<PAGE>
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
(X ) Filed by the Registrant
( ) Filed by a Party other than the Registrant
Check the appropriate box:
(X ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-b(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to (section mark)240.14a-11(c) or
(section mark)240.14a-12
Coastal Physician Group, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement If Other Than Registrant)
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(i)(2).
(X ) $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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: *
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(Set forth the amount on which the filing fee is calculated and state how
it was determined)
( ) 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: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
(Logo appears here) COASTAL PHYSICIAN GROUP, INC.
2828 CROASDAILE DRIVE
DURHAM, NORTH CAROLINA 27705
, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders to be held at on day,
, 1996, at 9:00 a.m., local time.
The Notice of Annual Meeting of Shareholders and Proxy
Statement are attached hereto. The matters to be acted upon by our
shareholders are set forth in the Notice of Annual Meeting of
Shareholders and discussed in the Proxy Statement.
We would appreciate your signing, dating and returning the
enclosed proxy card in the envelope provided at your earliest
convenience. If you choose to attend the meeting, you may revoke
your proxy and personally cast your votes.
We look forward to seeing you at our Annual Meeting.
Sincerely yours,
Jacque J. Sokolov, M.D. Joseph G. Piemont
Chairman President and Chief Executive Officer
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING WHITE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING.
<PAGE>
PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
COASTAL PHYSICIAN GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
TO THE SHAREHOLDERS
OF COASTAL PHYSICIAN GROUP, INC.
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Coastal Physician Group, Inc., a Delaware corporation (the "Company"), will be
held at 9:00 a.m., local time, on , 1996, at
for the following purposes:
(1) To elect three members to the Company's Board of Directors to hold
office until the 1999 Annual Meeting or until their successors are duly
elected and qualified;
(2) To ratify the action of the Board of Directors in selecting KPMG
Peat Marwick LLP as independent certified public accountants of the Company
for the fiscal year ending December 31, 1996; and
(3) To transact such other business as may properly come before the
Annual Meeting.
The Board of Directors has fixed the close of business on ,
1996 as the record date for determining those shareholders entitled to notice
of, and to vote at, the Annual Meeting and any adjournments or postponements
thereof.
Whether or not you expect to be present, please sign, date and return the
enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors,
Joseph G. Piemont
President and Chief Executive Officer
Durham, North Carolina
, 1996
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING WHITE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING.
<PAGE>
PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
1996 ANNUAL MEETING OF SHAREHOLDERS
OF COASTAL PHYSICIAN GROUP, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Coastal Physician Group, Inc., a Delaware corporation
(the "Company"), of proxies from the holders of the Company's Common Stock (the
"Common Stock") for use at the 1996 Annual Meeting of Shareholders of the
Company to be held at , at 9:00 a.m., local time,
on , 1996 or at any adjournments or postponements thereof (the
"Annual Meeting"). The approximate date that this Proxy Statement and the
enclosed form of proxy are first being sent or given to holders of Common Stock
is , 1996. Shareholders should review the information provided
herein in conjunction with the Company's 1995 Annual Report to Shareholders. The
Company's principal executive offices are located at 2828 Croasdaile Drive,
Durham, North Carolina 27705, and its telephone number is (919) 383-0355.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Board of Directors. The
giving of a proxy does not preclude the right to vote in person should any
shareholder giving the proxy so desire. THE BOARD URGES YOU TO COMPLETE, SIGN,
DATE AND RETURN THE WHITE PROXY CARD IN THE ENCLOSED WHITE ENVELOPE.
Shareholders have a right to revoke their proxy at any time prior to the
exercise thereof, either in person at the Annual Meeting or by filing with the
Company's Secretary at the Company's principal executive offices a written
revocation or duly executed proxy bearing a later date; however, no such
revocation will be effective until written notice of the revocation is received
by the Company at or prior to the Annual Meeting.
DO NOT SIGN ANY PROXY CARD SENT TO YOU BY DR. STEVEN SCOTT. IF YOU HAVE
ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY BY DELIVERING A
WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY CARD IN THE ENCLOSED
ENVELOPE.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE,
ONLY YOUR BANK OR BROKER CAN VOTE YOUR SHARES AND ONLY UPON YOUR SPECIFIC
INSTRUCTIONS. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND
INSTRUCT HIM OR HER TO VOTE THE WHITE PROXY CARD AS SOON AS POSSIBLE.
Remember, it will not help to return a proxy card to Dr. Scott marked
"withhold." The only way to support the Board's nominee's is to vote "FOR" those
nominees on the WHITE proxy card.
If you have any questions or need further assistance in voting your shares,
please call:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (COLLECT)
OR
CALL TOLL FREE 1-800-322-2885
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and vote
upon the following matters:
(1) The election of three members to the Board of Directors to serve
until the 1999 Annual Meeting or until their successors are duly elected
and qualified;
(2) The proposal to ratify the action of the Board of Directors in
selecting KPMG Peat Marwick LLP as independent certified public accountants
of the Company for the fiscal year ending December 31, 1996; and
(3) Such other business as may properly come before the Annual
Meeting.
1
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Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation will
be voted in favor of the election of the three nominees named herein and in
favor of the other proposal set forth herein. In the event a shareholder
specifies a different choice by means of the enclosed proxy, his or her shares
will be voted in accordance with the specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on ,
1996 as the record date (the "Record Date") for determining shareholders of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were shares of Common Stock outstanding, all
of which are entitled to one vote per share on all matters to be acted upon at
the Annual Meeting.
The representation in person or by proxy of a majority of the issued and
outstanding shares of Common Stock entitled to vote is necessary to provide a
quorum at the Annual Meeting. Directors of the Company are elected by a
plurality vote. Approval of Proposal 2 requires the affirmative vote of the
holders of a majority of the shares of Common Stock present in person or
represented by proxy and entitled to vote. With respect to the election of
directors, votes may be cast in favor of nominees or withheld. Withheld votes
will be excluded entirely from the vote and will have no effect thereon.
Abstentions may be specified with respect to Proposal 2 and will be counted as
present for purposes of that proposal. Since Proposal 2 requires the approval of
a majority of the shares present and entitled to vote, abstentions will have the
practical effect of a negative vote on that proposal. Pursuant to Delaware law,
broker nonvotes are treated as shares as to which voting power has been withheld
by the beneficial owners thereof and, therefore, as shares not entitled to vote.
Thus, although broker nonvotes on Proposal 2 will have no effect on the vote for
that proposal, they have the practical effect of reducing the number of
affirmative votes required to approve that proposal by reducing the total number
of shares entitled to vote thereon.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Except as indicated under "Security Ownership of Management," the following
is the only shareholder known to the Company to be the beneficial owner of more
than five percent of the Common Stock as of May 31, 1996:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
<S> <C> <C>
Heartland Advisors, Inc................................................... 2,567,050(1) 10.8%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
(1) Includes 2,319,450 shares with respect to which the shareholder has voting
and investment power and 247,600 shares with respect to which the
shareholder has investment power only.
2
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of May 31, 1996 by: (i) each
director and nominee for director of the Company; (ii) each executive officer
named in the Summary Compensation Table; and (iii) all directors and executive
officers of the Company as a group. Except as otherwise indicated, each
shareholder named has sole voting and investment power with respect to such
shareholder's shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OWNERSHIP COMMON STOCK(1)
<S> <C> <C>
Steven M. Scott, M.D................................................................... 7,146,193(2) 29.92%
Bertram E. Walls, M.D.................................................................. 404,235(3) 1.69
Jacque J. Sokolov, M.D................................................................. 83,423(4) *
John A. Hemingway...................................................................... 79,903(5) *
David W. Singley, Jr................................................................... 5,775(6) *
Robert V. Hatcher, Jr.................................................................. 16,808(7) *
Stephen D. Corman...................................................................... 10,138(8) *
John P. Mahoney, M.D................................................................... 4,090(9) *
Richard Janeway, M.D................................................................... 11,451(10) *
Norman H. Chenven, M.D................................................................. -- *
All directors and executive officers as a group (14 persons)........................... 7,803,460(11) 32.67%
</TABLE>
(1) An asterisk (*) indicates less than one percent.
(2) Includes 6,342,318 shares held by Scott Medical Partners, L.P., of which
Dr. Scott is the sole general partner. Also includes 556,061 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 shares. Voting power with respect to the
remaining 145,100 shares is held by Dr. Walls, as trustee of the trusts.
Also includes 66,000 shares held by a foundation and 61,714 shares held by
two charitable remainder unitrusts with respect to which Dr. Scott shares
voting and investment power. Also includes 120,000 shares held by Century
American Insurance Company ("Century Insurance") over which Dr. Scott may
be deemed to share voting and investment power. Dr. Scott disclaims
beneficial ownership of the shares held by Century Insurance. The remaining
100 shares are held directly by Dr. Scott. Dr. Scott's address is 3711
Stoneybrook Drive, Durham, North Carolina 27705. The foregoing information
is taken from preliminary proxy materials filed with the Securities and
Exchange Commission by Dr. Scott.
(3) Includes 145,100 shares with respect to which Dr. Walls has voting power
and Dr. Scott has investment power. Such shares also are included under the
beneficial ownership of Dr. Scott. Also includes 248,915 shares held by
certain trusts established for the benefit of Dr. Scott's children with
respect to which Dr. Walls, as trustee, holds voting and investment power.
Includes 4,000 shares subject to presently exercisable stock options and
4,220 shares reserved for issuance under the Deferred Compensation Plan for
Outside Directors (the "Deferred Compensation Plan").
(4) Includes 3,000 shares subject to presently exercisable stock options and
696 shares reserved for issuance under the Deferred Compensation Plan.
(5) Includes 20,345 shares subject to presently exercisable stock options.
(6) Includes 665 shares owned by Mr. Singley's wife.
(7) Includes 8,000 shares subject to presently exercisable stock options, 5,608
shares reserved for issuance under the Deferred Compensation Plan and 300
shares owned by Mr. Hatcher's wife. Mr. Hatcher disclaims beneficial
ownership of the shares held by his wife.
(8) Includes 5,000 shares subject to presently exercisable stock options and
2,438 shares reserved for issuance under the Deferred Compensation Plan.
(9) Includes 4,090 shares reserved for issuance under the Deferred Compensation
Plan.
(10) Includes 6,000 shares subject to presently exercisable stock options and
4,251 shares reserved for issuance under the Deferred Compensation Plan.
(11) Includes 66,690 shares subject to presently exercisable stock options and
21,303 shares reserved for issuance under the Deferred Compensation Plan.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
THE COMPANY'S NOMINEES
The Company's Certificate of Incorporation and Bylaws provide for nine
directors of whom one-third are elected each year to serve for three-year terms.
Each director elected at the Annual Meeting will serve for a term expiring at
the 1999 Annual Meeting of Shareholders, or until his successor has been duly
elected and qualified. The Company's Board of Directors has nominated Norman H.
Chenven, M.D., Robert V. Hatcher, Jr. and Richard Janeway, M.D. for election for
terms expiring in 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE
ABOVE-NAMED NOMINEES FOR ELECTION AS DIRECTORS.
Each of the Board's nominees is a current member of the Board of Directors.
See "Executive Officers and Directors." The Board of Directors has no reason to
believe that any of its nominees will refuse to act or be unable to accept
election; however, in the event that any such nominee is unable to accept
election or if any unforeseen contingencies should arise, it is intended that
proxies will be voted for the remaining nominees, if any, and for such other
person or persons as may be designated by the Board of Directors, unless it is
directed by a proxy to do otherwise.
OTHER NOMINEES
Any shareholder who is a shareholder on the Record Date and at the time of
giving the Notice (as defined below) may nominate a person or persons for
election to the Board of Directors provided that shareholder complies with the
following procedures. Written notice of the shareholder's intent to submit a
nomination at the Annual Meeting must be delivered to the Secretary of the
Company not later than the close of business on (the "Notice").
The Notice must set forth (i) as to each proposed nominee, all information
relating to such person that is required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to be disclosed in solicitations of
proxies for election of directors; (ii) each nominee's written consent to be
named as a nominee and to serve if elected; (iii) the name and address of the
nominating shareholder as they appear on the Company's books and records; (iv)
the number of shares of Common Stock owned by the nominating shareholder; (v) a
description of all arrangements or understandings between the nominating
shareholder and each nominee or any other person pursuant to which the
nomination is to be made by the nominating shareholder. Nominating shareholders
also must comply with all applicable requirements of the Exchange Act and the
regulations promulgated thereunder with respect to a nomination submitted
pursuant to the Notice. If the chairman of the Annual Meeting determines and
declares that the nominating shareholder has not complied with this procedure,
the nomination will not be accepted.
On July 9, 1996, Steven M. Scott, M.D., a director and shareholder of the
Company, announced his intention to solicit proxies in support of the election
of two new directors at the 1996 Annual Meeting. As of July 10, 1996, the
Company has not received the required Notice of such nominations.
Until May 29, 1996, Dr. Scott was the President and Chief Executive Officer
of the Company. Pursuant to resolutions adopted by the Board of Directors on May
29, 1996, Dr. Scott has been placed on a sabbatical leave of absence through
December 31, 1996. Joseph G. Piemont, formerly Executive Vice President and
General Counsel of the Company, has been appointed by the Board to serve as
President and Chief Executive Officer. Dr. Scott continues to serve as a
director of the Company.
4
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company and executive officers of
subsidiaries of the Company who have significant policy-making authority:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Joseph G. Piemont 41 President and Chief Executive Officer
Jacque J. Sokolov, M.D. (1)(2)(5) 41 Chairman of the Board; Chief Executive Officer, Advanced Health Plans, Inc.
Steven M. Scott, M.D. 48 Director
Stephen D. Corman (1) 53 Director, Executive Vice President and Chief Financial Officer
Robert V. Hatcher, Jr. (3)(4)(5) 65 Director
John A. Hemingway (1) 60 Vice Chairman of the Board, Senior Executive Vice President and Secretary;
Chairman of the Board, Coastal Physician Services, Inc.
Richard Janeway, M.D. (3)(4)(5) 63 Director
John P. Mahoney, M.D. (1)(2)(5) 47 Director
Bertram E. Walls, M.D. (2) 44 Director
Norman H. Chenven, M.D. (2)(5) 50 Director
John G. Ball 57 President, Coastal Physician Services, Inc.
Timothy W. Trost 38 Vice President, Corporate Controller and Chief Accounting Officer
</TABLE>
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Nominating Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
(4) Member of the Compensation Committee of the Board of Directors.
(5) Member of the Management Plan Committee of the Board of Directors. Dr.
Sokolov serves as chairman and a nonvoting member of this committee.
Mr. Piemont was appointed President and Chief Executive Officer on May 29,
1996 after serving as Senior Vice President and General Counsel of the Company
from August 1993 to May 1995, when he was promoted to Executive Vice President.
Mr. Piemont was General Counsel of Amresco Holdings, Inc. ("Amresco"), a
financial services company and former subsidiary of NationsBank Corporation,
from 1992 until joining the Company. Prior to his association with Amresco, Mr.
Piemont was Associate General Counsel of NationsBank of Texas, N.A. Mr. Piemont
is a member of the North Carolina and American Bar Associations and received a
B.A. degree in Economics from the University of North Carolina at Charlotte and
a J.D. degree from Emory University Law School.
Dr. Sokolov has been Chairman of the Board since December 1, 1994. He is
the founder and Chief Executive Officer of Advanced Health Plans, Inc., which
became a subsidiary of the Company in November 1994. Dr. Sokolov received a B.A.
degree in medicine from the University of Southern California and an M.D. with
honors from the University of Southern California School of Medicine. He
completed his internal medicine residency at the Mayo Graduate School of
Medicine and his fellowship in cardiovascular diseases from the University of
Texas -- Southwestern Medical School. Dr. Sokolov previously held and currently
holds academic appointments and advisory board responsibilities, including
positions in the Schools of Medicine, Management, Public Health and Pharmacy at
Harvard University, the Massachusetts Institute of Technology, the University of
Pennsylvania, the University of California at Los Angeles, the University of
Southern California and the Wharton School of the University of Pennsylvania. He
serves on the boards of the Washington Business Group on Health, the National
Fund for Medical Education, the National Health Foundation and California Health
Decisions. Dr. Sokolov also serves on the advisory boards of the National Health
Policy Council, the National Resource Center on Worksite Promotion, the White
House Health Project and the Health Care Advisory Committee for California
Insurance Commissioner John Garamedi.
Dr. Scott has been a director of the Company since its formation in 1977.
Dr. Scott served as Chairman of the Board of Directors from 1977 to December 1,
1994, and as President and Chief Executive Officer of the Company from 1977 to
May 29, 1996. As noted above, on May 29, 1996, Dr. Scott was placed on
sabbatical leave of absence from his positions as President and Chief Executive
Officer. Dr. Scott has obstetrics and gynecology practice experience and
clinical and administrative emergency department experience. He is
board-certified in obstetrics and gynecology and is a member of the clinical
faculty at Duke University Medical Center. Dr. Scott received his undergraduate
degree and medical education from Indiana
5
<PAGE>
University. Dr. Scott completed his residency in the Department of Obstetrics
and Gynecology at Duke University Medical Center.
Mr. Corman became Chief Financial Officer in May 1995 and has been a
director since 1991. He was a director and Vice President of Finance of
Burroughs Wellcome Co., a pharmaceutical company, from 1986 to 1995 and its
Chief Financial Officer from 1989 to 1995. Mr. Corman worked for Burroughs
Wellcome Co. from 1975 to 1995 and, in addition to the positions previously
described, held positions as Assistant to the Controller, Assistant to the
Treasurer, Controller and Treasurer. Previously, he was Treasurer and Chief
Financial Officer of Cooper U.S.A., Inc., a pharmaceutical company, and senior
auditor for the accounting firm of Price Waterhouse LLP ("Price Waterhouse").
Mr. Corman received a B.S. degree in Accounting from Indiana University and is a
member of several professional associations, including the American Institute of
Certified Public Accountants, the North Carolina Association of Certified Public
Accountants, the Tax Executives Institute and the Financial Executives
Institute.
Mr. Hatcher has been a director since 1991. He was Chief Executive Officer
of Johnson & Higgins, a provider of insurance consulting and brokerage services,
from 1981 until his retirement in 1990, and its Chairman from 1982 until his
retirement. While with Johnson & Higgins from 1968 until 1981, Mr. Hatcher held
the positions of President and Chief Operating Officer. Mr. Hatcher received a
B.A. degree in Economics from the University of Virginia in 1953. He is
currently a director of Media General, Inc., a diversified media company.
Mr. Hemingway, a director since 1982, has been Vice Chairman of the Board
of Directors since 1987. Mr. Hemingway also serves as Senior Executive Vice
President of the Company and served as Chief Executive Officer of Coastal
Physician Services, Inc. ("CPS"), a subsidiary of the Company, from January 1996
to May 1996, when he was named Chairman of the Board of CPS. From 1992 to 1993,
Mr. Hemingway served as President of Coastal Physician Contract Services Group,
Inc. From 1990 to 1992, he served as President of Coastal Emergency Services
Management Group, Inc. From 1983 to 1990, he served as the Company's Senior Vice
President of New Business Development. Previously, he was Executive Vice
President and Chief Operating Officer of Liggett & Myers International, Inc.,
where he worked for 19 years. Mr. Hemingway received a B.A. degree from Duke
University.
Dr. Janeway, a director since April 1994, has been a member of the faculty
since 1966 and a Professor of Neurology since 1971 of The Bowman Gray School of
Medicine of Wake Forest University. He served as Vice President for Health
Affairs of Wake Forest University from 1983 until 1990, Dean of the Bowman Gray
School from 1971 until 1994 and has served as Executive Vice President for
Health Affairs of Wake Forest University since 1990. He is a director of
Southern National Corporation, the bank holding company for Branch Banking and
Trust Company, which is a participating lender under the Company's senior credit
facility. Dr. Janeway received his undergraduate degree from Colgate University
and his medical degree from the University of Pennsylvania School of Medicine.
Dr. Mahoney, a director since December 1994, served as Chief Executive
Officer of Health Enterprises, Inc. from 1987 until it was acquired by the
Company in November 1994. Dr. Mahoney served as President and Chief Executive
Officer of Healthplan Southeast, Inc., a subsidiary of the Company, from
December 1994 through December 1995. In December 1995, he returned to private
practice as a board-certified pathologist. Through 1994, Dr. Mahoney was
employed on a part-time basis by Health Enterprises, Inc. while maintaining his
private practice as a board-certified pathologist with Ketchum, Wood, Burgert,
Chartered d/b/a Pathology Associates. In addition to his medical degree, Dr.
Mahoney holds a Masters of Business Administration degree from the University of
South Florida.
Dr. Walls, a director since 1991, was President of Coastal Physician
Contract Services Group, Inc. from January through December 1994. Effective
January 1, 1995, Dr. Walls became the President of Century Insurance. From 1992
to 1993, Dr. Walls was the President of Sunlife OB/GYN Services, Inc., a
subsidiary of the Company, as well as its Chief Medical Officer from 1991 to
1993. From 1981 through 1990, Dr. Walls was in the private practice of
obstetrics and gynecology with Valley Women's Center, P.A. in Fayetteville,
North Carolina. He is board certified in obstetrics and gynecology and is a
member of the clinical faculty at Duke University Medical Center. Dr. Walls
received a B.S. degree in Science from North Carolina A&T State University and
his medical degree from Duke University. He completed his residency in
obstetrics and gynecology at Duke University Medical Center.
Dr. Chenven became a director of the Company on September 1, 1995. Dr.
Chenven is the founder, President and Chief Executive Officer of Austin Regional
Clinic, P.A. ("ARC"). Dr. Chenven is board-certified in family practice and
received his medical degree from State University of New York, Brooklyn, New
York. Dr. Chenven is active with the Travis County Medical Society and the Texas
Medical Association ("TMA"). He has served on TMA's Special Committee on Health
System Reform and is currently an advisor to TMA's Physician Service
Organization.
6
<PAGE>
Dr. Ball became President of CPS on May 22, 1996. Since 1989, Dr. Ball has
been a principal of High Performance Partners, a firm providing financial,
strategic planning, marketing and turnaround advisory services and interim
management to a variety of public and private companies. Dr. Ball received a
B.S. degree in chemical engineering from Louisiana Tech University, a Ph.D. in
chemical engineering from the University of Texas, a M.B.A. from the University
of Richmond, and a M.S. in organizational behavior from Carnegie Mellon
University.
Mr. Trost joined the Company as Vice President of Corporate Development in
March 1994 and was named Vice President, Corporate Controller and Chief
Accounting Officer in January 1996. Prior to joining the Company, Mr. Trost
served since 1992 as Vice President of Finance/Controller for Morganite North
America Inc., the U.S. holding company of The Morgan Crucible Company plc, a
manufacturer of specialized materials and components. Prior to that, Mr. Trost
spent a total of 12 years (in four offices) with the accounting firm of Price
Waterhouse. Mr. Trost received a B.S. degree in Accounting from the University
of Illinois at Urbana-Champaign, is a certified public accountant, and is a
member of the American Institute of Certified Public Accountants and the North
Carolina Association of Certified Public Accountants.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1995, the Company's Board of Directors held 11 meetings and took
certain actions by unanimous written consent. Dr. Chenven, who became a director
during the third quarter of 1995, Dr. Walls and Mr. Hatcher were the only
incumbent directors who attended fewer than 75% of the Board of Directors and
assigned committee meetings held during 1995.
Dr. Scott, Mr. Hemingway and Dr. Walls served as members of the Executive
Committee during 1995. The Executive Committee is authorized to exercise the
authority of the Board of Directors. The Executive Committee did not meet during
1995 but took action by unanimous written consent eight times during the year.
On May 29, 1996, the Executive Committee was expanded to four members and Drs.
Sokolov and Mahoney and Messrs. Hemingway and Corman were appointed to the
committee.
Mr. Hatcher and Dr. Janeway served as members of the Audit Committee during
1995. Until becoming Chief Financial Officer in May 1995, Mr. Corman also served
as a member of this committee. The principal functions of this committee are to
make recommendations to the Board of Directors with respect to the selection of
the Company's independent certified public accountants, to review the Company's
internal controls and confer with and make recommendations to the Company's
independent certified public accountants concerning the scope and results of
their audit. The Audit Committee met five times during 1995.
Mr. Hatcher and Dr. Janeway also served as members of the Compensation
Committee during 1995. Until becoming Chief Financial Officer of the Company in
May 1995, Mr. Corman also served as a member of this committee. The principal
functions of this committee are to review and make recommendations to the Board
of Directors with respect to the compensation of the executive officers of the
Company. The Compensation Committee met twice during 1995.
Mr. Hemingway and Dr. Walls served as members of the Nominating Committee
during 1995. The Nominating Committee did not meet during 1995 but took action
by unanimous written consent twice during the year. On May 29, 1996, the
Nominating Committee was increased to four members and Drs. Sokolov, Mahoney,
Walls and Chenven were named to the committee. The principal functions of this
committee are to recommend to the Board of Directors nominees for election as
directors at the Company's annual meetings of shareholders and to recommend
nominees to fill any vacancies occurring between such meetings.
MANAGEMENT ACTION PLAN
On March 19, 1996, the Board of Directors approved the implementation of a
management action plan (the "Plan") that entails a review of all aspects of the
Company's operations and business units and the implementation of actions to
improve the cash flow and financial results of the Company as a whole and the
contribution of each business unit to the Company's overall financial and
strategic objectives. On July 8, 1996, in furtherance of the Plan and following
a study undertaken in conjunction with Morgan Stanley & Co., Incorporated, the
Board of Directors approved a comprehensive financial and strategic plan to
re-focus on its core operations and to divest certain operating units in order
to address its debt service requirements and improve the enterprise value of the
Company. The Board determined to divest certain clinical operations and other
non-strategic core businesses to enable the Company to focus primarily on its
hospital-based contract services and billing businesses, and its Southeastern
managed care operations. In addition to the divestitures, the Company's
executive management, with the support of the Business Turnaround Services unit
of Price Waterhouse LLP, is continuing the revitalization
7
<PAGE>
program underway in the Company's operations, with a view toward returning the
Company to sustainable cash flow and profitability.
Effective April 4, the Board of Directors approved an engagement letter
(the "Engagement Letter") pursuant to which the Company engaged Price Waterhouse
to implement the Plan and appointed Dennis I. Simon and Bettina M. Whyte of
Price Waterhouse as plan managers (the "Plan Managers"). The Engagement Letter
provides that the Plan Managers will at all times be under the supervision,
control and direction of a special committee of the Board of Directors composed
of directors who are not employed by or affiliated with the Company (the
"Management Plan Committee"). The Management Plan Committee was formed by
resolutions also adopted by the Board on April 4, 1996 and consists of Drs.
Janeway, Chenven and Mahoney and Mr. Hatcher, with Dr. Sokolov serving as
chairman and a nonvoting member. The Management Plan Committee is authorized to
(i) supervise, control and direct implementation of the Plan, (ii) meet and
consult with the Plan Managers, other members of the Board of Directors, and the
officers of the Company and its subsidiaries regarding implementation of the
Plan and (iii) take any and all further actions deemed appropriate and in the
best interests of the Company relating to the Plan and its implementation by the
Plan Managers. The Engagement Letter will remain in effect, unless sooner
terminated by the Company or Price Waterhouse, for a period of twelve months or
the repayment of the Company's outstanding obligations under its bank credit
facilities or any amendment or restructuring thereof.
Pursuant to the Engagement Letter, the Company has agreed to pay Price
Waterhouse $70,000 per month for the services of the Plan Managers, and $46,400
per month for any additional Price Waterhouse personnel that may provide
services under the agreement. In addition, the Company granted Price Waterhouse
an option, granted in consideration of a credit of $250,000 against fees payable
by the Company to Price Waterhouse in the eleventh and twelve months of their
engagement, to purchase 50,000 shares of common stock of the Company at a price
of $7 7/8, which option is not yet vested, and a separate option to purchase up
to 50,000 shares of common stock of the Company, which option shall vest at the
rate of 10,000 shares each month for five months commencing May 15, 1996, at a
strike price equal to the average closing price of the common stock on the New
York Stock Exchange for the first ten trading days of each month prior to the
vesting date.
In performing their duties under the Engagement Letter, the Plan Managers
have broad authority to conduct the day-to-day operations of the Company,
including making operational decisions relevant to cash flows, implementing cost
containment measures, hiring and terminating nonexecutive employees, making
recommendations to the Special Committee regarding asset dispositions and
related matters, managing and controlling cash outflows and commitments,
including those related to contractual obligations and employee compensation
plans, and submitting recommendations regarding the retention of investment
bankers and other professional advisors to the Company. Set forth below are
descriptions of the business experience of each of the Plan Managers during the
past five years.
Mr. Simon, age 54, currently serves as a Senior Managing Director and a
National Director of Business Turnaround Services for Price Waterhouse. He has
been associated with Price Waterhouse since 1993. Mr. Simon served as Executive
Vice President and Western Managing Director of Buccino & Associates from
October 1990 through January 1993. He currently serves on the Board of Directors
for the Turnaround Management Association. Mr. Simon received a B.A. in
economics from American International College and a M.B.A. with distinction from
Harvard University.
Ms. Whyte, age 47, currently serves as a Partner and a National Director of
Business Turnaround Services for Price Waterhouse. She has been associated with
Price Waterhouse since 1990. Ms. Whyte is a member of the Certification
Committee for the Association of Turnaround Professionals, the National
Association of Bankruptcy Trustees, the American Bankruptcy Institute, and the
American Institute of Insolvency Accountants. She is a Certified Insolvency and
Restructuring Accountant and serves on the Board of the Association of
Insolvency Accountants and on the Advisory Board of the Commercial Finance
Association. Ms. Whyte graduated Phi Beta Kappa with a B.S. in Economics from
Purdue University and received a M.B.A. from Northwestern University where she
was named the Cunningham Scholar.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation received by the President
and Chief Executive Officer of the Company and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers")
for services rendered to the Company or its subsidiaries during the years ended
December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION NUMBER OF
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION (1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS/SARS (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Jacque J. Sokolov, M.D. 1995 400,000 150,000 -- 3,883 4,215
Chairman of the Board of 1994 33,333 12,500 -- 903,000 --
the Company and
Chief Executive Officer,
Advanced Health Plans, Inc. (2)
John A. Hemingway 1995 200,000 -- -- 33,883 5,175
Vice Chairman of the Board, 1994 183,330 19,500 -- 93,947 5,250
Senior Executive Vice President 1993 191,500 36,000 -- 6,250 5,050
and Secretary of the Company
and President and Chief
Executive Officer, Coastal
Physician Services, Inc. (3)
David W. Singley, Jr. 1995 243,897 -- -- 63,883 45,040
Executive Vice President 1994 181,670 35,000 -- 153,947 3,844
of the Company and Chief Executive 1993 166,100 53,000 -- 6,250 2,157
Officer, Coastal Physician Group of
Florida, Inc. (4)
John P. Mahoney, M.D. 1995 244,294 -- -- -- 1,826
President and Chief Executive Officer, 1994 14,802 8,881 -- -- --
Healthplan Southeast, Inc.(5)
Steven M. Scott, M.D. 1995 333,333 -- 51,492(7) 103,529 165,818
President and Chief Executive Officer of 1994 357,290 120,000 -- 28,588 193,730
the Company (6) 1993 362,500 180,000 -- -- 3,368
</TABLE>
(1) Includes for 1995: (i) contributions made under the Company's 401(k) plan of
$3,620, $1,125, $3,721, $1,763 and $4,000, for Dr. Sokolov, Mr. Hemingway,
Mr. Singley, Dr. Mahoney and Dr. Scott, respectively, and (ii) premiums paid
for term life insurance policies of $595, $4,050, $522, $63 and $1,566, for
Dr. Sokolov, Mr. Hemingway, Mr. Singley, Dr. Mahoney and Dr. Scott,
respectively. In addition, the 1995 amount for Dr. Scott includes $160,252
which represents the present value of the imputed interest for premiums paid
by the Company under a split dollar life insurance arrangement. The
arrangement is designed so that, if the assumptions made under the policy
are realized, the Company will recover all of its insurance premium
payments. The 1995 amount for Mr. Singley also includes $40,797 of
relocation expenses paid by the Company.
(2) Advanced Health Plans, Inc. is a subsidiary of the Company.
(3) Coastal Physician Services, Inc. is a subsidiary of the Company.
(4) Coastal Physician Group of Florida, Inc. is a subsidiary of the Company. Mr.
Singley's employment with the Company terminated on April 30, 1996.
(5) Healthplan Southeast, Inc. is a subsidiary of the Company. Dr. Mahoney's
employment with the Company terminated on 1996.
(6) As noted above, Dr. Scott was placed on sabbatical leave of absence from his
positions as President and Chief Executive Officer on May 29, 1996.
(7) Reflects amount allocated for personal use of the Company's aircraft.
9
<PAGE>
STOCK OPTION GRANTS
The following table provides certain information with respect to stock
options granted during 1995 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED PRICE APPRECIATION
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION FOR OPTION TERM
NAME GRANTED(#) FISCAL YEAR(%) PRICE($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Jacque J. Sokolov, M.D. 3,883(1) 0.2 25.75 03/03/05 62,882 159,350
John A. Hemingway 10,000(2) 0.5 25.75 03/03/05 161,942 410,378
20,000(2) 0.9 13.88 11/17/05 174,583 442,411
3,883(1) 0.2 25.75 03/03/05 62,882 159,350
David W. Singley, Jr. 10,000(2) 0.5 25.75 03/03/05 161,942 410,378
50,000(2) 2.3 14.50 05/08/05 455,953 1,155,433
3,883(1) 0.2 25.75 03/03/05 62,882 159,350
Steven M. Scott, M.D. 100,000(2) 4.6 25.75 03/03/05 1,619,418 4,103,778
3,529(1) 0.2 28.33 03/03/05 62,875 159,333
</TABLE>
(1) Option vests and becomes fully exercisable on the third anniversary of the
date of grant.
(2) Option vests and becomes fully exercisable on the fifth anniversary of the
date of grant.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table provides certain information concerning the number of
securities underlying unexercised options held by each of the Named Executive
Officers and the value of such officers' unexercised options at December 31,
1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-
THE-MONEY
NUMBER OF SECURITIES OPTIONS AT
UNDERLYING UNEXERCISED FISCAL
SHARES OPTIONS AT FISCAL YEAR-END YEAR-END
ACQUIRED ON VALUE (#) ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jacque J. Sokolov, M.D. -- -- 3,000 903,883 -- --
John A. Hemingway -- -- 20,345 127,830 18,477 --
David W. Singley, Jr. -- -- 20,345 217,830 18,477 --
John P. Mahoney, M.D. 10,000 113,928 -- -- -- --
Steven M. Scott, M.D. -- -- -- 132,117 -- --
<CAPTION>
</TABLE>
401(K) PLAN
The Company maintains a defined contribution retirement and savings plan
for all employees who have reached the age of twenty-one and who have completed
one year of service with the Company. The plan is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). Under the plan, a participant may contribute from one to twelve percent
of his or her base compensation, not to exceed an amount which would cause the
plan to violate Section 401(k) or other applicable sections of the Code. The
Company matches contributions in amounts equal to 50% of the first 3% and 25% of
the next 3% of each participant's contribution, not to exceed 2.25% of the
participant's compensation. All contributions are invested, in accordance with
the participant's election, in various investment funds managed by the plan
trustee. The Company also may make discretionary contributions from its current
or accumulated net earnings which are allocated among all eligible participants'
accounts, regardless of whether they currently contribute to the plan, based on
a formula which takes into account participants' compensation and allocates a
portion of such contribution on the basis of compensation in excess of the
Social Security taxable wage base. The Company pays all costs of administering
the plan.
10
<PAGE>
Participants in the plan are fully vested in their own contributions and in
the earnings attributable to their contributions. A participant becomes 50%
vested in the remainder of the participant's account after two years of
continuous service, 75% vested after three years and 100% vested after four
years of continuous service. The plan permits withdrawals in the event of
disability, death, attainment of age 59 1/2, termination of employment or proven
financial hardship. In the case of termination of service, a participant's
vested account balance is distributed to the participant in a lump sum,
installment or annuity form of payment, as described in the plan.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company (an
"Independent Director") receives $20,000 annually for serving as a director plus
$1,200 for each meeting of the Board of Directors attended. The respective
Chairmen of the Audit and Compensation Committees receive an additional $1,200
annually for services rendered in that capacity. At each director's election,
compensation may be paid either currently, in cash, or deferred and paid in cash
or in shares of Common Stock at the distribution date of the deferred
compensation. Pursuant to the Company's 1994 Independent Directors' Stock Option
Plan, an Independent Director who is elected to the Board of Directors
automatically receives an option to purchase 3,000 shares of Common Stock and
any Independent Director who continues to serve as a director following an
annual meeting of shareholders automatically receives an option for 1,000 shares
of Common Stock. The respective Chairmen of the Audit and Compensation
Committees automatically receive an additional option to purchase 2,000 shares
of Common Stock as of the first committee meeting following an annual meeting of
shareholders. The exercise price of these options is the fair market value of
the underlying shares on the date of grant. The options become exercisable one
year from the date of grant and have a ten year term.
AGREEMENTS WITH CERTAIN OFFICERS
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 nonrenewal, 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
Securities and Exchange Commission (the "Commission") which govern the
disclosure of executive compensation in proxy statements and other Commission
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 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 the age of 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.
11
<PAGE>
Scott's base salary and the average of both incentive compensation and bonus
compensation paid or payable during the thirty-six months preceding his 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.
On June 1, 1996, the Company entered into an employment agreement with Mr.
Piemont pursuant to which Mr. Piemont became employed as Chief Executive Officer
and President of the Company and will be nominated for election to the Board of
Directors at such time as a directorship is available and, if so elected to the
Board of Directors, to the Executive Committee. The agreement provides for an
initial term through December 31, 1996, which, in the event of extension and
renewal, would extend through May 31, 1999, and automatically renew annually
thereafter. Pursuant to the employment agreement, Mr. Piemont is entitled to
receive an initial base salary of $350,000, which may be increased on the basis
of criteria established by the Compensation Committee, and a bonus not to exceed
50% of base salary based on the attainment of specified performance criteria.
Pursuant to the agreement, the Company also granted to Mr. Piemont options to
purchase 200,000 shares of Common Stock at an exercise price equal to the fair
market value of the shares of Common Stock on the date of grant. The options are
exercisable for 10 years from the date of grant and vest at a rate of 5,555 a
month over 36 months. In the event that Mr. Piemont's employment is extended
beyond December 31, 1996, each year during the term he will be granted
additional options to purchase up to 50,000 shares exercisable for ten years at
the market price on the grant date, such number of options to be determined by
the Compensation Committee based on performance criteria established in advance.
The employment agreement provides that if the Company terminates Mr.
Piemont's employment without "cause" or if Mr. Piemont terminates his employment
for "good reason," or if the Company fails to exercise its right to renew the
agreement 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 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 options held by
Mr. Piemont would immediately vest and Mr. Piemont would continue to receive
benefits until May 31, 1999. "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 Board of Directors such that independent members of the Board
of Directors on April 4, 1996 do not continue to serve as members of the Board
of Directors or any new member is elected or appointed to be Board of Directors
who was not approved by a majority of such independent directors. In the event
that a "parachute" excise tax would be imposed on any payments to Mr. Piemont,
Mr. Piemont would also be entitled to tax reimbursement payments.
In connection with its acquisition of Advanced Health Plans, Inc. in
November 1994, the Company entered into an employment agreement with Dr.
Sokolov. During the five year term of the agreement, the Company is obligated to
use its best efforts to cause Dr. Sokolov to be elected Chairman of the Board of
Directors. In addition to serving as Chairman, Dr. Sokolov will serve in other
appropriate management positions with the Company or its subsidiaries and report
directly to the Chief Executive Officer. Dr. Sokolov's base salary under the
agreement is $400,000 per year. He also is entitled to receive incentive cash
compensation in the amount of not less than $150,000 per year. In addition, in
the event the compensation paid to Dr. Sokolov by third parties for speaking and
consulting engagements is less than $450,000 per year, Dr. Sokolov will receive
from the Company the difference between the amount actually paid as a result of
such engagements and $450,000. The employment agreement imposes certain
confidentiality obligations upon Dr. Sokolov and contains a covenant not to
compete with the Company or solicit its employees for a specified period of
time. Under the agreement, Dr. Sokolov is entitled to participate in the
employee benefit programs available to other senior executive officers of the
Company. The agreement is terminable by either party upon 90 days notice. If Dr.
Sokolov is terminated without cause, he is entitled to receive a lump sum
payment equal to his base salary for the remainder of the term of the agreement.
In June 1995, the Company entered into an employment agreement with Mr.
Singley. The effective date of the agreement was May 15, 1995, with an initial
term continuing through May 14, 1998. Under the agreement, Mr. Singley had
primary responsibility for the Company's interests in Florida and reported
directly to the Chief Executive Officer.
12
<PAGE>
Mr. Singley's base salary under the agreement was $280,000 per year. He also
received certain benefits associated with his relocation from North Carolina to
Florida. The employment agreement imposed certain confidentiality obligations
upon Mr. Singley and contained a covenant by Mr. Singley not to compete with the
Company or solicit its employees for a specified period of time. The Company and
Mr. Singley mutually agreed to terminate this agreement as of April 30, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Hatcher and Dr. Janeway served as members of the Compensation Committee
during 1995. From January through April 1995, Mr. Corman also served as a member
of the Compensation Committee. Neither Mr. Hatcher nor Dr. Janeway has ever
served as an officer or employee of the Company or any of its subsidiaries.
Prior to his appointment as Chief Financial Officer in May 1995, Mr. Corman had
not served as an officer or employee of the Company or any of its subsidiaries.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The goals of the Company's compensation program for executive officers are
to pay competitively, to base compensation on the attainment of performance
objectives and to establish compensation levels that will enable the Company to
attract and retain physicians and other persons as key executives. To achieve
these goals, the Company has established a compensation program consisting of
three principal components. The components are base salary, cash incentive bonus
awards and discretionary bonuses in the form of equity-based compensation
consisting primarily of qualified (I.E., incentive) and nonqualified stock
options. The Company strives to structure its compensation program to enable it
to attract, retain and reward executive officers whose contributions are
critical to the long-term success of the Company.
To ensure that compensation is competitive, the Company subscribes to two
nationally recognized data bases which compile executive compensation data with
respect to publicly-traded nonmanufacturing companies (including some healthcare
organizations) having revenues comparable to the Company's. Of these two data
bases, one consists of 394 companies and the other consists of 232 companies.
Although the companies included in these data bases are not identical to the
companies included in the Managed Care/Health Care Services Composite Index used
in the Corporate Performance Graph, the Company believes that the data base
companies more accurately reflect the market in which the Company competes for
executive talent. The base salaries and incentive bonus award programs for
presidents of the Company's subsidiaries and divisional managers are generally
targeted to be not less than the 50th percentile nor more than the 75th
percentile in the data base surveys.
The Company pays a premium for physicians that are key executives. In order
to recruit and retain physicians as executive officers, it is necessary to pay
competitively in the market compared to what such a physician could earn in
private professional practice. This necessitates an adjustment to compensation
that places the physician executives near the upper ranges of the parameters as
determined in the executive compensation surveys.
The following discussion regarding the base salaries and incentive bonus
awards for the Company's executive officers excludes Drs. Scott, Sokolov and
Mahoney and Mr. Singley, whose base salaries and incentive bonuses are governed
by the terms of employment agreements with the Company. The employment
agreements entered into with Drs. Sokolov and Mahoney were negotiated in
connection with acquisitions effected by the Company in 1994. See "Executive
Compensation -- Employment Agreements."
BASE SALARY
In addition to competitive compensation data gathered from the database
surveys, the Company considers the sustained performance of its executives in
establishing base salaries, which involves length of service with the Company,
individual performance, scope of responsibilities and successful management of
operating subsidiaries or divisions. Determining successful management is based
on both qualitative factors, such as leadership qualities, and quantitative
factors, such as growth of revenues and operating earnings and management of
expenses.
Historically, including in 1995, the Chief Executive Officer has evaluated
the overall performance of the other executives named in the Summary
Compensation Table as well as the performance of other key executives. Financial
and business goals and objectives would be discussed with key executives and
regular meetings of key executives would be held to discuss business
strategies, financial and business performance, budgeting matters and strategic
planning matters. An executive's overall evaluation has been a combination of a
qualitative review by fellow executives and the Chief Executive Officer and the
attainment of established business and financial objectives. Pursuant to the
Engagement Letter with Price
13
<PAGE>
Waterhouse, during the term of the Engagement Letter the Plan Managers will
recommend certain compensation decisions to the Compensation Committee.
The recommendation for a particular base salary level was determined
primarily by the Chief Executive Officer based on the above factors, with no
specified weight being given to any particular performance factor or business or
financial objective. The recommendations, together with statistical data from
the executive compensation data bases subscribed to by the Company, would be
presented to the Compensation Committee for review and approval. Because the
financial goals established for determining adjustments to base salary were not
met in 1995, the only adjustments in base salaries for executive officers made
in 1995 were related to promotions or changes in responsibility.
INCENTIVE BONUS AWARDS
Early in each fiscal year, the Chief Executive Officer determines the
potential incentive bonus available for each executive and submits his
recommendations to the Compensation Committee for approval. The potential
incentive bonus generally falls between 10% and 35% of the executive's annual
base salary and is based upon the achievement by the executive's business unit
or subsidiary of specified financial performance goals. Incentive awards
generally are paid in cash on a quarterly basis if the relevant business unit or
subsidiary meets or exceeds financial performance goals set for the quarter.
None of the factors considered in determining an executive's incentive bonus is
assigned a specific weight. Incentive bonuses are generally awarded to all
executives if substantially all operating subsidiaries and business units meet
or exceed the established goals. Because the financial goals established for the
payment of incentive compensation were not met in 1995, no incentive bonuses
were awarded to executive officers during the year except where required by
contract.
DISCRETIONARY BONUS AWARDS/EQUITY BASED COMPENSATION
The Company also has rewarded its executives with discretionary
compensation awards. These discretionary compensation awards generally take the
form of incentive stock options and nonqualified stock options. Through the
granting of stock options, the Company seeks to align the interests of key
employees more closely with those of the Company's shareholders by motivating
and rewarding actions which lead to long-term value creation for shareholders.
In addition, the Company recognizes that stock options are a necessary part of
its competitive compensation program which, as discussed above, is designed to
attract and retain qualified executives. As previously mentioned, the companies
included in the data bases used for compensation comparisons are not identical
to those included in the indexes used in the Corporate Performance Graph because
the Company believes that the data base companies more accurately reflect the
market in which the Company competes for executives. The discretionary bonus
awards are generally targeted to be in the median range of such data base
surveys. Generally, options granted to executives and other employees do not
vest for at least three years in order to encourage executives and other key
employees to remain in the employ of the Company and to encourage a medium-term
perspective.
In 1995, the Company used incentive and nonqualified stock options to
achieve the competitive compensation levels it determined to be necessary for a
number of key executives, including four of the Named Executive Officers. The
options granted to executive officers in 1995 vest over three to five years and,
accordingly, are a form of medium-term compensation. The options were granted by
the Compensation Committee acting as the stock option committee under the
Company's 1991 Stock Option Plan and the Company's 1987 Stock Option Plan. In
determining the number of options granted, the Compensation Committee received a
recommended list of key employees that was compiled by the Chief Executive
Officer and the operating subsidiary presidents. In determining the size of the
individual option awards, the number of outstanding unvested options held and
the size of previous option awards were not considered.
In addition, the Company implemented an option replacement program in 1995
for key employees who were not then executive officers. Under this program,
selected employees received one option for every two options surrendered. The
exercise price of the newly issued options was the market price of the Common
Stock on the date of grant. The exercise dates of the replacement options are
the same as the dates provided in the original grants.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Dr. Scott served as the Company's Chief Executive Officer throughout 1995.
The compensation of Dr. Scott is determined pursuant to the terms of his
employment agreement with the Company. See "Executive Compensation -- Employment
Agreements." Dr. Scott's employment agreement provides for an annual base salary
of $400,000 and a cash incentive bonus based on a percentage of the Company's
earnings before taxes. The agreement also authorizes the Compensation Committee,
in its discretion, to adjust Dr. Scott's annual base salary and to award
additional bonus compensation. Due to the failure of the Company to meet
financial performance goals set for the second quarter of 1995, the Company and
Dr. Scott, at
14
<PAGE>
Dr. Scott's initiative, mutually agreed to reduce Dr. Scott's annual base salary
under his employment agreement to $240,000 for the remainder of 1995. This
arrangement became effective on August 1, 1995. Dr. Scott did not receive an
incentive bonus for 1995. He was, however, awarded a discretionary bonus in the
form of nonqualifed stock options which vest on the third and fifth
anniversaries of the date of grant. The award of stock options to Dr. Scott was
motivated by a desire to better align all executive officers' compensation with
the long-term financial performance of the Company. The number of stock options
awarded to Dr. Scott was deemed appropriate relative to the option grants made
to other executive officers.
As noted above, on May 29, 1996, Dr. Scott was placed on sabbatical leave
from his positions as President and Chief Executive Officer of the Company.
Joseph G. Piemont, formerly Executive Vice President and General Counsel of the
Company, has been appointed by the Board to serve as President and Chief
Executive Officer. Mr. Piemont's employment agreement is described above under
"Agreements With Certain Officers."
SECTION 162(M) OF THE INTERNAL REVENUE CODE
The Company does not expect Section 162(m) of the Code and the proposed
regulations thereunder (collectively, "Section 162(m)") to affect the
deductibility for federal income tax purposes of the compensation of the
Company's five highest paid executive officers in 1995. If and when the
deductibility of the compensation of such officers may be impacted by Section
162(m), the Company intends to review the applicability of Section 162(m) to the
Company's compensation programs, including its potential impact on stock options
awarded under the Company's stock option plans, and to determine the Company's
policy with respect to its compliance with Section 162(m).
COMPENSATION COMMITTEE
Robert V. Hatcher, Jr., Chairman
Richard Janeway, M.D.
15
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on the Common Stock for each of the last
three fiscal years with the cumulative total return of (i) the S & P 500 Index
and (ii) a composite of eight managed care/health care services companies. This
composite consists of: Phycor, Inc.; Pacific Physicians Services, Inc.; Medaphis
Corporation; Humana Inc.; Healthsource, Inc.; U.S. Healthcare, Inc.; Coventry
Corporation; and Physicians Corporation of America. The Company has selected
these peer issuers based on the greater similarity of their businesses to the
Company's business than those companies included in the S & P Health Care
Composite Index.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG COASTAL PHYSICIAN GROUP, INC., S&P 500 INDEX
AND MANAGED CARE/HEALTH CARE SERVICES COMPOSITE INDEX
<TABLE>
<CAPTION>
MANAGED CARE/
COASTAL PHYSICIAN HEALTH CARE
MEASUREMENT PERIOD GROUP INC. S&P 500 SERVICES COMPOSITE
FISCAL YEAR COVERED INDEX INDEX INDEX
<S> <C> <C> <C>
Measurement Pt -- 06/21/91 $100.00 $100.00 $ 100.00
FYE 12/31/91 $222.00 $111.10 $ 94.33
FYE 12/31/92 $226.00 $116.06 $ 107.42
FYE 12/31/93 $318.00 $124.25 $ 129.28
FYE 12/30/94 $219.00 $122.33 $ 148.59
FYE 12/29/95 $108.00 $164.06 $ 190.07
</TABLE>
(Comparison chart appears here. Plot points are below.)
Coastal S&P Managed
6/21/91 100 100 100
12/31/91 210 110 90
12/31/92 210 115 100
12/31/93 320 120 130
12/30/94 210 120 140
12/29/95 100 160 175
16
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into various transactions and has continuing
relationships with American Alliance Holding Company ("Alliance") and its
affiliates, Century Insurance and Medical Risk Prevention Consultants, Inc.
("MRPC") and affiliates thereof. Dr. Scott is the beneficial owner of all of the
outstanding shares of common stock of Alliance. These transactions and
relationships are described below.
The Company and certain of its subsidiaries sublease office space in
Durham, North Carolina, consisting of approximately 49,000 square feet, from
Alliance under sublease agreements which are generally renewed annually in July.
The building is owned by Century Insurance which leases the building to
Alliance. During the year ended December 31, 1995, the Company paid Alliance
approximately $745,000 under these sublease agreements. 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.
The Company paid approximately $2,330,000 in insurance premiums to Century
Insurance for professional liability insurance for itself and its subsidiaries
for the 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 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 year ended December 31, 1995.
The Company leases an office facility in Durham, North Carolina, consisting
of approximately 27,000 square feet from Chateau LLC, which is controlled by Dr.
Scott. The Company paid approximately $258,000 to Chateau LLC for this space
during 1995. The Company also leases 3,600 square feet of space in Rocky Mount,
North Carolina from Durham Investment Corp. and 43,852 square feet of space in
Ft. Lauderdale, Florida from Coral Ridge LP, which entities are also controlled
by Dr. Scott. During 1995, the Company paid approximately $90,000 for the Rocky
Mount space and $157,000 for the Ft. Lauderdale space. In addition, the Company
leases a clinical facility in Fayetteville, North Carolina, consisting of
approximately 5,000 square feet, from Sunco Properties, a general partnership in
which Drs. Scott and Walls each have a 50% interest. During 1995, the Company
paid Sunco Properties approximately $68,000.
From time to time during 1995, the Company chartered two airplanes owned by
Alliance Aviation, Inc. ("Alliance Aviation"), a wholly-owned subsidiary of
Alliance. Charter fees paid by the Company to Alliance Aviation during 1995
totaled approximately $848,000. On March 31, 1995, the Company purchased one of
these airplanes from Alliance Aviation. The $6,600,000 purchase price was based
upon a third-party appraisal performed on March 6, 1995. The Board of Directors
authorized the purchase of the airplane on March 28, 1995.
In connection with the relocation of his family from North Carolina to
Florida, Mr. Singley received advances during 1995 from the Company in the
amount of $145,147. Under the promissory note issued to the Company by Mr.
Singley and his wife for such advances, the principal amount advanced bears
interest at an annual rate of three percent. Interest under the note is payable
monthly. The principal amount is to be repaid on the earlier of (i) the sale of
Mr. Singley's principal residence in Florida, (ii) the date which is 180 days
subsequent to the termination of Mr. Singley's employment for any reason or
(iii) August 1, 1998.
17
<PAGE>
PROPOSAL 2
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 and has advised the
Company that it does not have any direct financial interest or indirect
financial interest in the Company. The Board of Directors, on the recommendation
of the 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 shareholders. One or more representatives of KPMG
Peat Marwick LLP will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1996.
CERTAIN LEGAL PROCEEDINGS
On July 9, 1996, Dr. Scott and Bertram E. Walls, M.D., filed, on their own
behalf and derivatively on behalf of the Company, an action in the General Court
of Justice of the State of North Carolina in the County of Durham against the
Company and Dr. Sokolov and Messrs. Piemont and Corman. The plaintiffs allege,
among other things, that certain members of the Board of Directors breached
their fiduciary duties and wasted corporate assets by removing Dr. Scott from
his position as President and Chief Executive Officer of the Company and by
approving the entry by the Company into an employment agreement with Mr.
Piemont. The plaintiffs allege that these actions were taken to wrongfully
remove Scott and to enrich the defendants at the expense of the Company and its
stockholders, and that these and other recent actions of the Board of Directors,
including the approval of efforts to sell certain corporate assets, were taken
in breach of the Board of Directors' duty of care. The complaint seeks as
relief, among other things, an order of the court enjoining the Board of
Directors from proceeding with potential asset sales, declaring the Piemont
employment agreement unenforceable, declaring the Board of Directors' conduct in
placing Dr. Scott on leave to be contrary to Delaware law and requiring the
Board of Directors to consider ratifying a contract with Century Insurance. In
addition, the complaint seeks damages in an unspecified amount in excess of
$10,000.00 against the individual defendants. The Company believes that these
allegations are without merit and intends to defend the actions vigorously.
COST AND METHOD OF SOLICITATION
The cost of preparing and mailing this Proxy Statement, the Notice of
Annual Meeting of Shareholders and the enclosed proxy will be borne by the
Company. In addition to the use of mail, directors, officers and employees of
the Company may solicit proxies personally and by telephone or telecopy. The
Company will pay for the cost of these solicitations, but these individuals will
receive no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies. MacKenzie Partners, Inc.
("MacKenzie") has been retained by the Company to assist in the solicitation of
proxies. The fee for such services will be approximately $ , plus
reimbursement of reasonable out-of-pocket expenses. The Company will also
reimburse brokers, fiduciaries, custodians and other nominees, as well as
persons holding stock for others who have the right to give voting instructions,
for out-of-pocket expenses incurred in forwarding this proxy statement and
related materials to, and obtaining instructions or authorizations relating to
such materials from, beneficial owners of the Company's Common Stock.
OTHER BUSINESS
Any shareholder who is a shareholder on the Record Date and at the time of
the notice described below may bring business before the Annual Meeting. Written
notice of the shareholder's intent to bring such business before the Annual
Meeting must be delivered to the Secretary of the Company not later than the
close of business on [INSERT DATE]. Such notice must set forth (i) a brief
description of the business desired to be brought before the meeting and the
reasons for considering the business, and (ii) the name and address of the
shareholder, the class and number of shares of capital stock of the Company
owned by such shareholder and any material interest of such shareholder in the
proposed business. Shareholders proposing
18
<PAGE>
such business must also comply with all applicable requirements of the Exchange
Act and the regulations promulgated thereunder with respect to business proposed
pursuant to such notice. If the chairman of the meeting determines and declares
that the proposing shareholder has not complied with this procedure, the
business shall not be considered.
In the press release announcing his intention to nominate two directors for
election at the 1996 Annual Meeting and in preliminary proxy materials filed
with the Securities and Exchange Commission, Dr. Scott also announced his
intention to seek shareholder approval of a resolution requesting that a
committee of independent directors be established to consider and recommend the
means by which shareholder value may be maximized. As of July 10, 1996, the
Company has not received the required notice of such proposed business as
discussed above.
Except as described above, the Board of Directors knows of no other
business to be brought before the Annual Meeting. If, however, any other
business should properly come before the Annual Meeting, the persons named in
the accompanying proxy will vote proxies as in their discretion they may deem
appropriate, unless they are directed by a proxy to do otherwise.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of the Common Stock, to
file initial reports of ownership and reports of changes in ownership of the
Common Stock with the Commission. Officers, directors and greater than ten
percent shareholders are required by Commission regulations to furnish the
Company with copies of all such Section 16(a) reports they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received by the Company and written representations from certain
reporting persons that no other reports were required for those persons, during
fiscal 1995, all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent shareholders were complied
with, except that Jonathan E. Kennedy's initial Form 3 after he became Vice
President, Corporate Controller and Chief Accounting Officer of the Company on
June 15, 1995 was filed late.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated under the Exchange Act, any shareholder
proposal intended for inclusion in the Company's proxy statement and form of
proxy relating to the Company's 1997 Annual Meeting of Shareholders must be
received in writing by the Secretary of the Company at the Company's principal
executive offices on or before [DATE]. Pursuant to the Company's Bylaws, notice
of any business to be brought by shareholders before a meeting of shareholders
must be received by the Secretary of the Company not less than 45 days nor more
than 60 days prior to the date of the meeting; provided, however, that in the
event that less than 45 days notice or prior public disclosure of the date of
the meeting is given, such notice must be received not later than the close of
business on the tenth day following the day notice of the meeting date is mailed
or public disclosure is made and provided further that such notice must be
received not later than the close of business on the seventh day preceding the
day on which the meeting is to be held.
By Order of the Board of Directors,
Jacque J. Sokolov, M.D. Joseph G. Piemont
Chairman President and Chief Executive Officer
Durham, North Carolina
, 1996
If you have any questions or need assistance in voting your shares, please
contact MacKenzie Partners, Inc. at its toll free number: 1-800-322-2885.
19
<PAGE>
APPENDIX I
SUPPLEMENTAL DIRECTOR INFORMATION
Set forth below is (a) the name and business address of each of the
participants and their associates (except the Company) in the solicitation made
pursuant to this Proxy Statement, and (b) the dates, types and amounts of each
participant's purchases and sales of the Company's debt and equity securities
within the past two years.
<TABLE>
<CAPTION>
NAME AND DATE OF PURCHASE (P) TYPE AND
BUSINESS ADDRESS (1) TRANSACTION OR SALES (S) AMOUNT
<S> <C> <C> <C>
Jacque J. Sokolov, M.D................................................................
David W. Singley, Jr..................................................................
Robert V. Hatcher, Jr.................................................................
Stephen D. Corman.....................................................................
John P. Mahoney, M.D..................................................................
Richard Janeway, M.D..................................................................
Norman H. Chenven, M.D................................................................
Joseph G. Piemont.....................................................................
Dennis I. Simon.......................................................................
Bettina M. Whyte......................................................................
</TABLE>
The Company has agreed to pay Price Waterhouse $70,000 per month for the
services of the Plan Managers, and $46,400 per month for any additional Price
Waterhouse personnel that may provide services under the agreement. In addition,
the Company granted Price Waterhouse an option, granted in consideration of a
credit of $250,000 against fees payable by the Company to Price Waterhouse in
the eleventh and twelfth months of their engagement, to purchase 50,000 shares
of common stock of the Company at a price of $7 7/8, which option is not yet
vested, and a separate option to purchase up to 50,000 shares of common stock of
the Company, which option shall vest at the rate of 10,000 shares each month for
five months commencing May 15, 1996, at a strike price equal to the average
closing price of the common stock on the New York Stock Exchange for the first
ten trading days of each month prior to the vesting date.
In addition to the persons set forth above, Steven M. Scott, M.D., Bertram
E. Walls, M.D. and John A. Hemmingway are directors of the Company, but are not
expected to solicit proxies on behalf of the Company.
Except as set forth in the Proxy Statement or this Appendix, to the best of
the Company's knowledge, none of the directors or, in the case of clause (a)
only, any of their associates (a) owns of record or has direct or indirect
beneficial ownership of any securities issued by the Company or any of its
subsidiaries; (b) has purchased or sold any securities issued by the Company
within the past two years; (c) has incurred any outstanding indebtedness to
acquire or hold securities issued by the Company; or (d) has been a party to any
contract, arrangement or understanding with respect to any securities of the
Company during the past year.
Except as set forth in the Proxy Statement or this Appendix, to the best of
the Company's knowledge, (a) none of the participants or any of their associates
has any arrangement or understanding with respect to any future employment or
any future transactions with the Company or any of its affiliates, and (b) none
of the participants, executive officers of the Company, any person known to the
Company to own beneficially or of record more than five percent of any class of
Company voting securities, or any of their associates has entered into any
transaction or series of similar transactions with the Company or any of its
subsidiaries since the beginning of the Company's last fiscal year in which such
person had or will have a direct or indirect material interest, and no such
transactions are currently proposed.
*******************************************************************************
APPENDIX
<PAGE>
PRELIMINARY PROXY MATERIALS
SUBJECT TO COMPLETION
COASTAL PHYSICIAN GROUP, INC.
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF COASTAL PHYSICIAN GROUP, INC.
The undersigned hereby appoints Jacque J. Sokolov, M.D., Stephen D. Corman
and Joseph G. Piemont, and each of them, proxies, with power of substitution, to
represent the undersigned at the Annual Meeting of Shareholders of Coastal
Physician Group, Inc. (the "Company"), to be held at 9:00 a.m., local time, on
, 1996, at and at any adjournments
thereof, to vote all shares of common stock which the undersigned would be
entitled to vote if present in person in such manner as such proxies may
determine, and to vote on the following proposals as specified below by the
undersigned.
<TABLE>
<S> <C> <C>
(1) Election of Directors: [ ] VOTE FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY to vote for
BELOW all nominees listed below.
(except as marked to the contrary
below).
</TABLE>
NORMAN H. CHENVEN, M.D. ROBERT V. HATCHER, JR. RICHARD JANEWAY, M.D.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
ONLY THE NAME(S) OF THE PERSON(S) FOR WHOM YOU WISH TO WITHHOLD AUTHORITY IN
THE SPACE PROVIDED BELOW)
(2) Proposal to approve the appointment of KPMG Peat Marwick LLP as the
Company's independent certified public accountants for the fiscal year ending
December 31, 1996:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE SIGN AND DATE ON THE OTHER SIDE
<PAGE>
Annual Meeting of Shareholders
of
COASTAL PHYSICIAN GROUP, INC.
2828 Croasdaile Drive
Durham, NC 27705
Please date, sign exactly as name(s) appear below and return promptly in the
enclosed envelope.
This proxy when properly
executed will be voted in the
manner directed herein by the
undersigned shareholder. IN THE
ABSENCE OF SPECIFIED DIRECTIONS,
THIS PROXY WILL BE VOTED IN
FAVOR OF THE ELECTION OF ALL
NOMINEES NAMED IN THIS PROXY FOR
WHOM AUTHORITY IS NOT
SPECIFICALLY WITHHELD AND IN
FAVOR OF THE PROPOSALS LISTED IN
THIS PROXY. The proxies are also
authorized to vote in their
discretion upon such other
matters as may properly come
before the meeting or any
adjournment thereof.
If signing as attorney,
administrator, executor,
guardian, trustee or as a
custodian for a minor, please
add your title as such. If a
corporation, please sign in full
corporate name and indicate the
signer's office. If a partner,
please sign in the partnership's
name.
X
X
Dated , 1996
