dr. Walls' and Dr. Scott's capacity to bring the action on behalf of
Coastal.
In its counterclaims, Coastal seeks declaratory relief, money damages in an
unspecified amount, and an injunction preventing Dr. Scott from 'further
interfering, or attempting to interfere, with the implementation of the Action
Plan, the restructuring of Coastal, and/or efforts to sell non-core businesses
owned by Coastal.' Dr. Scott believes that the Company's allegations are without
merit and intends to defend the counterclaims asserted against him vigorously.
By order dated July 18, 1996, the Court granted a motion for expedited
discovery brought by Dr. Scott and Dr. Walls, and the litigation is now in the
discovery stage.
CERTAIN AGREEMENTS
DR. SCOTT'S EMPLOYMENT AGREEMENT
In April 1991, Dr. Scott and the Company entered into a five-year
employment agreement which renews automatically each year, unless either party
gives notice of non-renewal, and terminates in any event when Dr. Scott reaches
age 70. The employment agreement provides for an annual base salary of $400,000,
which is to be reviewed annually by, and can be increased at the discretion of,
the Compensation Committee. Dr. Scott is also entitled to incentive compensation
in an amount determined at the discretion of the Compensation Committee, based
on its consideration of the Company's financial results, the development,
implementation and attainment of strategic business planning goals and
objectives, increases in the Company's revenues and operating profits, and other
factors deemed relevant by the Compensation Committee in evaluating Dr. Scott's
performance. Although not a requirement, the target for Dr. Scott's incentive
compensation is two percent of the Company's earnings before interest and taxes,
not to exceed his annual base salary. In addition, the Compensation Committee
may grant Dr. Scott discretionary bonuses from time to time.
In its discretion, the Compensation Committee may award any incentive or
discretionary bonus compensation payable to Dr. Scott as an immediately payable
cash payment, a deferred cash payment or in nonqualified stock options. A range
of valuation for any such options will be established by the Compensation
Committee using the Black-Scholes or binomial pricing model, or other recognized
pricing model, or using the assumptions and specifications adopted by the SEC
which govern the disclosure of executive compensation in proxy statements and
other SEC filings. Any such options will expire after the earlier to occur of
the tenth anniversary of the termination of Dr. Scott's employment, the date of
Dr. Scott's 70th birthday or the expiration of the maximum term of such options
set forth in the stock option plan pursuant to which such options are granted.
In the event of Dr. Scott's disability prior to the age of 70, he would be
entitled to base compensation, incentive compensation and bonus compensation for
twelve months. The bonus compensation would equal the average of the bonus
compensation paid or payable to Dr. Scott during the thirty-six months preceding
the
11
<PAGE>
disability. The incentive compensation would equal the greater of (i) the
average of the incentive compensation paid or payable to Dr. Scott during the
thirty-six months preceding the disability or (ii) an amount equal to (x) 50% of
Dr. Scott's base salary for any year in which the Company's revenues and
operating profits increased 12% over the prior year, (y) 75% of Dr. Scott's base
salary if the Company's annual revenues and operating profits increased 17% over
the prior year or (z) 100% of Dr. Scott's base salary if the Company's annual
revenues and operating profits increased 22% over the prior year. If the
disability is continuous for a period of twelve consecutive months, Dr. Scott
would be entitled to receive 75% of his base salary and the averages of both
incentive compensation and bonus compensation paid or payable during the
thirty-six months preceding the disability, which amount shall be increased by
five percent annually. In the event of Dr. Scott's death prior to age 70, his
surviving spouse (or his estate in the event of her death or remarriage) would
be entitled to receive for ten years an amount equal to Dr. Scott's base salary
and the average of both incentive compensation and bonus compensation paid or
payable during the thirty-six month period preceding death, which amount shall
be increased by five percent annually.
If the Company terminates Dr. Scott without cause, Dr. Scott would be
entitled to receive for the remainder of the then existing five-year term of the
agreement his base salary and the averages of both incentive compensation and
bonus compensation paid or payable during the thirty-six months preceding
termination, which amount shall be increased by five percent annually. In the
event that Dr. Scott terminates his employment agreement as a result of the
Company's material breach thereof, which breach remains uncured for 60 days
after written notice, Dr. Scott would be entitled to receive compensation equal
to that payable to him upon termination by the Company without cause.
OTHER AGREEMENTS
Dr. Scott is the beneficial owner of all of the outstanding shares of
common stock of American Alliance Holding Company ('Alliance'). The Company has
entered into various transactions and has continuing relationships with Alliance
and its affiliates, Century (as defined above) and Medical Risk Prevention
Consultants, Inc. ('MRPC') and other affiliates thereof. These transactions and
relationships, all of which have been approved by the Company's outside Audit
Committee and have been publicly disclosed, are described below.
Coastal and certain of its subsidiaries sublease office space in Durham,
North Carolina from Alliance under sublease agreements which are renewed
annually. The building is owned by Century, which leases the building to
Alliance. During the fiscal year ended December 31, 1995, the Company paid
Alliance approximately $745,000 under those subleases. Under the sublease
agreements, the Company is contingently liable to the holder of a first mortgage
on the property for the total rentals specified in the prime lease. The prime
lease commenced in August 1988 and has a fifteen-year term requiring minimum
lease payments of approximately $788,000 per year for years one through five,
$959,000 for years six through ten and $1,166,000 per year for years eleven
through fifteen.
Coastal paid approximately $2,330,000 in insurance premiums to Century for
professional liability insurance for itself and its subsidiaries for the fiscal
year ended December 31, 1995. The Company paid MRPC approximately $387,000 for
consulting services related to risk management assistance provided by the
Company to certain of its hospital clients for the fiscal year ended December
31, 1995. The Company received approximately $1,222,000 for certain computer,
financial, statistical and other advice and services provided to Alliance and
its subsidiaries for the fiscal year ended December 31, 1995.
The Company leases an office facility in Durham, North Carolina from
Chateau LLC, which is controlled by Dr. Scott. The Company paid approximately
$258,000 to Chateau LLC for the fiscal year ended December 31, 1995. The Company
also leases space in Rocky Mount, North Carolina from Durham Investment Corp.,
and in Ft. Lauderdale, Florida from Coral Ridge LP, which entities are
controlled by Dr. Scott. For the fiscal year ended December 31, 1995, the
Company paid approximately $90,000 to Durham Investment Corp. and $157,000 to
Coral Ridge LP. In addition, the Company leases a clinical facility in
Fayetteville, North Carolina from Sunco Properties, a general partnership in
which Dr. Scott and Dr. Walls each have a 50% interest. For the fiscal year
ended December 31, 1995, the Company paid Sunco Properties approximately
$68,000.
12
<PAGE>
From time to time during the fiscal year ended December 31, 1995, the
Company chartered two airplanes that are owned by Alliance Aviation, Inc.
('Alliance Aviation'), a wholly owned subsidiary of Alliance. Charter fees paid
by the Company to Alliance Aviation during the fiscal ended December 31, 1995
totaled approximately $848,000. On March 31, 1995, the Company purchased one of
the airplanes from Alliance Aviation for $6,600,000 (which purchase price was
based upon a third-party appraisal). The Coastal Board authorized the purchase
of the airplane on March 28, 1995. The Company subsequently sold the airplane
approximately thirteen months later to an unrelated third party for $6,200,000.
Except as aforesaid or in Appendix I hereto, none of Dr. Scott, the two
Scott Nominees, nor any of their respective affiliates or associates (including
Scott Medical), directly or indirectly, beneficially owns any shares of Common
Stock of the Company or any securities of any parent or subsidiary of the
Company, has had any relationship with the Company in any capacity other than as
a shareholder, or, in the case of Dr. Scott, as a director, nor is a party to
any transactions, or series of similar transactions, since January 1, 1995, nor
is any currently proposed transaction known to any of them, or series of similar
transactions, to which the Company or any of its subsidiaries was or is to be a
party, in which the amount involved exceeds $60,000 and in which any of them or
their respective affiliates or associates had, or will have, a direct or
indirect material interest, nor has Dr. Scott, nor any Scott Nominee, nor any of
their respective affiliates or associates, entered into any agreement or
understanding with any person respecting any future employment by the Company or
its affiliates or any future transactions to which the Company or any of its
affiliates will or may be a party. Other than the agreements by the two Scott
Nominees to serve as directors of the Company if elected, or as described above,
there are no contracts, arrangements or understandings by Dr. Scott, any Scott
Nominee or any of their respective affiliates or associates within the past year
with any person with respect to the Company's securities.
PROXY SOLICITATION; EXPENSES
Dr. Scott and the two Scott Nominees may solicit proxies by mail,
telephone, in person or by other means.
The total cost of this proxy solicitation (including fees of attorneys,
solicitors and advertising and printing expenses) will be paid by Dr. Scott, and
is estimated to be approximately $450,000. Approximately $125,000 of such costs
have been paid to date. To the extent legally permissible and consistent with
the Company's loan agreements, Dr. Scott intends to seek reimbursement from the
Company for the costs of this solicitation. Dr. Scott does not currently intend
to submit approval of such reimbursement to a vote of shareholders of the
Company unless required by law.
Dr. Scott has retained Georgeson & Company, Inc. ('Georgeson') to assist in
the solicitation of proxies for a fee of $35,000 and will reimburse Georgeson
for reasonable out-of-pocket expenses. Dr. Scott will indemnify Georgeson
against certain liabilities and expenses in connection with the solicitation.
Approximately 20 persons will be utilized by Georgeson in its solicitation
efforts, which may be made by telephone, facsimile, telegram and in person.
13
<PAGE>
ADDITIONAL INFORMATION
Reference is made to the Management Proxy Statement for information concerning
the Common Stock, the beneficial ownership of such stock, other information
concerning the Company's management, the procedures for submitting proposals for
consideration at the next Annual Meeting of Shareholders of the Company and
certain other matters regarding the Company and the Meeting. The Company also is
required to provide to shareholders its Annual Report to Shareholders for the
year ended December 31, 1995, which contains certain information as to the
Company's financial condition and other matters.
Durham, North Carolina
August 8, 1996
STEVEN M. SCOTT, M.D.
IF YOU HAVE ANY QUESTIONS OR REQUIRE ASSISTANCE, PLEASE CONTACT:
GEORGESON & COMPANY, INC.
WALL STREET PLAZA
NEW YORK, NEW YORK 10005
TOLL FREE: (800) 223-2064
14
<PAGE>
APPENDIX I
PURCHASES AND SALES OF SECURITIES OF THE COMPANY
The following table sets forth all purchases and sales of the Company's
Common Stock during the past two years by Dr. Scott:
<TABLE>
<CAPTION>
DATE TYPE OF TRANSACTION NUMBER OF SHARES
-------- ------------------- ----------------
<S> <C> <C>
11/30/94 Purchase 100
</TABLE>
<PAGE>
STEVEN M. SCOTT, M.D.
3711 STONEYBROOK DRIVE O DURHAM, NORTH CAROLINA 27705
August 8, 1996
Dear Fellow Shareholder:
As shareholders of Coastal Physician Group, Inc., all of us now have the
unique opportunity to help protect and increase the value of our investment. I
am the single largest shareholder of Coastal, owning about 30% of its stock, and
I am very concerned about the CONTINUED EROSION OF THE VALUE OF OUR COMPANY AND
THE DEPRESSED MARKET PRICE OF OUR SHARES. On August 7, 1996, Coastal stock
closed at $4 5/8 and our shares traded as low as $4 as recently as July 29,
1996. I am convinced that something must be done now.
VOTE TO MAXIMIZE SHAREHOLDER VALUE--NOW!
Coastal's current management appears unwilling or unable to address the
problem. They are not prepared to make the hard choices which I believe are
necessary to safeguard our investment.
There is still time to act, but we must move promptly and decisively. I am
asking for your support in electing two new independent directors to serve with
me on the Coastal Board. These two nominees, Mitchell W. Berger and Henry J.
Murphy, join in my commitment to take PROMPT ACTION TO MAXIMIZE SHAREHOLDER
VALUE--AND WE BELIEVE THAT IMMEDIATE CONSIDERATION SHOULD BE GIVEN TO SELLING
THE COMPANY IN ITS ENTIRETY.
In particular, they have pledged to support the Maximize Value Resolution
which appears as Item 2 on the enclosed BLUE proxy card. I strongly urge you to
vote FOR the election of these two new directors and FOR the Maximize Value
Resolution.
This Resolution calls on the Board to immediately establish a Shareholder
Value Committee consisting of four independent, non-management directors, and
requests that Committee to determine the best and most expeditious way to
maximize shareholder value. My two nominees and I believe that the best way to
maximize value may very well be to sell the Company in its entirety.
MANAGEMENT'S RESPONSE: TOO LITTLE, TOO LATE
Management's response to the continuing decline in the value of our shares
has been weak and ineffective--a classic case of too little, too late. Late in
the day on July 9, 1996,
<PAGE>
Coastal announced its intention to dispose of certain non-strategic assets. This
would be done on a piecemeal basis over what I believe would be a substantial
period of time. Following this announcement, COASTAL STOCK DECLINED STEADILY,
from a closing price of $7 on July 9 to an intra-day low of $4 on July 29--a
decline of 43%. On August 7, Coastal's stock closed at $4 5/8.
A piecemeal sale of non-strategic assets over what I believe would be a
substantial period of time is not, in my view, the answer to the problem--and I
think it is clear that the marketplace has had the same reaction. WHILE
MANAGEMENT'S PROGRAM WOULD ALLOW MANAGEMENT TO PRESERVE THEIR POSITIONS AT
COASTAL AND THEIR GENEROUS COMPENSATION PACKAGES, I BELIEVE THERE WILL BE LITTLE
IF ANY BENEFIT FOR US AS SHAREHOLDERS.
THE ISSUES ARE CLEAR
The points of dispute which I have with management--and the issues for you
to consider--are clear and well-defined. MY INTEREST, LIKE YOURS, IS THE
MAXIMIZATION OF SHAREHOLDER VALUE. I believe that immediate consideration should
be given to selling Coastal in its entirety. I am asking you to vote FOR my two
nominees and FOR the Maximize Value Resolution.
Management, on the other hand, wants to push ahead with its program to sell
non-strategic assets on a piecemeal basis over a period of time, and wants you
to vote for a Management Resolution which endorses its position. I oppose the
Management Resolution and urge you to vote AGAINST it.
Your vote can help decide the future direction of Coastal and the future
value of all of our shares.
A WORD OF CAUTION
In what I believe is an effort to deflect attention from the very real
issues concerning the future of Coastal, management already has begun to attack
me, and I expect they will pursue an 'attack' campaign in which they will try to
blame me for the Company's problems. But the issues facing us all today are far
too important to permit these types of tactics to succeed. What is important is
the future of our investment as shareholders of Coastal. I intend to address
these issues on the merits in the coming weeks, and I ask management to do the
same.
2
<PAGE>
You can let management and the Board of Directors know that you want to
maximize shareholder value now by signing, dating and returning the enclosed
BLUE proxy card. I urge you to vote FOR the election of Messrs. Berger and
Murphy (Item 1 on the BLUE proxy card), FOR the Maximize Value Resolution (Item
2 on the BLUE proxy card) and AGAINST the Management Resolution (Item 3 on the
BLUE proxy card). If you have any questions or need assistance in voting your
shares, please call the company assisting me in soliciting proxies, Georgeson &
Company Inc., toll-free, at 1-800-223-2064. Also, please feel free to drop me a
note at the address set forth at the top of the first page of this letter, and I
would be pleased to contact you directly if you want.
I thank you for your consideration and support.
Sincerely,
Steven M. Scott, M.D.
If your shares of Common Stock are held in the name
of a bank or brokerage firm, only that firm can execute
a proxy card on your behalf. Please contact the person
responsible for your account and give instructions for a
BLUE PROXY CARD TO BE VOTED FOR PROPOSALS 1, 2 AND 4
AND AGAINST PROPOSAL 3.
If you have questions or need assistance in voting your shares, please
contact the firm assisting us in the solicitation of proxies:
GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NEW YORK 10005
TOLL FREE: 1-800-223-2064
BANKS & BROKERS CALL: 212-440-9800
3
(FORM OF PROXY CARD)
PROXY
CARD PROXY SOLICITED BY DR. STEVEN M. SCOTT
IN OPPOSITION TO THE BOARD OF DIRECTORS
OF COASTAL PHYSICIAN GROUP, INC.
The undersigned hereby appoints Dr. Steven M. Scott and
Mr. David Plyler, and each of them, the proxy or proxies of the
undersigned, with full power of substitution, to vote all shares
of Common Stock, par value $.01 per share, of Coastal Physician
Group, Inc. (the "Company") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company scheduled to be held on September 27, 1996,
or any other shareholders' meeting held in lieu thereof, and at any
and all adjournments, postponements, reschedulings or continuations thereof.
DR. SCOTT RECOMMENDS A VOTE FOR ITEM 1.
---
1. Election of Directors:
a. Scott Nominees:
/ / FOR all nominees / / WITHHOLD AUTHORITY
listed below: to vote for all
nominees listed
below:
Mitchell W. Berger and Henry J. Murphy
(To withhold authority to vote for any individual nominee above,
check the "FOR" box above and write that nominee's name on
the line provided below.)
-------------------------
b. Company Nominees:
The Company is nominating three people to serve as
directors. Dr. Scott intends to use this proxy to vote FOR one
of the individuals nominated by the Company, and AGAINST the
other two Company nominees whose names are listed below.
You may withhold authority to vote for the one Company nominee not
listed on this proxy, by writing the name of such nominee below. You
<PAGE>
should refer to the Proxy Statement distributed by the Company
for the names, backgrounds, qualifications and other information
concerning the Company's nominees. There is no assurance that any
of the Company's nominees will serve as directors if any of
Dr. Scott's nominees are elected to the Company Board.
The Company nominees with respect to whom Dr. Scott is
NOT seeking authority to vote for and WILL NOT exercise any
such authority are:
Robert V. Hatcher, Jr. and Joseph G. Piemont (or such other
person as may be nominated by the Company Board in lieu of Mr. Piemont).
In order to withhold authority to vote for the election
of the Company nominee whose name is not listed above, write
such Company nominee's name on the line provided below.
-------------------------
(Continued and to be signed and dated on the reverse side.)
<PAGE>
(REVERSE)
DR. SCOTT RECOMMENDS A VOTE FOR ITEM 2.
---
2. Dr. Scott's Maximize Value Resolution as more fully de-
scribed in Dr. Scott's Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
DR. SCOTT RECOMMENDS A VOTE AGAINST ITEM 3.
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3. Coastal's Management Resolution as more fully described in
Dr. Scott's Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
DR. SCOTT RECOMMENDS A VOTE FOR ITEM 4.
---
4. Ratification of the Appointment of KPMG Peat Marwick LLP.
/ / FOR / / AGAINST / / ABSTAIN
The proxies are hereby authorized to vote in their discretion
upon all other matters which may properly come before the Meeting
or any adjournments, postponements, reschedulings or continuations
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION
IS INDICATED, IT WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES LISTED IN ITEM 1a AND FOR THE ELECTION OF THE
COMPANY NOMINEE WHOSE NAME IS NOT LISTED IN ITEM 1b,
FOR THE ADOPTION OF THE RESOLUTION DESCRIBED IN ITEM 2,
AGAINST THE ADOPTION OF THE RESOLUTION DESCRIBED IN ITEM
3, FOR THE RATIFICATION OF INDEPENDENT ACCOUNTANTS
DESCRIBED IN ITEM 4, AND IN THE DISCRETION OF THE
PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENTS, POSTPONEMENTS,
RESCHEDULINGS OR CONTINUATIONS THEREOF.
The undersigned hereby acknowledges receipt of the
Proxy Statement of Dr. Scott.
DATED: _____________________, 1996
Signature: _____________________________
Signature, if held jointly:
________________________________________
Title or Authority: ____________________
Please sign exactly as your name appears
on this proxy. Joint owners should each
sign personally. If signing as attorney,
executor, administrator, trustee or
guardian, please include your full title.
Corporate proxies should be signed by an
authorized officer.
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
