SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] 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)
Coastal Physician Group, Inc.
(Name of Person(s) 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),
14a-6(i)(2) or item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Ex-
change 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 transac-
tion applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transac-
tion computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.<PAGE>
[ ] 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>
[COASTAL PHYSICIAN GROUP, INC. LETTERHEAD]
September 23, 1996
Mike Solnik, M.D.
7208 Valencia Drive
Boca Raton, FL 33443
Andrew Richman, M.D.
3624 Princeton Place
Boca Raton, FL 33496
Dear Mike and Andy:
As the annual meeting of the shareholders of Coastal Physician
Group, Inc. is now only days away, I wanted to take this op-
portunity to urge you to vote your shares in favor of manage-
ment. As the enclosed materials indicate, a new team truly
committed to maximizing value for all shareholders has been
installed and progress is being made to turn Coastal around.
We believe that it is in the best interest of all shareholders
to permit the turnaround efforts to continue while simulta-
neously exploring other strategic alternatives including the
sale of the entire company and arranging for an equity invest-
ment. The point of differentiation between management and the
opposition really boils down to who is best able to operate the
business while a sale or investment is being investigated.
Each of you has known me and worked with me during both good
and difficult times. I ask that you, once again, express your
support and confidence by voting the WHITE proxy card in favor
of management. Happy New Year to each of you and your fami-
lies.
Sincerely,
Joseph G. Piemont
President and Chief Executive Officer
Coastal Physician Group, Inc.
JGP/ba
Enclosures <PAGE>
[COASTAL PHYSICIAN GROUP, INC. LETTERHEAD]
September 24, 1996
Perry Snyder
2405 Velvet Ridge Drive
Ownings Mill, MD 21117
Edward Perl, M.D.
2411 Velvet Ridge Drive
Ownings Mill, MD 21117
Dear Perry and Ed:
As the annual meeting of the shareholders of Coastal Physician
Group, Inc. is now only days away, I wanted to take this op-
portunity to urge you to vote your shares in favor of manage-
ment. As the enclosed materials indicate, a new team truly
committed to maximizing value for all shareholders has been
installed and progress is being made to turn Coastal around.
We believe that it is in the best interest of all shareholders
to permit the turnaround efforts to continue while simulta-
neously exploring other strategic alternatives including the
sale of the entire company and arranging for an equity invest-
ment. The point of differentiation between management and the
opposition really boils down to who is best able to operate the
business while a sale or investment is being investigated.
Each of you has known me and worked with me during both good
and difficult times. I ask that you, once again, express your
support and confidence by voting the WHITE proxy card in favor
of management. Happy New Year to each of you and your fami-
lies.
Sincerely,
Joseph G. Piemont
President and Chief Executive Officer
Coastal Physician Group, Inc.
JGP/ba
Enclosures <PAGE>
[LOGO] [INSTITUTIONAL
SHAREHOLDER
SERVICESsm LETTERHEAD]
Proxy Analysis: COASTAL PHYSICIAN
GROUP, INC.
DR (NYSE)
Proxy Contest: September 27, 1996
Record Date: August 21, 1996
Security ID: 190465104 (CUSIP)
19046510 (CUSIP)
190495101 (CUSIP)
MEETING AGENDA
Item Code Management Proposals Mgt. Rec. ISS REC
(WHITE Card)
1 M0201 Elect Directors For FOR
2 M0330 Approve Continued For FOR
Implementation of the
Comprehensive Business
Plan
Shareholder Proposal
3 S0205 Establish Other Board Against AGAINST
Committee
Management Proposal
4 M0101 Ratify Auditors For FOR
Item Code Dissident Proposals Dis. Rec. ISS Rec.
(BLUE Card)
1 M0225 Elect Directors For WITHHOLD
(Opposition Slate)
Shareholder Proposal
2 0205 Establish Other Board For AGAINST
Management Proposals
3 M0330 Approve Continued Against FOR
Implementation of the
Comprehensive Business
Plan
4 M0101 Ratify Auditors For FOR
* If you plan to follow ISS's recommendation, vote management's
WHITE proxy card and discard the BLUE proxy card provided by
the dissident.<PAGE>
FINANCIAL SUMMARY
INCOME STATEMENT SUMMARY ($ in millions except per share data)
1993 1994 1995 ACG*
Operating Revenue $640.70 $748.64 $810.39 12.5%
Net Income 24.30 20.67 -46.90 NMF
EPS (Primary) 1.27 0.92 -1.98 NMF
Dividends per share 0.00 0.00 0.00 NMF
Calendar year-end $39.75 $27.38 $6.50**
stock price
Dividends paid since: NA
* Annual Compound Growth
** Current Price
Fiscal Year Ended: December 31
Source: Company Annual Report
PERFORMANCE SUMMARY
1-Year 3-Year 5-Year
Total shareholder returns, company -71.4% -83.1% -74.0%
Total shareholder returns, index 9.1% 32.0% 85.3%
Total shareholder returns, peer
group -2.7% 20.1% 20.1%
Source: Bloomberg Business News
BUSINESS: Health care services
ACCOUNTANTS: KPMG Peat Marwick LLP<PAGE>
CORPORATE GOVERNANCE PROFILE
GOVERNANCE PROVISIONS
Supermajority (67%) shareholder vote required to amend certain
charter provisions
Blank check preferred stock (Charter)
Poison pill with sunset provision greater than two years
(Adopted: Jan. 20, 1995)
Classified board (Charter)
GOVERNANCE MILESTONES
None
SEVERANCE AGREEMENTS
Executive severance agreements triggered by voluntary or involun-
tary termination of employment following a change in control
Change-in-control provisions in executive stock option or other
compensation plans
STATE STATUTES: Delaware
Labor contract provision
Three-year freezeout provision<PAGE>
DIRECTOR PROFILES
Name Classification Term Director No
Ends Since Stock
NOMINEES
Norman H. Chenven Outsider 1999 1995 X
Robert V. Hatcher, Jr. Outsider 1999 1991
Joseph G. Piemont Insider 1999 1996
CONTINUING DIRECTORS
Stephen D. Corman Insider 1997 1991
John A. Hemingway1 Insider 1997 1982
John P. Mahoney2 Affiliated 1998 1994
Outsider
Steven M. Scott3 Insider 1998 1977
Jacque J. Sokolov4 Insider 1998 1994
Bertram E. Walls5 Affiliated 1997 1991
Outsider
DISSIDENT NOMINEES
Mitchell W. Berger NA NA NA X
Henry J. Murphy NA NA NA X
Classified board: Yes CEO as chairman: No
Current nominees: 3 Retired CEO on board: No<PAGE>
COMPOSITION OF COMMITTEES
Audit Status Compensation Status Nominating Status
Norman H. 0 Norman H. 0 Norman H. 0
Chenven Chenven Chenven
Robert V. 0 Robert V. 0 John P. Mahoney A
Hatcher, Jr. Hatcher, Jr.
Jacque J. Sokolov I
Bertram W. Walls A
Committee Name Assigned by Company:
Audit: Audit Committee
Compensation: Compensation Committee
Nominating: Nominating Committee<PAGE>
OWNERSHIP INFORMATION
Beneficial Ownership Type of Votes Authorized Shares
Shares per Shares Outstanding
Share
Officers & 33.22% Common stock 1.00 100,000,000 23,862,147
Directors
Institutions 23.51%
Steven Scott 29.95%
Sources: Proxy Statement, CDA Investment Technologies
Note: As of June 30, 1996, all officers and directors as a
group beneficially owned 33.22 percent of the company's voting
stock. Included in this amount is Dr. Steven Scott's benefi-
cial ownership of 29.95 percent.
In compiling this report, ISS held a meeting with Steven Scott,
former CEO of Coastal Physicians, Mitchell Berger and Henry
Murphy, Dr. Scott's nominees to the board, and Dr. Sherman Pod-
olsky, former senior vice president of a Coastal subsidiary.
We also held a telephone conference call with Joseph Piemont,
CEO of Coastal, Robert Borchert, senior vice president of
Coastal, and Dennis Simon, senior managing director of Business
Turnaround Services at Price Waterhouse.
Background
Coastal was founded in 1977 by Dr. Scott to assist hospitals in
staffing their emergency departments with contract physicians.
The company expanded its services to include obstetrics, gyne-
cology, pediatrics, and anesthesiology, as well as physician
business management services. The company also owns two health
maintenance organizations and one prepaid health services plan.
According to Dr. Scott, the company attempted to diversify away
from its contract physician services in 1994 and 1995 by ag-
gressively focusing on its managed care business through acqui-
sitions and expansion.
While the diversification was intended to enhance the value of
the company, analysts believe the expansion proceeded too rap-
idly without the proper integration of the various companies.
In addition to the rapid expansion, the company became involved
in a fee dispute with Humana, Inc., in 1995. Dr. Scott in-
formed ISS that Humana was beginning to lose market share in
1995, and Humana began reducing benefits to its providers in an
effort to cut its losses. At the time, Coastal was one of
Humana's largest providers. The internal problems and the Hu-
mana dispute were clearly recognized by the public market, as
Coastal's stock price dropped from a high of $40.25 on Feb. 1,<PAGE>
1994, to a low of $4.25 on July 29, 1997. In May 1996, Dr.
Scott was placed on involuntary sabbatical leave from his posi-
tion of CEO by the board, and Joseph Piemont was appointed CEO.
Proxy Contest
On July 9, 1996, Dr. Scott announced his intention to solicit
proxies from Coastal shareholders in order to elect two dis-
sident director nominees to run along with one of management's
three nominees. In addition to the nomination, Dr. Scott an-
nounced his intention to seek shareholder approval of a resolu-
tion requesting that a new committee of four independent direc-
tors be formed to evaluate ways of maximizing shareholder value
at Coastal, including the possible sale of the entire Company.
Calling the current management "weak and ineffective," Dr.
Scott believes their proposed turnaround plan is draining
shareholder value and is headed in the wrong direction.
Dr. Scott has indicated that he believes the company's core
business of providing emergency room staffing and services has
been weakening, in part due to a declining number of emergency
department visits. In an extensive report written that Dr.
Scott provided to ISS, he states, "The future of emergency de-
partment visits has now become worrisome, and I believe the
future value of physician emergency medicine companies is in
doubt." To support his conclusion, Dr. Scott cites a report by
the American Medical Association which indicates that the num-
ber of emergency department visits declined approximately 1.4
percent in calendar year 1994. The report also indicates that
while the decline is not significant, it is the first recorded
decline since records have been kept. Further, the AMA report
indicated that the percentage of nonpaying patients vs. paying
patients has continued to shift toward the nonpaying category.
Dr. Scott believes that trend will continue, severely impacting
physician companies and physician income. He also cites re-
ports from the American Hospital Association and various con-
sulting companies that indicate an excess capacity of hospitals
and beds, which may cause approximately 20 percent of U.S. hos-
pitals to close within the next three to five years.
While management has undertaken a strategy of selling its non-
core businesses and moving toward improving operations in its
core businesses, Dr. Scott believes that Coastal cannot and
should not focus its efforts on rebuilding the emergency medi-
cine business. His belief is that the company should seek a
buyer for the entire company rather than strategically sell the
noncore businesses. He has also indicated that Coastal should
not move toward an operational approach to enhance shareholder
value unless a buyer for the entire company cannot be found.
According to Dr. Scott, "Going back to the emergency room busi-
ness is a mistake," and he does not believe the company can
remain viable long enough for management to sell its noncore
assets and "operate out" of the financial trouble it is in.
Dr. Scott emphasized that "the company is wounded, and the<PAGE>
sooner we sell for a fair price the better for all sharehold-
ers."
Management acknowledges that the company is wounded, but be-
lieves the best strategy is to implement the board's "Compre-
hensive Business Plan while the company actively pursues all
strategic alternatives." Management's business plan includes
efforts to: a) sell the entire company to a strategic or fi-
nancial buyer, or accept a substantial equity infusion from one
or more investors; b) refocus the company's efforts back to its
core business of hospital-based contract services and billing
businesses; or c) divest its clinical operations and other non-
strategic assets and use the funds to pay down Coastal's debt.
Servicing the debt obligations is imperative to the company,
which disclosed on June 4, 1996, that it had six months to
raise about $40 million to service its existing loan and credit
line. Coastal needed the credit line to ensure its operations
through the second half of 1996.
While Dr. Scott believes management should step back and seek a
buyer for the entire company, Mr. Piemont has indicated that
"the reality is that the banks are expecting repayment and our
operations can't generate those payments. Therefore, the asset
sales are needed. The world can't stand still waiting for a
buyer. . . . We have to deal with the realities of the credit
situation in a way that maximizes value." Management has tar-
geted eight or nine nonstrategic businesses that could be sold,
and it intends to fortify its core business while implementing
the sale of those businesses. The improvements to the existing
businesses are expected to be achieved through technological
advantages, contract advantages, and market dominance. Mr.
Piemont notes that the improvements could "never hurt" in a
sale of those businesses in the future, as the company would
get a better margin on the sale after the strategy is imple-
mented.
Management recently acted on its plan to shed some of its non-
core assets with the sale of six Maryland physician practices
to an affiliate of Helix Health Inc., for $17 million. The
company also announced that it was close to selling other busi-
nesses to help repay the outstanding debt service. Dr. Scott
believes that the sale indicates that the company is not pursu-
ing a sale of the entire company and that by selling off the
company's assets, management is jeopardizing any possible sale
of the entire company. Further, he believes management's plan
will take too much time and will not maximize shareholder
value.
As Coastal's largest shareholder, Dr. Scott has questioned
management's commitment to the company's shareholders. He
cites the lack of share ownership among the officers and direc-
tors of the company other than Dr. Jacque Sokolov, chairman of
the board. According to Coastal's 1996 proxy statement, Mr.
Piemont, an officer since 1993, beneficially owns 11,110 shares<PAGE>
of common stock (less than one percent of outstanding shares).
However, all of those shares are subject to presently exercis-
able stock options. Robert Hatcher, a director since 1991,
beneficially owns 16,887 shares, but 18,687 shares are subject
to either outstanding stock options or shares reserved for is-
suance under the company's deferred compensation plan. Dr.
John Mahoney, CEO of Healthplan Southeast, Inc., a subsidiary
of Coastal and an officer since 1994, beneficially owns 4,247
shares of common stock, all of which are reserved for issuance
under the deferred compensation plan. Dr. Scott contends that
if the officers and directors of the company are confident in
their turnaround strategy for the company, they should have
been buying Coastal common stock to align their interests with
those of shareholders. Management contends that its compensa-
tion plans are designed to align the interests of officers with
those of shareholders by paying significant portions of incen-
tive compensation in stock options.
Management has criticized Dr. Scott's efforts in this proxy
contest as a desperate effort to regain control of Coastal. If
Dr. Scott is successful in his attempt to gain two board seats,
theoretically he will have the support of five of the nine mem-
bers of Coastal's board. While categorically denying that he
is seeking to be reinstated as Coastal's CEO, Dr. Scott is the
company's largest shareholder, and he notes that he is seeking
to maximize the value of Coastal stock as a director and share-
holder. Additionally, he has indicated in his proxy statement
that he will not accept the position of CEO even if it is of-
fered to him. However, he believes there are four or five com-
panies that may be interested in buying Coastal in its en-
tirety, and by causing the board to examine the sale of the
entire company, his nominees and supporters might be able to
arrange for the sale of Coastal. The first step in such a
transaction would be to hire an investment banker, something
Coastal has been without since Morgan Stanley opted not to con-
tinue as Coastal's banker in August 1996. Dr. Scott believes
Coastal's inability to retain an investment banker since Morgan
Stanley's departure is an indication of its unwillingness to
explore the sale of the entire Company. According to Mr.
Borchert, "Morgan Stanley decided they didn't want to be in the
process. . . . Their recommendation was that the pieces are
worth more than the whole."
Dr. Scott also believes that the "piecemeal" sale of assets
will jeopardize the company's use of its net operating loss
carryforward and a possible pooling of interests transaction if
the company is sold in its entirety in the future. Mr. Piemont
indicated that Coastal has been advised that the net operating
loss carryforward and a possible pooling of interests transac-
tion will not be adversely affected by the strategic sale of
assets.
The proxy contest presents shareholders of Coastal with a dif-
ficult decision. While Dr. Scott believes management at<PAGE>
Coastal is "ineffective and weak" and that the Company as a
whole should not be sold, no buyers come forward to purchase
the entire company. Shareholders should also note that the se-
nior management is made up of the same officers that were at
Coastal while Dr. Scott was running the company, and the senior
management has retained Price Waterhouse to assist them in the
turnaround process at the company. While Dr. Scott has criti-
cized the contract with Price Waterhouse, he sought to retain
the accountant while he was the CEO. Management's debt burden
is also a critical factor in the contest, as Coastal has an
impending payment due within months and no operating profits to
service the debt. Numerous underperforming assets are also
causing a drain on the company's working capital. Management
has stated that its comprehensive business plan will "actively
pursue all strategic alternatives" for Coastal, including exam-
ining the sale of the entire company. Although Dr. Scott be-
lieves management is not actively pursuing the sale of the en-
tire company, management states that its strategy includes that
alternative.
We believe management's approach to the problems at Coastal is
in shareholders' best interests. Although we question the de-
lay in hiring an investment banker, we believe the strategic
plan set forth by management is necessary to maintain Coastal
as a viable entity given the company's financial situation.
While Dr. Scott has criticized management, it was under his
leadership as CEO that the company's stock dropped from $42.00
per share to $14.25 before his departure. Since then, the
company's dire financial position, coupled with the proxy con-
test, have pushed Coastal's stock price to approximately $5.88
as of Sept. 19, 1996. While we would prefer to see an invest-
ment banker hired in a timely manner to assist the company in
its pursuit of all possible alternatives for the company, we
believe the sale of assets is necessary to service the impend-
ing debt payment, and the fortification of the company's core
assets will benefit the company in the long run if those assets
can be sold in the future. Because management is open to the
possibility of a sale of the entire company, we believe that
its strategy for operating Coastal under its current situation
will help the company avoid default on its debt obligations and
enhance the position of Coastal for a possible sale of the com-
pany in the future. Thus, we recommend that shareholders vote
in favor of management's nominees to the board.
Management Proposals (WHITE Card)
[ ] Item 1: Elect Directors
Coastal classifies its nine directors into three director
classes. This proposal seeks election of three directors for
three-year terms expiring in 1999. Mr. Piemont and Norman
Chenven are new director nominees.<PAGE>
The full board comprises five insiders, two affiliated outsid-
ers, and two independent outsiders. The Nominating Committee
comprises one insider, two affiliated outsiders, and one inde-
pendent outsider. ISS prefers that all key board committees
include only independent outsiders.
Mr. Chenven, a new nominee, owns no company stock. In our
opinion, directors can best serve shareholder interests by be-
coming shareholders themselves.
We recommend a vote FOR the directors.
[ ] Item 2: Approve Continued Implementation of the Comprehensive
Business Plan
This proposal seeks shareholder approval of the implementation
of management's comprehensive business plan, as described in
the discussion of the proxy contest above. As we have sup-
ported management in the proxy contest, we believe the compre-
hensive business plan is in shareholders' best interests.
We recommend a vote FOR Item 2.
Shareholder Proposal
[ ] Item 3 Establish Other Board Committee
This shareholder proposal, submitted by Dr. Scott, requests
that the board establish a committee of four independent direc-
tors, including Dr. Scott's two nominees if elected, which
would consider additional or alternative means of maximizing
shareholder value. As we have supported management's nominees
for election to the board of directors, and because we believe
the comprehensive business plan implemented by management is in
shareholders' best interests, we do not support Dr. Scott's
proposal to establish an additional board committee to evaluate
other strategic alternatives for Coastal.
We recommend a vote AGAINST Item 3.
Management Proposal
[ ] Item 4: Ratify Auditors
The Board recommends that KPMG Peat Marwick LLP be approved as
the company's independent accounting firm for the coming year.
Note that the auditors' report contained in the annual report
is unqualified, meaning that in the opinion of the auditor, the
company's financial statements are fairly presented in ac-
cordance with generally accepted accounting principles.
We recommend a vote FOR the auditors.<PAGE>
Dissident Meeting Agenda (BLUE Card)
[ ] Item 1: Elect Directors (Opposition Slate)
ISS has supported management's nominees to the board (see
above), and we recommend shareholders WITHHOLD votes from Dr.
Scott's nominees to the board.
Shareholder Proposal
[ ] Item 2: Establish Other Board Committee
See Item 3 above.
We recommend a vote AGAINST Item 2.
Management Proposals
[ ] Item 3: Approve Continued Implementation of the Comprehensive
Business Plan
See Item 2 above.
We recommend a vote FOR Item 3.
[ ] Item 4: Ratify Auditors
The board recommends that KPMG Peat Marwick LLP be approved as
the company's independent accounting firm for the coming year.
Note that the auditor's report contained in the annual report
is unqualified, meaning that in the opinion of the auditor, the
company's financial statements are fairly presented in ac-
cordance with generally accepted accounting principles.
We recommend a vote FOR the auditors.<PAGE>
____________________________
Coastal Physician Group, Inc.
2828 Croasdaile Drive
P.O. Box 15309
Durham, North Carolina 27704
(919) 383-0355
Company Solicitor: Mackenzie Partners, Inc. (212) 929-5500
Shareholder Proposal Deadline: April 8, 1997
This proxy analysis has not been submitted to, or received ap-
proval from, the Securities and Exchange Commission. While ISS
exercised due care in compiling this analysis, we make no war-
ranty, express or implied, regarding the accuracy, complete-
ness, or usefulness of this information and assume no liability
with respect to the consequences of relying on this information
for investment or other purposes.
Endnotes
1. Mr. Hemingway is an executive officer of the company.
Source: Coastal Physician Group, Inc., 1996 Proxy Statement,
p. 15.
2. Mr. Mahoney is a former executive officer of a subsidiary
of the company. Source: Coastal Physician Group, Inc., 1996
Proxy Statement, p. 10.
3. Mr. Scott is an executive officer of the company. Source:
Coastal Physician Group, Inc., 1996 Proxy Statement, p. 15.
4. Mr. Sokolov is an executive officer of the Company.
Source: Coastal Physician Group, Inc., 1996 Proxy Statement,
p. 15.
5. Mr. Walls is a former executive officer of a subsidiary of
the company. Source: Coastal Physician Group, Inc., 1996
Proxy Statement, p. 10.
