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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-
11(c)
or Section 240.14a-12
COASTAL PHYSICIAN GROUP, INC.
(Name of Registrant as Specified In Its Charter)
Not
Applicable
(Name of Person(s) Filing Proxy Statement, if other than
the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) 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 (set forth the amount on which the
filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously 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:
COASTAL PHYSICIAN GROUP,
INC. 2828 Croasdaile
Drive
Durham, North Carolina
27705
July 13,
1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders to be held at the Durham Hilton, 3800
Hillsborough Road, Durham, North Carolina, on Friday, August
14, 1998, at 10:00 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,
Steven M. Scott, M.D.
Chairman, President and
Chief Executive Officer
COASTAL PHYSICIAN GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on August 14, 1998
TO THE SHAREHOLDERS
OF COASTAL PHYSICIAN GROUP, INC.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting
of
Shareholders (the "Annual Meeting") of Coastal
Physician Group, Inc., a Delaware corporation (the
"Company"), will be
held at 10:00 a.m., local time, on August 14, 1998, at
the Durham Hilton, 3800 Hillsborough Road, Durham,
North Carolina, for the following purposes:
(1) To elect three members to the Company's Board
of
Directors to hold office until the 2001 Annual
Meeting or until their successors are duly
elected and
qualified;
(2) To consider and act upon a proposal to amend
the Company's Amended and Restated Certificate
of
Incorporation to include a new paragraph 12 which
is
intended to facilitate the Company's preservation
and use of its net operating loss carryforwards for
federal income tax purposes;
(3) To consider and act upon a 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, 1998; and
(4) To transact such other business as may properly come
before the Annual Meeting.
The Board of Directors has fixed the close of business
on
July 8, 1998 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 preaddressed envelope as promptly as possible.
No postage is required if mailed in the United States.
By Order of the Board
of
Directors,
Steven M. Scott, M.D.
Chairman, President and
Chief Executive Officer
Durham, North Carolina
July 13, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING
IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND
ARE URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A
PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE
THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
1998 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 1998
Annual Meeting of Shareholders of the Company to be held
at the Durham Hilton, 3800 Hillsborough Road, Durham,
North Carolina, at 10:00 a.m., local time, on August
14, 1998 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 July 13, 1998. Shareholders
should review the information provided herein in
conjunction with the Company's 1997 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. 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.
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, employees of the Company
may solicit proxies personally and by telephone. The
Company's employees 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.
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 2001 annual meeting
or
until their successors are duly elected and qualified;
(2) To consider and act upon a proposal to amend
the
Company's Amended and Restated Certificate
of
Incorporation to include a new paragraph 12 which
is
intended to facilitate the Company's preservation
and use of its net operating loss carryforwards for
federal income tax purposes;
(3) To consider and act upon a 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, 1998; and
(4) To transact such other business as may properly
come
before the Annual Meeting.
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 proposals 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 Company's Board of Directors (the "Board") has set
the close of business on July 8, 1998 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 37,621,750 shares of
Common Stock and
444,974 shares of the Company's Series D
Convertible Preferred Stock ("Preferred Stock")
outstanding. Each share of Common Stock is entitled to one
vote, and each share of Preferred Stock is entitled to ten
votes, on each matter to be acted upon at the Annual
Meeting. Shares of
Common Stock and Preferred Stock vote together in
the election of directors and on Proposals 2 and 3.
The representation in person or by proxy of a majority
of
the Company's issued and outstanding voting securities
is
necessary to provide a quorum at the Annual
Meeting. Directors of the Company are elected by a plurality
vote, and 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. Approval of
Proposal 2 requires the affirmative vote of the
majority of the total votes represented by the
Company's outstanding Common Stock and Preferred Stock.
Abstentions may be specified on Proposal 2 and will have
the practical effect of a negative vote. Under the rules of
the New York Stock Exchange (the `NYSE"), brokerdealers who
hold shares in street name have the authority to
vote on certain routine matters when they have not
received voting instructions from beneficial owners.
Proposal 2 is
not considered a routine matter under the rules of the
NYSE. Accordingly, broker-dealers who hold shares in
street name will not have authority to vote on this
proposal ("broker nonvotes"). Broker nonvotes will be
treated as shares not entitled to vote on Proposal 2 and
will have the practical effect of a negative vote.
On the Record Date, Steven M. Scott, M.D., the Chairman,
President and Chief Executive Officer, owned
approximately 54% of the total voting power of the
Company's outstanding
voting securities. Dr. Scott has advised the Company that
he intends to vote his shares for the election of the
three director nominees and in favor of the other
proposals that will be considered at the Annual Meeting
which will assure the election of
the nominees and the approval of the other
proposals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
Except as indicated under "Security Ownership
of
Management," there are no shareholders known to the
Company to be the beneficial owners of more than five
percent of the Company's Common Stock as of June 30, 1998.
Security Ownership of Management
The following table sets forth certain information
with respect to the beneficial ownership of the Company's
Common Stock and Preferred Stock as of June 30, 1998 by:
(i) each director of the Company; (ii) each person
identified as a Named Executive Officer in the Summary
Compensation Table; and (iii) all current 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 securities.
Name and Amount and Nature
Address (1) of Beneficial
Percent
Title of of Ownership Percent of
Class Beneficial of Total
Owner Class
Voting
(2) Power
(2)(3) Common Steven M. 18,308,574 (4) 48.6% 43.5%
Stock Scott, M.D.
Series D Steven M. 444,974 100.0% 10.6%
Convertible Scott, M.D.
Preferred
Stock
Common Bertram E. 1,473,908 (5) 3.9% 3.5%
Stock Walls, M.D.
Common Edward L. 44,075 (6) * *
Stock Suggs, Jr.
Common Sherman M. 46,075 (7) * *
Stock Podolsky,
M.D.
Common Charles E. 40,341 (8) * *
Stock Potter
Common Deborah L. 400 * *
Stock Redd
Common Eugene F. 8,883(9) * *
Stock Dauchert,
Jr.
Common Mitchell W. 19,000 (10) * *
Stock Berger
Common Henery J. -- * *
Stock Murphy
Common Raymond A. -- * *
Stock Spillman
Shares owned by all directors and
executive
officers as a group(10 persons):
Common 19,767,317 (11) 52.5%
46.9%
Stock
Series D 444,974 100.0%
16.6%
Convertible
(1) Except as otherwise indicated, the address for
all persons listed below is c/o Coastal Physician
Group, Inc., 2828 Croasdaile Drive, Durham, NC 27705.
(2)An asterisk (*) indicates less than one percent.
(3)Each share of the Company's outstanding Preferred
Stock is entitled to cast ten votes per share on any
matter submitted to a vote at an annual or special
meeting of shareholders, except
proposals pertaining to
the
conversion of the Preferred Stock. This column
presents the percentage of aggregate voting power
held, assuming the preferred stock is entitled to
vote on all matters submitted to a vote of the
Company's security holders.
(4)Includes 6,249,977 shares held by Scott Medical
Partners, LLC, of which voting power is held by Dr. and
Mrs. Scott. Also includes 535,766 shares held by a
partnership, 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 390,666 shares. Voting power with respect
to the
remaining 145,100 shares is held by Dr. Walls, as
trustee of the trusts. Also includes 10,000 shares
held by Mrs. Scott as to which Dr. Scott
disclaims beneficial ownership and 5,921 shares
subject to a presently exercisable option. Also
includes 1,703,334 shares held by American Alliance
Insurance over which Dr. Scott may be deemed to
share voting and investment power. Dr.
Scott disclaims beneficial ownership of the shares
held by American Alliance Insurance. The remaining
9,645,323 shares are held by Dr. Scott directly.
Dr. Scott's address is 17020 Brookwood Drive, Boca
Raton, Florida 33496.
(5)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
1,171,695 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
2,000 shares owned directly by Dr. Walls, 5,000
shares subject to presently exercisable stock options
and 29,970 shares reserved for issuance under
the Deferred
Compensation Plan.
(6)Includes 22,976 shares subject to presently
exercisable stock options and 265 shares owned by Mr.
Suggs' wife. Mr. Suggs disclaims beneficial ownership
of the shares held by his wife.
(7)Includes 27,532 shares subject to presently
exercisable stock options.
(8)Includes 4,000 shares subject to presently exercisable
stock options and 36,341 shares reserved for issuance
under the Deferred Compensation Plan.
(9)Includes 3,883 shares subject to presently exercisable
stock options.
(10) Includes 3,000 shares subject to presently
exercisable stock options.
(11) Includes 72,312 shares subject to presently
exercisable stock options and 66,311 shares reserved for
issuance under the Deferred Compensation Plan,
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:
Name Age Position
Steven M. Scott, M.D. 50 Chairman of the
Board, President and Chief Executive Officer
Charles F. Kuoni, III 46 Executive Vice
President,
Chief Financial Officer and Treasurer
Mitchell W. Berger (1)(2) 42
Director
Charles E. Potter (1)(2) 54
Director
Bertram E. Walls, M.D. 46 Director
Eugene F. Dauchert, Jr. 44 Director, Executive
Vice
President and Secretary
Edward L. Suggs, Jr. 46 Director, President and
Chief
Executive Officer, Healthcare
Business Resources, Inc.
Sherman M. Podolsky, M.D. 47 Director,
President,
Coastal Physician Services of South
Florida, Inc.
_________________________
(1) Member of the Audit Committee of the Board
(2) Member of the Compensation Committee of the Board
Dr. Scott has been a director of the Company since
its formation in 1977. Until he resigned from the
position on December 1, 1994, Dr. Scott also served as
Chairman of the Board and from 1977 to May 29, 1996,
Dr. Scott served as President and Chief Executive
Officer of the Company. Dr.
Scott was re-elected Chairman of the Board on January
14, 1997, and re-appointed President and Chief Executive
Officer of the Company on March 1, 1997. Dr. Scott has
obstetrics and gynecology practice experience and
clinical and
administrative emergency department experience. He is
boardcertified 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 University. Dr. Scott completed
his residency in the Department of Obstetrics and
Gynecology at Duke University Medical Center.
Mr. Kuoni became Chief Financial Officer on September
15, 1997. Prior to
that, Mr. Kuoni was a consultant to the
Company, assisting management in developing its
strategic business plan, refinancing the Company and
implementing operational changes. For the period August
1994 to June 1996, Mr. Kuoni served as President of
Travelmasters, Inc., a privately-held travel management
company. From February 1990 until August 1994, Mr. Kuoni
held a number of positions with the consulting firm of
Buccino & Associates, Inc. His most recent position was
Vice President and Engagement Manager. Mr. Kuoni received
his Bachelor's degree in Accounting from Texas Christian
University and his Master's degree from Northwestern
University's Kellogg School of Management.
Mr.
Kuoni is a Certified Public Accountant and is a member of
the American Institute of Certified Public Accountants
and the Illinois Society of Certified Public Accountants.
Mr. Berger has been a director of the Company
since September 1996. He is the President and Founder of
Berger, Davis & Singerman, a law firm with offices
located in Fort Lauderdale, Miami, and Tallahassee,
Florida. Mr. Berger currently serves on the Board of
Governors of the Nova University School of Business and
was a Commissioner on the Florida Environmental
Regulation Commission from 1991 to 1997. Mr. Berger was
recently appointed by the Governor, and approved by the
Florida Senate, to serve on the Board of the South Florida
Water Management District and has been a member of the
Board of the Student Loan Marketing Association
(Sallie Mae) since 1994.
Dr. Walls, a director since 1991, became President
and Chief Executive Officer of Doctors Health Plan,
Inc., a subsidiary of the Company, in February 1998. On
March 18,
1998, the Company sold Doctors Health Plan, Inc. Dr.
Walls also served as President of Coastal Physician
Contract Services Group, Inc. from January through
December 1994. Effective January 1, 1995, Dr. Walls became
the President and Chief Executive Officer of Century
American Insurance Company ("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. In
addition, Dr. Walls holds an MBA degree from the Duke
Fuqua School of Business.
Mr. Potter, a director of the Company since April 1997,
is President of The Potter Financial Group, a small
independent financial planning firm in Durham, North
Carolina and a
Principal in The Potter Financial Advisory Group, LLC,
a
Registered Investment Advisory firm. He graduated from
St. Peters College in Jersey City, NJ with a BS
degree in Marketing in 1966.
He has been in the financial services
industry since 1966. He holds four
professional
designations: (CLU) Chartered Life Underwriter,
(ChFC) Chartered Financial Consultant from the American
College, Bryn Mawr, PA, (RFC) Registered Financial
Consultant from the International Association of Registered
Financial Consultants and (AEP) Accredited Estate
Planner from the National Association of Estate Planning
Councils. He is also a member of the Association for
Advanced Life Underwriters and a
Qualifying and Life Member of the Million Dollar Round
Table, an international sales organization.
Mr. Dauchert, a director since October 1996,
became Executive Vice President in July 1997. He has also
served as President and Chief Executive Officer of Coastal
Physician Networks, Inc. ("CPN"), a subsidiary of the
Company, since January 1, 1996. Prior to that, Mr.
Dauchert served as President of Integrated Provider
Networks, Inc., a subsidiary of CPN. Prior
to joining the Company, Mr. Dauchert was a
partner in the law firm of Moore & Van Allen, PLLC where
he focused his practice on health care, corporate and
tax matters for 16 years. Mr. Dauchert received a B.A. from
the University of North Carolina at Chapel Hill and a J.D.
degree with honors from the University of North Carolina
School of Law. He is a member of the North Carolina and
American Bar Associations, and is active in numerous health
care sections of those organizations.
Mr. Suggs, a director since March 1997, has been
with Healthcare Business Resources, Inc., a subsidiary
of the Company, since 1986 and its President since 1987.
Mr. Suggs previously served as a director of the Company
from 1989 to
1994. Previously, Mr. Suggs was Assistant Controller
of
Oxford Development Company, a real estate development
firm, and a tax manager for the accounting firm of Ernst
& Young LLP. He received a B.S. degree in Accounting
from the University of North Carolina at Charlotte. Mr.
Suggs is a member of
the American Institute of Certified Public
Accountants, the North Carolina Association of
Certified Public Accountants and the Healthcare Financial
Management Association.
Dr. Podolsky became a director on January 1, 1998, and
is
President of Coastal Physician Services of South Florida
Inc.,
a subsidiary of the Company. Dr. Podolsky has also served
as
Senior Vice President of Medical and Corporate Affairs
and Senior Medical Officer for Coastal Emergency Services
of Ft. Lauderdale, Inc., a subsidiary of the Company, since
1991. He is a member of the American College of Emergency
Physicians. He received his medical education from Chicago
Medical School and completed his Emergency Medicine
Residency at the
University of California, San Francisco and is a member of
the American College of Emergency Physicians. Prior to
joining the Company, Dr. Podolsky held the position of
Chairman of Emergency Medicine at Albert Einstein
Medical Center in Philadelphia and also served on the
faculty of UCLA and Stanford University.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1997, the
Board held 22 meetings. During fiscal 1997, no incumbent
director attended fewer than 75% of the aggregate of (1)
the total number of meetings of the Board held during the
period for which such director served on the Board and
(2) the total number of meetings held by all committees
of the Board on which such director served during the
period such director served.
Mr. Berger and John P. Mahoney, M.D. were the members
of the Audit Committee on January 1, 1997. Mr. Potter
was elected to the Audit Committee on May 2, 1997. On
December 31, 1997, Dr. Mahoney resigned from the Board. The
principal functions of this committee are to make
recommendations to the Board 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 nine times during 1997.
Effective October 14, 1996, the full Board was
designated as the Nominating Committee. The principal
functions of this committee are to recommend to the Board
nominees for election as directors at the Company's Annual
Meetings of Shareholders and to recommend nominees to
fill any vacancies occurring between Annual Meetings.
The Nominating Committee will consider as potential
nominees persons recommended by
shareholders, which recommendations should be submitted
to the committee in care of the Secretary of the Company.
Mr. Berger and Dr. Mahoney served as members of the
Compensation Committee on January 1, 1997. Mr. Potter
was elected to the Compensation Committee on May 2, 1997.
Mr.
Berger and Dr. Mahoney were elected to serve as members
on December 3, 1996. On December 31, 1997, Dr. Mahoney
resigned from the Board. The principal functions of the
committee are to review and make recommendations to the
Board with respect to the compensation of the executive
officers of the Company. The Compensation Committee met
four times during 1997. Executive Compensation
The following table sets forth the compensation
received by the individuals who served as the President
and Chief Executive Officer of the Company during 1997,
its four other most highly compensated executive officers
who were serving as executive officers at December
31, 1997, and one
additional individual who was one of the four most
highly compensated executive officers during 1997 but was
not an executive officer at December 31, 1997
(collectively, the "Named Executive Officers"), for
services rendered to the Company or its subsidiaries
during the years ended December 31, 1997, 1996 and 1995,
as applicable:
SUMMARY COMPENSATION TABLE
Annual Compensation
Long
Term
Compensa
Other tion All
Annual Awards
Other Name and Compen- Number
compen-
Principa Salary sation of
sation
l Year ($) Bonus (1) $ Securiti (2)
$
Position ($) es
Underlyi
ng
Options/
SARs (#)
Steven 1997 400,000 -- --
M.
Scott,
M.D.
Chairman
of the
Board,
Presiden
t and
Chief
Executiv
e
Officer
1996 333,333 -- 12,806
1995 333,333 -- 51,492 103,529
165,81
8 Jacque 1997
233,333 -- -- -- 2,817
J.
Sokolov,
M.D.
Vice
Chairman
of the
Board
and
Chief
Executiv
e
Officer,
Advanced
Health
Plans,In
c. (5)
1996 400,000 400,000 -- --
5,464
1995 400,000 150,000 -- 3,883
4,215
Deborah 1997 228,154 63,563 -- 100,000
4,167
L. Redd
Former
Director
and
Presiden
t,
Coastal
Managed
Healthca
re, Inc.
(5)
1996 237,519 35,000 -- 20,000
3,538
1995 47,163 -- -- --
70
Eugene 1997 160,000 54,745 -- 100,000
4,405
F.
Dauchert
, Jr.
Director
and
Executiv
e Vice
Presiden
t
1996 160,000 8,500 -- --
4,481
1995 160,000 -- -- 48,883
3,918
Edward 1997 213,654 50,769 -- 100,000
4,049
L.
Suggs,
Jr.
Director
,
Presiden
t and
Chief
Executiv
e
Officer,
Healthca
re
Business
Resource
s, Inc.
(6)
1996 190,000 -- -- --
2,442
1995 188,539 -- -- 40,000
3,754
Henry J. 1997 60,000 100,000 -- --
725
Murphy
(3)
Former
Presiden
t and
Chief
Executiv
e
Officer
1996 69,130 -- -- 100,000
- --
(7)
1995 N/A N/A N/A N/A
N/A
Raymond 1997 123,077 34,473 -- --
960
A.
Spillman
Former
Senior
Vice
Presiden
t and
General
Counsel
1996 66,847 10,000 -- --
240
1995 N/A N/A N/A N/A
N/A
(1) Reflects imputed income for personal use of
the Company's aircraft.
(2) Includes for 1997: (i) contributions made under
the Company's 401(k) plan of $3,200, $2,400, $3,398,
$3,563 and $3,563 for Dr. Scott, Dr. Sokolov, Ms.
Redd, Mr. Dauchert and Mr. Suggs, respectively, and
(ii) premiums paid for term life insurance policies of
$1,090, $417, $769, $842, $487, $725 and $960 for
Dr. Scott, Dr. Sokolov, Ms. Redd, Mr. Dauchert, Mr.
Suggs, Mr. Murphy and Mr. Spillman, respectively.
(3) Mr. Murphy served as President and Chief
Executive Officer of the Company from October 24, 1996 to
March 1,
1997. Dr. Scott served as President and Chief
Executive
Officer of the Company from March 1, 1997 to December
31, 1997. See
"Employment and Certain Other
Agreements"
below.
(4) Advanced Health Plans, Inc. is a subsidiary of
the
Company.
(5) Coastal Managed Healthcare, Inc. is a subsidiary of
the
Company.
(6) Healthcare Business Resources, Inc. is a subsidiary
of
the Company.
(7) Mr. Murphy was granted 100,000 stock appreciation
rights ("SARs") on November 1, 1996. 12,000 SARs were
scheduled
to vest on each of November 1, 1996, December 1,
1996,
January 1, 1997, February 1, 1997 and February 28,
1997.
Due to the termination of Mr. Murphy's employment on
March 1, 1997, the 20,000 SARs scheduled to vest on
March 31,
1997, and an additional 20,000 SARs scheduled to vest
on April 30, 1997 were forfeited.
Stock Option and SAR Grants
The following table provides certain information
with respect to stock options and SARs granted during 1997
to the Named Executive Officers:
Potential
Realizable
Value at
assumed
Annual
Rates of
Stock
Price
Appreciatio
n for
Option
Term
Percent
of Total
Options /
Number SARs
of Granted Exercis
Securiti to e of
es Employees Base
Underlyi in Fiscal Price Expirati 5% ($) 10%
Name ng Year (%) ($/ on Date ($)
Options Share(1
/ SARs )
Granted(
$)
Debora 100,000 6.3 2.00 April 6, 81,500
243,2
h L. (2) 2007 00
Redd
Eugene 100,000 6.3 2.00 April 6, 81,500
243,2
F. 2007 00
Dauche
rt Jr.
Edward 100,000 6.3 2.00 April 6, 81,500
243,2
L. 2007 00
Suggs,
Jr.
_________________
(1) Options vest and become fully exercisable on April
7,
2000.
(2) Options were forfeited on February 19, 1998.
Securities Underlying Unexercised Options
The following table provides certain
information
concerning the number of securities underlying
unexercised options held by each of the Named Executive
Officers. No
Named Executive Officer exercised an option or SAR during
the fiscal year ended December 31, 1997 and no
unexercised options or SARs were in the money at fiscal
year-end.
Unexercised at Fiscal Year-
End Number of
Securities
Name ExercisableUnexercisable
Steven M. Scott, M.D. 2,392 129,725
Jacque J. Sokolov, M.D.363,000 543,883
Deborah L. Redd -- 120,000(1)
Edward L. Suggs, Jr. 22,976 231,316
Eugene F. Dauchert, Jr.3,883 170,000
_______________
(1) Options were forfeited on February 19,
1998.
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 attended. The respective Chairman of
the Audit and the Compensation Committee receives 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
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 Chairman of
the Audit and the Compensation Committees automatically
receives 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.
Employment and Certain Other Agreements
Steven M. Scott, M.D.
In April 1991, Dr. Scott and the Company entered into
a five-year employment agreement that renews automatically
each year, unless either party gives notice of non-
renewable, 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 non-qualified 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
thirtysix 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.
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.
In order to facilitate the December 31, 1997 purchase
by Scott Medical Group, LLC (see "Item 13. Certain
Relationships and Related Transactions."), the Company
entered into a partial release of the non-compete
agreements pursuant to the employment agreement between Dr.
Scott and the Company. The
release allows Scott Medical Group, LLC and any other
Scott entity to own, manage, operate or otherwise provide
physician practice and management services to physician
and clinic practices.
Jacque J. Sokolov, M.D.
In connection with its acquisition of Advanced
Health Plans, Inc. in November of 1994, the Company entered
into an employment agreement with Dr. Sokolov. During the
five year term of the agreement, the Company was
obligated to use its best efforts to cause Dr. Sokolov to
be elected Chairman or Vice Chairman of the Board. In
addition to serving as Chairman or Vice Chairman, Dr.
Sokolov was to 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 was
$400,000 per year. He also was 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 specified
consulting engagements was less than $450,000 per year,
Dr. Sokolov was to 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. The
agreement was terminable by either party upon 90
days'
notice. If Dr. Sokolov was terminated without cause, he
is entitled to receive an ongoing payment of his base
salary, minimum
incentive bonus and speaking and consulting
guarantees for the remainder of the unexpired
term. Effective January 18, 1998, Dr. Sokolov resigned as a
member of the Board and as an officer of the Company,
pursuant to a letter to the Company dated January 18,
1998. Dr. Sokolov
indicated in a letter to the Company that he was
resigning
due to the fact that he would be commencing an
arbitration against the Company related to his employment
agreement. Deborah L. Redd
In September 1996, Ms. Redd entered into an
employment agreement with
the Company pursuant to which she became
employed as President of Coastal's Managed Care group,
as well as President of Coastal Managed Healthcare, Inc.
("CMH") and an
officer of Health Enterprises, Inc. ("HEI"),
HealthPlan Southeast, Inc. ("HPSE") and served on the
Board of HEI, HPSE, Better Health Plan, Inc. ("BHP") and
Doctors Health Plan, Inc. ("DHP"). The effective
date of the agreement was September 1, 1996 with an
initial term through September 30,
1998. Under the agreement, Ms. Redd was
entitled to receive a base salary of $234,000 per
year through August 31, 1997, which was subject to annual
review and adjustment as of September 1 of each year during
the term of employment. Ms. Redd was eligible for
performance bonuses based upon certain performance
criteria up to a maximum of $90,000 per year.
Effective February 19, 1998, Ms Redd submitted her
resignation from all positions held at the
Company, including her position as a member of the
Board. The employment agreement imposes certain
confidentiality obligations upon Ms. Redd and contains a
covenant not to compete with the Company or solicit
its employees for a specified period of time.
Edward L. Suggs, Jr.
On March 1, 1997, Mr. Suggs entered into an
employment agreement with Healthcare Business Resources,
Inc. ("HBR"), a subsidiary of the Company. The initial
term of the agreement is from March 1, 1997 through
February 29, 2000. Under the agreement, Mr. Suggs
serves as the President and Chief Executive Officer of
HBR. Mr. Suggs receives an annual base salary of
$220,000, subject to annual review and adjustment as of
each March 1 during the term of the agreement. As an
initial signing bonus, the Company released Mr. Suggs
from any claim for outstanding indebtedness of
approximately
$16,000 evidenced by a promissory note in the original
face amount of $25,000. Mr. Suggs is eligible for up to
$20,000 each quarter in performance bonuses, based upon the
financial performance of HBR and other factors, which may
include the discretion of HBR or the Company. The
employment agreement imposes certain confidentiality
obligations upon Mr. Suggs and contains a covenant not
to compete with HBR or its affiliates or solicit its
employees for a specified period of time.
Eugene F. Dauchert, Jr.
On July 1, 1997, Mr. Dauchert entered into a restated
and amended employment agreement with the Company
pursuant to which Mr. Dauchert serves as an Executive Vice
President and Chief Administrative Officer of the
Company. The effective date of the agreement was
September 1, 1996 and terminates on June 30, 1998. After
June 30, 1998, the term may be extended on a month to
month basis. Mr. Dauchert receives an annual base salary
of $180,000 and was eligible for an incentive or
performance bonus subject to his continued employment
through June 30, 1998 and the achievement by the Company of
specified cash flow goals for the second fiscal quarter of
1998. Under his amended employment agreement, Mr.
Dauchert is also eligible for certain divestiture bonuses
as described below. Mr. Dauchert received a divestiture
bonus, based upon the sale of the HealthNet Medical
Group operations of Physician Planning Group, Inc., of
approximately $35,000 and a divestiture bonus of 0.5%
of the net proceeds as defined by the agreement based
on the sale of Integrated Provider Networks, Inc.,
Practice Solutions, Inc., and certain remaining
clinics in south Florida. The employment agreement imposes
certain confidentiality obligations upon Mr. Dauchert and
contains a covenant not to compete with the Company or
its affiliates or solicit its employees for a
specified period of time.
Henry J. Murphy
In November 1996, Mr. Murphy entered into an
employment agreement with the Company pursuant to which
Mr. Murphy became employed as President and Chief
Executive Officer of the Company. The effective date
of the agreement was November 1, 1996, with an initial
term that ended on February 28,
1997. The agreement was not renewed. Under the
agreement, Mr. Murphy received a base salary of $30,000
per month and a $100,000 signing bonus upon the execution
of the agreement. In
addition, pursuant to the agreement, Mr.
Murphy became entitled to receive additional compensation
in the form of either stock appreciation rights (SARs), a
debt restructure fee, or a business combination
transaction fee. Mr. Murphy had the right to receive an
amount equal to any appreciation occurring from and after
November 1,1996 in up to 100,000 shares of the Company's
Common Stock. As of the date of his termination,
60,000 of Mr. Murphy's SARs had vested and 40,000 were
forfeited. Mr. Murphy had the right to exercise the SARs
which had vested at any time and from time to time
during the two-year period beginning March 1, 1997 and
ending February 28, 1999. At any time on or before 60
days after the termination of his employment agreement,
Mr. Murphy had the right to make an election to retain
the SARs or to forfeit them and be eligible instead to
receive either the debt restructure fee or the business
combination transaction fee. All SARs were forfeited upon
his election to be
eligible to receive the business combination
transaction fee.
On June 17, 1997, Mr. Murphy filed a lawsuit against
the Company alleging that the Company failed to pay the
business combination transaction fee to him under his
employment agreement. Mr.
Murphy is alleging that the
Company's
transaction with National Century Financial Enterprises,
Inc. constitutes a sale of more than half of the assets
of the Company qualifying him to receive the business
combination transaction fee. The Company intends to
vigorously defend its position, but at this stage of the
litigation, exposure to the Company cannot be determined.
Upon presentation in accordance with Company policies,
the Company reimbursed Mr. Murphy for all reasonable
and
necessary travel and living expenses and other
disbursements incurred by Mr. Murphy on behalf of the
Company in the performance of his duties under his
employment agreement. These travel and living expenses
included Mr. Murphy's weekly plane trips to and from his
home in Atlanta, Georgia, and daily meal and living
expenses in Durham, North Carolina, and other locations
to which Mr. Murphy traveled on Company business.
Compensation Committee Interlocks and Insider Participation
Mr. Berger and John P. Mahoney, M.D. were elected to
serve
as members of the Compensation Committee on December 3,
1996. Dr. Mahoney resigned from the Board effective
December 31, 1997. Mr. Potter became a member of the
Committee in May 1997. Neither Mr. Berger nor Mr. Potter
have ever served as an officer or employee of the
Company or any of its subsidiaries. Dr.
Mahoney served as President and Chief
Executive Officer of HealthPlan Southeast, Inc., a
subsidiary of the Company, from December 1994 through
December 1995. For the year ended December 31, 1997,
the Company paid approximately $236,000 to Berger, Davis
& Singerman, a law firm of which Mr. Berger has been
a partner since 1985. Berger, Davis & Singerman also
provides legal services to Dr. Scott and business entities
controlled by Dr. Scott.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
Historically, the Company's compensation policies
were designed to attract and retain key executives by
paying competitive base
salaries, awarding discretionary cash
bonuses based on qualitative and quantitative
performance factors and granting incentive and nonqualified
stock options to selected executive officers and other
key employees to seek to align their interests more
closely with those of the Company's shareholders. For
senior executives who were not being compensated under
employment agreements, base salaries, discretionary bonuses
and stock option grants were generally determined by the
Compensation Committee based on the
recommendations of the Chief Executive Officer and
operating subsidiary presidents.
During 1997, two people held the office of Chief
Executive Officer. From November 1, 1996 through February
28, 1997, Henry J. Murphy was Chief Executive Officer.
Under Mr. Murphy, management was focused on attempting to
restructure the Company's bank credit facility and
examining possible divestitures.
Because of the uncertainty about possible
resulting structures of the Company,
compensation
arrangements for executive officers during this
period generally included "retention" bonuses designed to
provide an incentive for the officer to remain employed by
the Company through a certain date (generally September 1,
1997) in order to maintain continuity of management
through refinancing and possible divestitures. After Dr.
Scott succeeded Mr. Murphy as Chief Executive Officer
on March 1, 1997, management focused on continuing to
operate and improve the performance of the Company's core
emergency department physician staffing business and
replacing the bank credit facility with a receivables
financing facility. In addition, emphasis was
placed on increasing accountability and measurement
of operating results for operating divisions and
subsidiaries. Upon the recommendation of the Chief
Executive Officer, the compensation philosophy was
reoriented away from retention bonuses and toward
salary and bonus arrangements based on performance of
operating subsidiaries or divisions,
particularly upon improvements in cash flow from quarter
to quarter. This philosophy was integrated into the
provisions of each executive employment agreement entered
into during 1997 and also is reflected in the
current compensation arrangements for
executive officers who do not have
employment agreements. See "Employment and Certain
Other Agreements."
Chief Executive Officers' Compensation
Henry J. Murphy served as Chief Executive Officer under
an employment agreement dated November 1, 1996 with an
initial term ending on February 28, 1997. In January
1997, Mr. Murphy delivered written notice to the Company
indicating his intention not to renew or continue his
employment agreement upon its termination on February 28,
1997, and his employment terminated on February 28, 1997.
Effective March 1, 1997, the Board approved the
appointment of Dr. Scott as the Company's Chief
Executive Officer, and he currently is compensated
under the terms of an April 1991 employment agreement.
No discretionary compensation potentially
available to Dr. Scott under his employment agreement
was awarded by the Compensation Committee during 1997.
See
"Employment and Certain Other Agreements."
COMPENSATION COMMITTEE
Mitchell W. Berger, Esq.
Charles E. Potter 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 five
fiscal years with the cumulative total return of (i) the S
& P 500 Index and (ii) a composite of five
managed care/health care services
companies. This composite consists of: Phycor,
Inc.,
Medaphis Corporation, Medpartners, Inc., Oxford Health
Plans, Inc., and PCA International, Inc. 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.
Comparison of Five Year Cumulative Total Return
Among Coastal Physician Group, Inc.,
S&P 500 Index and Managed Care/Health Care Services Composite
1992 1993 1994 1995 1996
1997
Coastal 100 140.71 96.9 47.79 12.39
2.88
Physician
Group, Inc.
Peer Group 100 153.07 218.92 414.33 465.82
209.49
Index
S&P 500 Index 100 110.08 111.54 153.45 188.69
251.64
Assumes $100 invested on Jan. 1, 1993
Assumes Dividend Reinvested
Fiscal Year Ending Dec. 31, 1997
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engages in transactions with American
Alliance Holding Company and certain of its affiliates
("Alliance"), includingCentury American Insurance
Company ("Century
Insurance"). Amounts paid by the Company to these
entities,
net of amounts received, were $4,186,000 $5,135,000,
and
$3,371,000 for the years ended December 31, 1997, 1996,
and 1995, respectively. Dr. Scott is the beneficial owner
of all of the outstanding shares of Common Stock of
Alliance. These transactions and relationships are
described below.
On January 1, 1998, the Company entered into a
Risk Management Agreement with Century Insurance and
Medical Group Purchasing Association ("MGPA") pursuant to
which Century Insurance agrees to provide, and the
Company and MGPA agree to
purchase, insurance policies providing professional
liability insurance for the Company and the physicians
and other medical and clinical providers under contract
with the Company. The initial term of the agreement is
four years and the
agreement thereafter automatically renews for additional
one year terms unless either party gives notice of
non-
renewal by July 1 of the year preceding the renewal
term. The terms and
conditions of the coverage are the same as has
historically been provided to the Company and MGPA in
the past. The premium for the coverage is based
on the
underwriting criteria and loss experience of the
account. The agreement
contains a profit-sharing mechanism rewarding
the insureds if the loss experience does not
exceed
expectations. The Company and MGPA have the ability to
"opt out" of coverage under the policy in the event
that a competitive policy is located at a price less than
85% of the quoted premium from Century Insurance. The
policy may also be canceled by the Company and MGPA by
giving notice by July 1 of a
policy year and paying a termination fee equal to 10
percent of the insurance premium in effect if terminated
in year two, 7.5 percent if terminated during year 3
and 5 percent if terminated thereafter. Century Insurance
was sold by Alliance to a purchaser unaffiliated with the
Company in June 1998.
The Company and certain of its subsidiaries
sublease office space in Durham, North Carolina,
consisting of
approximately 59,000 square feet in a building owned
by Alliance and leased to Century Insurance. During the
years ended December 31, 1997 and 1996, the Company paid
Century Insurance approximately $562,000 and $960,000,
respectively, under these sublease agreements. The
Company, Alliance and Century Insurance are all liable to
the holder of a first mortgage on the property for the
total rentals specified in the prime
lease. However, the Company has an agreement of
indemnity from Alliance with respect to the total
rentals, and Alliance
has an agreement of indemnity from Century
Insurance. 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 per year for years six through ten and
$1,166,000 per year for years eleven through fifteen.
The Company leased office space from
corporations controlled by Dr. Scott and paid rent to
such corporations during 1997, 1996, and 1995 of
$286,000, $1,513,000, and $517,000, respectively. As
discussed below, the Company entered into a termination
of the remaining lease obligations for certain office space
under lease through 2002.
On January 21, 1997, the Company authorized 47,500
shares of
Series A Convertible Preferred Stock ("Series
A
Preferred") and 32,500 shares of Series B
Convertible Preferred Stock ("Series B Preferred"), and on
June 3, 1997, authorized 1,200,000 shares of Series C
Convertible Preferred Stock ("Series C Preferred"), each
series with a par value of $0.01 per share. On February
21, 1997, the Company increased the
number of authorized shares of Series B Preferred from
32,500 to 33,000. The Company reserved 800,000 shares
of Common Stock for issuance upon conversion of the
Series A
Preferred and Series B Preferred and 12,000,000 shares
of Common Stock for issuance upon conversion of the
Series C Preferred.
In January 1997, pursuant to a reimbursement
agreement dated December 31, 1996 between the Company and
Dr. Scott, the Company issued 226,690 shares of Common
Stock and 32,739 shares of Series B Preferred to Dr. Scott
in satisfaction of the Company's obligation to
reimburse certain proxy solicitation expenses incurred
by Dr. Scott.
Also in January 1997, the Company, Dr. Scott and
Dr. Walls entered into a dismissal agreement with
respect to certain litigation whereby the Company, with
court approval, agreed to reimburse Dr. Scott and Dr.
Walls for legal fees and expenses incurred by them in the
litigation by issuing shares of Series A Preferred to
Dr. Scott and Dr. Walls in satisfaction of the Company's
obligation. The Company issued a total
of 46,033 shares of Series A Preferred Stock in
payment of the aggregate amount of fees and expenses
incurred by Dr. Scott and Dr. Walls.
Simultaneously with the National Century
financing
transaction, as explained in Note 7 of "Notes to
Consolidated Financial Statements", Dr. Scott invested $10
million in cash in the Company and received 1,000,000
shares of Series C Preferred. The Series C Preferred,
subject to approval by the Company's shareholders, is
convertible into 10,000,000 shares of Common Stock. In
addition, Dr. Scott received 84,983 shares of Series C
Preferred and 240,000 shares of Common Stock in
satisfaction of certain rental and other obligations owed
to him by the Company of approximately $1.1 million.
Following the Company's annual shareholders meeting
in August 1997, at which the shareholders approved
the
convertibility of the Series A Preferred, the Series
B Preferred and the Series C Preferred, all the
outstanding shares of the Series A Preferred, the Series B
Preferred, and the Series C Preferred were converted in
October 1997 into Common Stock at a conversion rate of
ten shares of Common Stock for each share of preferred
stock.
Effective May 31, 1997, the Company sold certain
assets related to seven primary care clinics operated by
the Company (the "May Clinic Sale") to Scott Medical
Group LLC ("Scott Medical"). Scott Medical is a
privately held limited liability company which is
controlled by Dr. Scott. The
purchase price for the assets of the seven clinics
was $388,657 paid pursuant to a promissory note due May 31,
1998, with interest at 12% per annum. In addition, Scott
Medical gave a promissory note in the amount of $803,088
for certain other assets, primarily accounts receivable,
related to two other clinic locations previously sold to
unrelated third parties. This note was also due May 31,
1998 with interest at 10% per annum. (Collectively, these
notes are referred to as the "May Clinic Sale
Notes".)After the May 31, 1997 closing, the Company
advanced certain expenses for the benefit of Scott
Medical with respect to these clinics.
On December 31, 1997, the Company and certain of
its subsidiaries closed on a transaction (the "IPN
Sale") pursuant to which the Company sold to Scott
Medical the following assets: (i) all of the issued and
outstanding stock of Integrated Provider Networks, Inc.,
a North Carolina corporation ("IPN") which provides
practice and physician management services to
professional corporations; (ii) all of the issued and
outstanding stock of Practice Solutions, Inc., a North
Carolina corporation ("PSI") which provides billing
services to freestanding physician practices and
clinics, including those under management by IPN; (iii)
all of the issued and outstanding stock of Sunlife OB-
GYN Services of
Broward County, Inc., a Florida corporation ("Sunlife");
(iv) substantially all of the assets of Ft. Lauderdale
Perinatal Associates, which operates two physician clinics
located in
Plantation, Florida and Fort Lauderdale, Florida,
and
Physician Access Center, which operates a clinic in
San Francisco, California (collectively the "Clinics");
and (v) certain
accounts receivable of Sunlife (the "Sunlife
Receivables") which had previously been sold to NPF-XI,
Inc. pursuant to a series of receivables securitizations
and other financing arrangements between the Company and
subsidiaries of National Century Financial Enterprises,
Inc.
The IPN Sale transaction was negotiated between
the parties to be effective as of November 1, 1997. The
purchase price was $10,100,000, paid $5,000,000 in cash at
the closing with the balance paid with a short term
promissory note in
the principal amount of $5,000,000 and a receivable from
the purchaser in the amount of $100,000, both of which were
paid in full in January 1998. Pursuant to the terms
of the Agreement, the purchase price was reduced by
approximately $192,000 due to an increase in the
liabilities of IPN (including Prim Med, Inc., its wholly
owned subsidiary) and PSI from the liabilities as shown on
their September 30, 1997 balance sheets. The purchase
price may be further adjusted if the actual
collections of the outstanding accounts receivable of
IPN, Prim Med, Inc. and the professional corporations
under management by IPN varies five percent from the value
of such receivables as agreed upon by the parties. During
the period from November 1, 1997 to December 31, 1997, the
Company operated the subsidiaries and advanced expenses
for such operations. The advances totaled $1,302,016,
with $150,000 to be paid in cash and the balance paid
pursuant to
a note (the "IPN Note") due December 31, 1998 with
interest
at 10.94%.
In addition, Scott Medical gave a promissory note
(the "Receivables Purchase Note") as the consideration for
Scott Medical's purchase of the Sunlife Receivables. The
principal amount of the Receivables Purchase Note is
$1,000,727, the book value of the Sunlife Receivables.
The Receivables Purchase Note is subject to
adjustment if the actual collections with respect to
the Sunlife Receivables varies five percent from the
principal amount of the Receivables Purchase Note. The
Receivables Purchase Note bears interest at the applicable
federal rate, payable quarterly, with all principal and
accrued but unpaid interest payable in full on
October 31, 1998.
As part of the IPN Sale, Scott Medical assumed all of
the lease obligations of a subsidiary of the Company to
Chateau Limited Liability Company ("Chateau"), a
privately held limited liability company which is
controlled by Dr. Scott. The estimated balance of the
gross lease payments that were due under the Chateau
lease after October 31, 1997 is
$2,778,056. The parties negotiated a release fee for
the Chateau lease of $750,000 which was credited
against the amount Scott Medical owes the Company. On
June 3, 1998, Scott Medical paid $837,887 pursuant to
the above-described promissory notes, accrued interest and
the advances such that the net amount owed to the
Company by Scott Medical is
$3,993,930 as of June 30, 1998. Scott Medical has
disputed certain of the amounts owed as a result of
the rate of
collections of accounts receivable previously sold.
For a period of 12 months from the December 31,
1997 closing of the IPN Sale, the Company has a call
option (the "Call Option") on the assets sold whereby
the Company may repurchase from Scott Medical the
entirety (but not less than the entirety) of the assets
purchased on December 31, 1997 by Scott Medical. If the
Company exercises the Call Option, the
Company will pay Scott Medical a purchase price equal
to Scott Medical's investment in the assets with a
12%
annualized return. If, during the 12-month period the
Call Option is in effect, Scott Medical receives a bona
fide offer to purchase the assets from a third party
purchaser other than the Company, Scott Medical is
required to notify the Company of such offer and the
Company has 30 days from such notification in which to
determine whether to exercise its Call Option. If the
third party offer is for a purchase price less than the
purchase price computed pursuant to the Call Option or
upon more favorable terms than the Call Option, the
Company shall have the right to exercise its Call Option,
but only upon the more favorable terms and conditions of
the third party offer. During the 12-month Call Option
period, the Company has the right to market the
assets subject to the
Call Option to potential third party
purchasers.
The Company had received prior expressions of
interest from third
parties regarding the purchase of IPN, a
substantial portion of the assets sold in the IPN Sale.
The
sale of IPN to Scott Medical was on financial
terms
comparable to these third party offers. The Company was
able to sell IPN to Scott Medical without the
possibility of disruption of the clinics managed by IPN,
which was a concern in any possible sale to other parties.
The Company received a
fairness opinion relating to the financial aspects of the
IPN sale.
As part of the May Clinic Sale the Company agreed that
it would not provide Comprehensive Services (as defined
below) to physicians and clinic practices, whether
primary or specialty care practices and whether free-
standing or
hospital-based, in the locations and during the time
periods set forth
in the Restricted Periods (as defined below).
However, nothing in this non-compete covenant would
impair the
Company's right or ability (i) to exercise the Call
Option or (ii) to continue to provide Comprehensive
Services to any medical practice which is currently
receiving services from
the Company. For purposes of the non-compete,
"Comprehensive Services" shall mean owning,
managing,
operating or otherwise providing physician
management services (i) which involve as a principal
component the provision of site-based medical support
personnel, site-based administrative support personnel,
medical and office supplies, inventory and facilities,
or (ii) pursuant to which the
Company or its undertakes substantial responsibility for
the overall operation of the medical practice. For
the
purposes of the non-compete covenant, the "Restricted
Period" means (i) with respect to the counties of Wake,
Durham and Orange, North Carolina and with respect to any
area within a 50 mile radius of any Clinic or within a
50 mile radius of any
medical practice owned by IPN or Sunlife on the closing
date, a period of two years from the closing date
and thereafter until the Company terminates the Restricted
Period at any time following the second anniversary of
the closing date by giving 90 days prior written notice to
Scott Medical; and
(ii) with respect to the rest of the United States, a
period of one year from the closing date, provided that
the Company may, with 80 days prior written notice,
terminate the Restricted Period with respect to the rest
of the United States prior to the first anniversary of
the closing date.
In order to facilitate the May Clinic Sale to
Scott
Medical, the Company also entered into a partial release
of the non-compete agreements under the Employment
Agreement
between Dr. Scott and the Company. The release allows
Scott Medical and any other Scott entity to own, manage,
operate or otherwise provide physician practice and
management services
to physician and clinic practices.
On March 18, 1998, Coastal Physician Group, Inc.
(the "Company") completed the sale of Doctors Health
Plan, Inc. ("Doctors Health
Plan") to DHP Holdings, LLC
(the
"Purchaser") for a price of $5,993,532. The Purchaser is
a privately held limited liability company controlled by
Dr.
Scott. The Purchaser acquired all of the outstanding
stock
of Doctors Health Plan in the transaction,
Doctors Health Plan is a commercial Health
Maintenance Organization licensed to operate in the
State of North Carolina and certain counties in
South Carolina with
approximately 41,000 members. Doctors Health
Plan
experienced substantial growth in membership in 1997
and
reported revenues of $32,734,000 in 1997, but also
reported losses of $15,702,000 for the 1997 calendar
year in its
annual statement filed with the North Carolina Department
of
Insurance. In addition, Doctors Health Plan reported
a
preliminary loss of $993,532 on revenues of $5,045,000
for
January 1998 in its monthly statement filed with the
North Carolina Department of Insurance. As a result
of these losses, the Company was required to make
significant capital contributions to Doctors Health Plan
in 1997 and in 1998 prior to its sale, and the
Company anticipated that
substantial additional capital contributions would
be
required during the balance of 1998.
Doctors Health Plan was the subject of a Market
Practices Examination as of October 22, 1997
conducted by
representatives of the North Carolina Department of
Insurance that was finalized in February 1998. The
examination disclosed 51 regulatory violations and resulted
in a fine of
$500,000 and the requirement that Doctors Health Plan make
an additional capital deposit of $1,000,000 with the
North Carolina Commissioner of Insurance. The obligation
to pay
the fine has been deferred by the North Carolina
Commissioner of Insurance and will be the responsibility of
Doctors Health Plan and the Purchaser after closing.
After a thorough review of the operations of
Doctors Health Plan and the anticipated funding that would
likely be
required in the balance of 1998, the Company determined
that the best course of action was to divest the
asset. The
Company retained the investment banking firm of Advest,
Inc. to advise the Company, to assist in completing the
sale and
to render a fairness opinion regarding the financial
aspects of the transaction. The purchase price was
determined by
negotiation between the Company and Purchaser, and
Advest, Inc. advised the Company on the fairness of
financial aspects of the transaction.
The North Carolina Commissioner of Insurance issued
an
order dated March 11, 1998 exempting the transfer from
the
provisions of North Carolina law that pertain to
acquisition of control of a domestic insurer. This order
required the
Company to complete the transaction within thirty days and
to convert to equity a $1,100,000 loan made by the
Company to
Doctors Health Plan on March 2, 1998.
Immediately prior to the closing of the sale of
Doctors Health Plan,
the Company made an additional equity
contribution required by regulatory authorities in the
amount of $993,532 to Doctors Health Plan. As a result the
purchase price of $5,000,000 was increased to $5,993,532 to
take into account this equity contribution. The
purchase price was
paid $993,532 in cash, with the balance paid pursuant to
a $5,000,000 promissory note (the "DHP Note") due and
payable by March 28, 1998. The DHP Note bears interest
after March 28, 1998 at the rate of 12% per annum
until paid. The
original DHP Note provided that if it was not paid in
full within the earlier of (i) 90 days from March 18, 1998
or (ii)
45 days after the Company gave Purchaser notice that
it intended to accept a Strike Price (as defined below),
the Purchaser agreed to provide collateral to secure
the DHP Note.
On June 7, 1998, the Board approved an amendment to
the DHP Note providing for an extension of the due date
until June 8, 2001, quarterly interest payments and
principal payments of $1,000,000 on June 8, 1999,
$1,000,000 on June 8, 2000, and the balance on June 8,
2001. The Purchaser entered into a Pledge Agreement with
the Company dated June 8, 1998, pledging all of the issued
and outstanding stock of Alliance as security for the
repayment of the amended DHP Note.
The
adequacy of the collateral is subject to review by the
Board within 90 days. If the Board determines that the
collateral is insufficient, the Purchaser has 30 days
to provide additional collateral. If the Board
determines that the additional collateral is
insufficient, the amended DHP Note shall become due and
payable on demand.
For a period of 12 months from the closing, the
Company has the right to market and sell Doctors Health
Plan to potential third party purchasers. If the Company
locates a third party purchaser during the 12-month
period who is willing to purchase Doctors Health Plan
at a price that exceeds the Strike Price, then Coastal
may elect to have the sale take place. If the Company
elects to sell to the third party, the Purchaser has the
right to either (i) pay to the Company an amount equal to
the amount that would have been received by the Company
as a result of the sale to the third party or (ii) agree
to consummate a closing and sale to the third party
purchaser. The Strike Price is a price that will yield net
proceeds of the sale (after payment of the costs to market
and sell to a third party) in an amount equal to the
Purchaser's net investment in Doctors Health Plan plus a
12% annualized return on the net investment.
Purchaser's net investment is equal to the Purchaser's
purchase price plus the Purchaser's contributions to
Doctors Health Plan plus Purchaser's out-of-pocket
costs to acquire, finance and operate Doctors Health
Plan minus any distributions or dividends Purchaser
receives from Doctors Health Plan.
If the Company enters into a definitive agreement to
sell Doctors Heath Plan at a price greater than the Strike
Price before the earlier of (i) April 17, 1998 or (ii) the
date the Purchaser has contributed $2,000,000 to Doctors
Health Plan, the net proceeds (after payment of marketing
expenses of the sale to the third party) of the sale will
be divided between the Purchaser and the Company. In such
event, Purchaser will receive an amount equal to the
Purchaser's net investment plus a 12% annualized return
on the net investment, and the Company will receive the
balance of the net proceeds. If the sale is subsequent
to the earlier of the above events, the Purchaser will
be entitled to receive from net proceeds (after payment
of marketing expenses of the sale to the third party) the
greater of (i) the Purchaser's net investment plus a
12% annualized return on such amounts or (ii) an amount
equal to the Purchaser's net investment plus 50% of
the difference between (x) the amount of the net proceeds
less the Company's investment banker fees and expenses in
selling Doctors Health Plan to the Purchaser minus
(y) the
Purchaser's net investment. In all potential sales to
third party purchasers, the Purchaser has the right to
retain ownership of Doctors Health Plan and pay the
Company an amount equal to the amount the Company would
have received as a result of the sale to the third party.
As part of the transaction, the Company agreed to
continue to offer the employees of the Company and its
affiliates the option to use Doctors Health Plan under the
Company's health benefits program for one year following
the closing and to
not offer employees an option to use any other
health maintenance organization, preferred provider
organization or similar health plan during that one year
period in the State
of North Carolina or in any area of South Carolina
where
Doctors Health Plan is licensed.
As part of the transaction, the Company agreed to
a
partial release of its non-compete agreement with Dr. Scott
. This partial release allows Dr. Scott to operate
health maintenance organizations and similar organizations
in all areas, other than those areas in Florida and
Georgia where
the Company and/or its affiliates operate health
maintenance organizations. In addition, the Company agreed
that for a one year period following the closing date,
the Company will not engage in the business of providing
health maintenance organization or similar services in
the State of North
Carolina and those service areas in the State of
South
Carolina served by Doctors Health Plan.
On March 3, 1998, Dr. Walls made an investment of
$2.0 million in the Company in exchange for a $2.0
million convertible debenture due July 1, 1998 bearing
interest at 10% per annum. The debenture, including
accrued interest, was convertible, at the holder's
option, into the Company's Common Stock and a new
series of Preferred Stock. The
conversion price for the Common Stock was equal to the
lower
of: (i) the average closing price of the Common Stock on
the New York Stock Exchange for the 10 trading days
ending on March 3, 1998, the date of the issuance of the
debenture, or (ii) the average closing price for the 10
trading days ending on June 30, 1998. The conversion
price for the Preferred Stock was ten times the
conversion price for the Common Stock. On May 1, 1998,
Dr. Scott acquired the debenture from Dr. Walls. On June
29, 1998, the debenture was amended to provide for
conversion solely into Series D Convertible Preferred
Stock ("Series D Preferred"). On June 30, 1998,
Dr. Scott elected to convert the debenture into
444,974 shares of Series D Preferred. The Series D
Preferred is convertible into 10 shares of Common Stock
for each share of Preferred Stock only upon approval by
the holders of the Common Stock.
For the year ended December 31, 1997, the Company
paid approximately $236,000 to Berger, Davis & Singerman,
a law firm of which Mr. Berger has been a partner
since 1985.
Berger, Davis & Singerman also provides legal services to
Dr. Scott and business entities controlled by Dr. Scott.
Prior to his employment by the Company as Chief
Financial Officer, Mr. Kuoni served as a consultant to
the Company. Consulting fees and expenses paid to Mr.
Kuoni during the year ended December 31, 1997
amounted to approximately $228,000. The Company also
paid temporary housing expenses incurred by Mr. Kuoni
on behalf of the Company in the performance of his
duties under his consulting agreement.
PROPOSAL 1
ELECTION OF DIRECTORS
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 2001 Annual Meeting of Shareholders,
expected to be held in May 2001, or until his/her
successor has been duly elected and qualified. The
nominees for election to terms ending in 2001 are Steven
M. Scott, M.D., Sherman M. Podolsky, M.D., and Bertram E.
Walls, M.D.
Each of the nominees is a current member of the
Board. See "Executive Officers and Directors." The Board
has no
reason to believe that any nominee will refuse to act or
be unable to accept election; however, in the event
that a 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 as may be designated by
the Board, unless it is directed by a proxy to do
otherwise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES FOR ELECTION AS DIRECTORS.
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Summary
Proposal 2 is a proposal to amend the Company's
Amended and Restated Certificate of Incorporation to
include a new paragraph 12 (the "Proposed Amendment")
which is designed to restrict issuances and transfers of
the Company's stock that could result in limitations on
the use by the Company of its net operating loss
carryforwards, capital loss carryovers, excess foreign
taxes carryovers, general business credit carryovers,
minimum tax credit carryovers or net unrealized built-in
loss ("Section 382 Attributes") under Section 382 of the
Internal Revenue Code of 1986, as amended ("Section
382").
Background and Reason for the Proposed Amendment
The Company has incurred significant operating losses
over the past three years. As of December 31, 1997, the
Company estimates that it had net operating loss
carryforwards ("NOLs") available under Section 382 to
offset approximately $170 million of taxable income that
the Company may generate in the future, of which
approximately $156 million was not subject to any annual
limitations under Section 382.
The
Board believes that the Company's NOLs and other Section
382 Attributes represent an economic asset of
potential
significant value to the Company and its shareholders.
Under Section 382, a corporation that has experienced
an
"Ownership Change" is subject to an annual limitation on
the amount of taxable income that can be offset by net
operating loss and other carryovers. For purposes of
Section 382, an Ownership Change occurs when the
aggregate percentage interests of all 5% shareholders
of a corporation has increased by at least 50 percentage
points over the aggregate lowest percentage interests owned
by such 5% shareholders at any time during a "testing
period" (generally, the preceding three years or the
period of time since a previous ownership change, if less
than three years). For this purpose, all holders who
each own less than 5% of a corporation's capital stock are
generally treated together as one 5% shareholder. In
addition, certain attribution rules, which generally
attribute ownership of stock to the ultimate beneficial
owner thereof without regard to ownership by nominees,
trusts, corporations, partnerships or other entities, are
applied in determining the level of stock ownership of
a particular shareholder.
Certain options (including warrants,
convertible debt and other rights) to acquire capital
stock are treated as if they had been exercised, on an
option-byoption basis, if such treatment would result in
an ownership change. All percentage determinations are
based on the fair market value of a corporation's capital
stock, including any preferred stock which is voting or
convertible (or otherwise participates in corporate
growth).
Management believes that the Company experienced
an
Ownership Change on July 10, 1996 which had the effect
of limiting the use of its Section 382 Attributes
incurred or allocated to periods prior to that date.
Since July 10, 1996, the percentage interests of
the Company's 5%
shareholders have changed such that the Company
estimates that the cumulative owner shift for purposes of
Section 382 was approximately 32 percentage points as of
June 30, 1998. If a second Ownership Change were to occur
in respect of the Company, the amount of taxable income in
any year (or portion of a year) subsequent to July 10,
1996 that could be offset by its NOLs or other Section
382 Attributes prior to such Ownership Change could not
exceed an amount equal to the product obtained by
multiplying (i) the aggregate value of the Company's
outstanding stock (with certain adjustments) by (ii) the
federal long-term tax exempt rate. Because the
aggregate value of the Company's stock, as well as
the federal long-term
tax-exempt rate, fluctuate, it is
impossible to predict with any accuracy the annual
limitation upon the amount of taxable income of the
Company that could be offset by its NOLs and other
Section 382 Attributes were another Ownership Change to
occur. However, the Board believes that if another
Ownership Change should occur, it would have a
significant adverse effect on the Company's ability to
use its Section 382 Attributes. The reason for the
Proposed Amendment is to facilitate the Company's ability
to preserve and use its NOLs and other Section 382
Attributes by preventing a second ownership change
subsequent to July 10, 1996.
Description and Effect of Proposed Amendment
A copy of the Proposed Amendment is attached as Annex A
to this Proxy Statement. Shareholders are urged to read
the Proposed Amendment carefully. The description and
effect of certain provisions of the Proposed Amendment is
qualified in its entirety by reference to the text
of the Proposed Amendment.
Certain Technical Terms. Under the Proposed Amendment,
an "Acquiring Person" is defined as any person who
acquires Company stock (subject to certain exceptions for
acquisitions by reason of death, gifts, divorce or
separation) if: (a) such person was a 5% shareholder
at any time during the Testing Period (as defined),
such person becomes a 5% shareholder as a result of an
acquisition of Company stock during the Testing Period
or such person acquires Company stock from a person who
was a 5% shareholder at any time during the Testing
Period and (b) immediately after the date of any such
acquisition, the aggregate percentage interest of all 5%
shareholders has increased by at least 45 percentage points
over the aggregate lowest percentage interest owned by such
5% shareholders (determined in accordance with Section
382) at any time during the Testing Period.
Management believes that the 45 percentage point "safe-
harbor" limit included in the definition of an
Acquiring Person is
appropriate to ensure protection against exceeding the
50 percentage point threshold established by Section 382
and will facilitate the Company's ability to preserve its
Section 382 Attributes. An Acquiring Person also includes
any person who acquires Company stock in circumstances
in which the Company reasonably determines that such
acquisition could limit or adversely affect the
Company's past, present or future ability to use or
benefit from its Section 382 Attributes.
For purposes of the Proposed Amendment, Company
stock includes any interest in the Company that would be
treated as stock for purposes of Section 382 and would
include, for example, the Company's Common Stock and, in
certain cases as
described earlier, any options, warrants, convertible debt
or other securities or rights (whether or not subject to
any contingencies or limitations) to acquire shares of
Common Stock. The term "Testing Period" in the Proposed
Amendment means, with respect to any acquisition of Company
stock, the period beginning on July 11, 1996 (or on the
day following any subsequent ownership change under
Section 382) and concluding on the date of such
acquisition. If this
definition would result in a Testing Period in excess
of three years, then the Testing Period is the three-year
period ending on the date of such acquisition.
Prohibited Transfers. Upon approval and filing of
the Proposed Amendment, for so long as the Company
has any Section 382 Attributes, any acquisition or
attempted
acquisition of Company stock by a person who, as a result
of such acquisition or attempted acquisition, becomes or
would become an Acquiring Person, is prohibited and deemed
to be void ab initio with respect to the number of
shares of Company stock (the "Excess Shares") that cause
or would cause such person to become an Acquiring Person.
This restriction, defined in the Proposed Amendment as a
"Prohibited Transfer," provides that the Company will not
permit any employee or agent of the Company (including
the transfer agent for the Company's Common Stock) to
record any transfer of Company stock that would
constitute a Prohibited Transfer. In
addition, the purported transferee of Excess Shares will
not be entitled to any rights as a shareholder with
respect to such shares, including the right to vote the
Excess Shares, or to receive dividends or distributions
in liquidation in respect thereof, if any. Under the
Proposed Amendment, the Company, if necessary, is
authorized to institute legal proceedings to enjoin or
rescind the purported transfer of Excess Shares to the
purported transferee.
If the Board determines that a purported transfer
of Company stock constitutes a Prohibited Transfer, the
Company will require the purported transferee to surrender
the Excess Shares and any dividends such purported
transferee has received on them to an agent to be
designated by the Board (the "Agent"). The Agent will
proceed to sell the Excess Shares in one or more arm's-
length transactions (executed on the New York Stock
Exchange, if possible) to a buyer or buyers, which may
include the Company. However, the Agent is not required
to sell the Excess Shares within any specific time frame
if, in the Agent's discretion, such sale would disrupt
the market for the Company's Common Stock or other
securities or have an adverse effect on the value of
the Common Stock or such other securities. If the
purported transferee has resold the Excess Shares before
receiving the Company's demand to surrender such
Excess Shares, the
purported transferee generally will be required to
transfer to the Agent the proceeds of the resale and any
distributions such purported transferee has received on
the Excess Shares. After repaying its own expenses and
reimbursing the purported transferee for the price paid
for the Excess Shares, the Agent will pay any remaining
amounts to one or more charities to be selected by the
Board.
Reliance by the Company on Certain Information.
Pursuant to Section 382, absent actual knowledge, the
Company is entitled to rely on filings of Schedules 13D
and 13G (or any similar schedules) under the Securities
Exchange Act of 1934, as amended (the "Act"), in order to
determine who is a 5% shareholder.
Duration of Prohibited Transfer Provisions. If
the Proposed Amendment is approved, the Prohibited
Transfer provisions will generally remain in effect for so
long as the Company has any Section 382 Attributes or until
the Company's
Amended and Restated Certificate of Incorporation is
further amended in accordance with Delaware law to remove
paragraph 12.
Certain Tax Risks. While the Proposed Amendment
is designed to reduce the risk of the application
of the
limitations of Section 382 to the Company's NOLs and
other Section 382 Attributes, certain changes in
relationships among shareholders or other events may
cause an ownership change to occur under Section 382
even if the Proposed Amendment is approved. For
example, if a Prohibited Transfer occurs that is deemed
void ab initio under the Proposed Amendment, the
Internal Revenue Service may assert that such attempted
transfer has federal income tax significance for purposes
of Section 382 notwithstanding the treatment of the
attempted transfer under the Proposed
Amendment.
Accordingly, the Proposed Amendment reduces, but does
not necessarily eliminate, the risk that Section 382 will
result in limitations on the use by the Company of its
Section 382 Attributes.
Exceptions to the Prohibited Transfer Provisions
The Proposed Amendment does not prohibit acquisitions
of the Company's stock pursuant to any transaction
approved in advance by a majority of the Company's
Board, such as a merger or consolidation, in which
holders of all outstanding shares of
Company stock receive, or are offered the
opportunity to receive, cash or other consideration for
all such shares and, upon completion of the
transaction, the acquirer owns at
least a majority of the outstanding shares
of the Company stock. In addition, the Board may
determine, in its discretion, that, as a result of
any particular acquisition of Company stock, the person
acquiring such stock will not be an "Acquiring Person."
The Board may also make a discretionary determination that
it is not in the best interests of the Company and its
shareholders to enforce the Prohibited Transfer
provisions of the Proposed Amendment to protect the
Company's ability to use or benefit from its Section 382
Attributes. Such a circumstance could arise, for example,
if the Board decided that the issuance of a
substantial amount of Company stock to raise capital was
more likely to protect and enhance potential shareholder
value than preserving the use of the Company's
Section 382
Attributes.
Effect of Proposed Amendment on Marketability of Common
Stock If the Proposed Amendment is approved, it may
have a
negative effect on the marketability of the Common Stock
by
discouraging potential investors from acquiring shares
of Common Stock, thereby reducing the number of
potential purchasers from existing shareholders who
desire to sell their shares. Management believes that
the persons who will be most
adversely affected by the Proposed Amendment are
existing shareholders who hold large blocks of Common
Stock
and potential investors who desire to acquire large blocks
of shares. The
Proposed Amendment may have the effect of
discouraging a current shareholder from selling a large
block of shares to another current shareholder or
potential investor because such an acquisition may cause
the purchasing shareholder to become an Acquiring Person.
Similarly, the Proposed
Amendment may discourage a potential investor from
accumulating a large block of shares and becoming
an
Acquiring Person.
The Company does not expect that the operation of
the Proposed Amendment
will have any adverse impact on the
customary securities trading activities or
securities
transfer mechanisms of brokers, dealers, clearing
houses,
custodians, depositories or similar entities
which
customarily deal with shares of the Common Stock.
Legend on Stock Certificates
Legend. Assuming approval and filing of the
Proposed
Amendment, it would provide for all certificates
representing Company stock to bear a conspicuous legend as
follows:
"THE TRANSFER OF THE SECURITIES REPRESENTED
HEREBY IS SUBJECT TO RESTRICTIONS PURSUANT TO
PARAGRAPH 12 OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF COASTAL
PHYSICIAN GROUP, INC. REPRINTED IN ITS
ENTIRETY ON THE BACK OF THIS CERTIFICATE.
Certain Risks to Shareholders. To implement
the
provisions of the Proposed Amendment, the Company intends
to request all holders of Company stock to surrender their
share certificates to the transfer agent so that new
certificates bearing the foregoing legend may be issued to
them. Absent a court determination, there can be no
assurance that the provisions of the Proposed
Amendment will be enforceable against the Company's
shareholders and such provisions may be subject to
challenge on equitable grounds. It is possible that the
provisions of the Proposed Amendment may not be
enforceable against the Company's shareholders who
vote against or abstain from voting on the Proposed
Amendment. However, management believes that each
shareholder who votes in favor
of the Proposed Amendment or who surrenders his
share certificate in exchange for a new certificate
bearing the foregoing legend will in effect have
consented to the Proposed Amendment and, therefore,
will be bound by the Proposed Amendment. The
Company intends vigorously to enforce the provisions of
the Proposed Amendment against all current and future
holders of Company stock regardless of how they vote on
the Proposed Amendment, or whether they surrender
their share certificates.
Consequently,
shareholders should carefully consider this in
determining whether to vote in favor of the Proposed
Amendment as well as whether to surrender share
certificates.
Upon the issuance of any new certificates for
Company stock, whether in connection with a transfer or
otherwise, the Company intends to place the foregoing
legend thereon. The Company also intends to issue
instructions to or make arrangements with the
transfer agent to implement the
provisions of the Proposed Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF PROPOSAL 2.
PROPOSAL 3
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, 1998, subject to the
ratification of 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 RECOMMENDS A VOTE "FOR" PROPOSAL 3.
OTHER BUSINESS
The Board 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934,
as
amended (the "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 Section 16(a) forms 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 1997, all Section 16(a) filing requirements
applicable to the Company's officers, directors and
greater than ten percent shareholders were complied with.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated under the Act,
any
shareholder proposal intended for inclusion in the
Company's proxy statement and form of proxy relating to
the Company's 1999 Annual Meeting of Shareholders must
be received in writing by the Secretary of the Company
by January 5, 1999. Pursuant to the Company's bylaws,
notice of any business to be brought by a shareholder
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 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,
Steven M. Scott, M.D.
Chairman, President
and
Chief Executive
Officer
Durham, North Carolina
July 13, 1998
Annex A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF
INCORPORATION
OF
COASTAL PHYSICIAN GROUP,
INC.
The undersigned Corporation hereby executes and certifies
this Certificate of Amendment for purposes of amending its
Amended and Restated Certificate of Incorporation under
the General Corporation Law of the State of Delaware:
1.The name of the Corporation is Coastal Physician Group,
Inc.
2.The Amended and Restated Certificate of Incorporation
is hereby amended by adding a new paragraph 12 which shall
read in its entirety as follows:
12(a) Certain Definitions. As used in this
Paragraph 12, the following terms shall have the
following respective meanings:
(1) "Acquiring Person" means
(A) any Person who Acquires Stock
of the Corporation (other than
by reason of death, gift,
divorce, separation or other
circumstance described in section
382(1)(3)(B) of the Code) if:
(I) (i) such Person (or
any Person having a
direct or
indirect ownership interest
in such Person) was a
5%
Stockholder at any time
during the applicable Testing
Period, (ii) such Person (or
any Person having a direct
or indirect ownership
interest in such Person)
becomes a 5% Stockholder as a
result of such Acquisition,
(iii) any new "public group"
(as such term is defined in
Treasury regulation
1.382-2T(f)(l 3))
is created under section 382
of the Code
and the Treasury
regulations thereunder as
a result of such Acquisition,
or (iv) the Person from whom
the Stock was Acquired in
such Acquisition (or any
Person having a direct or
indirect ownership interest
in such Person) was a 5%
Stockholder at any time
during the applicable Testing
Period; and
(II) immediately after
the date of such
Acquisition, the aggregate
Percentage Interest of all
5% Stockholders has
increased by at least
45
percentage points over
the
aggregate lowest
Percentage
Interest owned by such
5%
Stockholders at any time
during the applicable Testing
Period; or
(B) any Person who Acquires
Stock of the Corporation in
circumstances in which the
Corporation reasonably
determines that such Acquisition
could limit or adversely affect the
Corporation's past, present or future
ability to use or benefit from any
Section 382 Attributes.
(2) "Acquisition" means any transaction
or event which, for purposes of section
382 of the Code and the Treasury
regulations thereunder, results in an
increase in the Percentage Interest of any
Person. "Acquirer" means the Person whose
Percentage Interest is so increased.
"Acquire," "Acquires," "Acquired" and
"Acquiring" shall have similar meanings.
(3) "Act" means the Securities Exchange
Act of 1934, as amended.
(4) "Affiliate" and "Associate" shall
have the meaning ascribed to them in the
Rule 12b-2 of the General Rules and
Regulations under the Act.
(5) "Code" means the Internal Revenue
Code of 1986, as amended.
(6) "5% Stockholder" shall have the
meaning ascribed to the term "5-percent
shareholder" in section 382 of the Code
and the Treasury regulations thereunder
and shall include, for example: (i) any
individual whose Percentage Interest in
the Corporation at any time during the
applicable Testing Period equals or
exceeds 5 percent; (ii) any "public group"
(including any "segregated" public group)
of the Corporation; and (iii) any "public
group" (including any "segregated" public
group) of any "first tier entity" or
"higher tier entity" whose Percentage
Interest in the Corporation at any time
during the applicable Testing Period
equals or exceeds 5 percent. (For purposes
of the preceding sentence, the terms in
quotation marks shall have the meanings
ascribed to such terms in section 382 of
the Code and the Treasury regulations
thereunder.)
(7) "Percentage Interest" means, with
respect to a Person:
(A) the fair market value of the
Stock beneficially owned by such
Person (including Stock indirectly
owned by virtue of any direct or
indirect ownership interest in an
entity which directly owns Stock of
the Corporation) as determined under
section 382 of the Code and the
Treasury regulations thereunder,
including the attribution rules of
section 382(1)(3) of the Code and the
Treasury regulations thereunder and
the option rules of Treasury
regulation 1.382-4(d)(2);
calculated as a percentage of
(B) the sum of (i) the fair market
value of all the outstanding Stock of
the Corporation, plus (ii) the fair
market value of any outstanding Pure
Preferred Stock of the Corporation.
(8) "Person" means any individual,
firm, corporation, partnership, joint
venture or other entity and shall include
any group comprised of such Person and any
other Person who is a parent, child or
sibling of such Person or with whom such
Person or any Affiliate or Associate of
such Person has any agreement, arrangement
or understanding, directly or indirectly,
for the purpose Acquiring, holding, voting
or disposing of Stock, and any other
Person who is a member of such group, but
does not include any underwriter which
participates in an underwritten public
offering of the Corporation's Stock,
provided that such underwriter shall not
own such Stock on the last day of any
fiscal year.
(9) "Pure Preferred Stock" means
stock issued by the Corporation that is
described in section 1504(a)(4) of the
Code, as modified by Treasury regulation
l.382-2(a)(3)(i).
(10) "Section 382 Attribute" means
any "net operating loss carryforward,"
"capital loss carryover," "excess foreign
taxes carryover," "general business credit
carryover," "minimum tax credit carryover"
or "net unrealized built-in loss" (as such
terms are defined in the Code).
(11) "Stock" means any interest in the
Corporation that would be treated as stock
for purposes of section 382 of the Code
and the Treasury regulations thereunder,
including for example, shares of the
Corporation's common stock, par value $.01
per share ("Common Stock"), shares of any
other class issued by the Corporation and
any options, warrants, convertible debt or
securities or other rights (whether or not
subject to any contingencies or
limitations) to Acquire such shares;
provided, that Stock shall not include any
shares of Pure Preferred Stock.
(12) "Testing Period" means, with
respect to any Acquisition, the period of
time beginning on July 11, 1996 (or on the
day following any subsequent "ownership
change" under Section 382 of the Code and
the regulations thereunder, as determined
by the Corporation) and concluding on the
date of such Acquisition; provided that if
the preceding clause would result in a
Testing Period having a duration in excess
of three years, then the Testing Period
shall be the period of three years
concluding on the date of such
Acquisition.
(13) "Transfer Agent" means the
transfer agent with respect to the
Corporation's common stock, par value $.01
per share ("Common Stock"), appointed by
the Corporation and, in the case of any
other securities of the Corporation,
"Transfer Agent" means the Corporation or
such other transfer agent with respect to
such securities as may be appointed by the
Corporation.
(b) Acquisition Restrictions. For so long
as the Corporation has Section 382 Attributes
(the "Restriction Period"), any Acquisition of
Stock or attempted Acquisition of Stock, or any
agreement to Acquire Stock entered into prior
to the expiration of the Restriction Period,
shall be prohibited and void ab initio to the
extent that, as a result of any such
transaction, any Person would become an
Acquiring Person.
(c) Certain Exceptions. The restrictions
set forth in subparagraph 12(b) hereof shall
not apply if:
(1) the Acquisition of Stock occurs
pursuant to a transaction approved in
advance by a majority of the Board of
Directors of the Corporation (the
"Board"), including, but not limited to, a
merger or consolidation transaction, in
which all holders of outstanding shares of
Stock receive, or are offered the
opportunity to receive, cash or other
consideration for such shares, and upon
the consummation of which the Acquirer of
such shares will own at least a majority
of the outstanding shares of Stock;
(2) The Board determines, in its
absolute discretion, that the Person who
Acquires Stock is not an Acquiring Person;
or
(3) The Board determines, in its
absolute discretion, that it is not in the
best interests of the Corporation and its
stockholders at such time to protect the
Corporation's ability to use or benefit
from any Section 382 Attributes.
(d) Treatment of Excess Shares.
(1) Any transfer or purported
transfer of Stock that is the subject of
an Acquisition of Stock, an attempted
Acquisition of Stock or agreement to
Acquire Stock that is prohibited and void
under the provisions of subparagraph 12(b)
hereof (a "Prohibited Transfer") shall not
be recorded by any employee or agent of
the Corporation, and the purported
transferee of such a Prohibited Transfer
(the "Purported Transferee") shall not
acquire any rights as a stockholder of the
Corporation for any purpose whatsoever in
respect of the shares of Stock which would
cause the Purported Transferee to become
an Acquiring Person (the "Excess Shares").
Until the Excess Shares are transferred to
another Person in a transaction that is
not a Prohibited Transfer, (A) the
Purported Transferee shall not be entitled
with respect to such Excess Shares to any
rights as a stockholder of the
Corporation, including, without
limitation, the right to vote such Excess
Shares and to receive dividends or
distributions, whether liquidating or
otherwise, in respect thereof, if any, and
(B) the Board may, in its absolute
discretion, institute proceedings to
enjoin or rescind any attempted transfer
or transfer of Excess Shares to the
Purported Transferee. Once the Excess
Shares have been transferred in a
transaction that is not a Prohibited
Transfer, the Stock that is the subject of
such transaction shall cease to be Excess
Shares.
(2) If the Board determines that a
Prohibited Transfer has occurred, then,
upon written demand by the Corporation,
the Purported Transferee shall transfer or
cause to be transferred any certificate or
other evidence of ownership of the Excess
Shares within the Purported Transferee's
possession or control, together with any
dividends or other distributions that were
received by the Purported Transferee from
the Corporation with respect to the Excess
Shares ("Prohibited Distributions"), to an
agent designated by the Board (the
"Agent"). The Agent shall proceed to sell
to a buyer or buyers, which may include
the Corporation, the Excess Shares
transferred to it in one or more arm's
length transactions (over the New York
Stock Exchange, if possible); provided,
however, that the Agent shall effect such
sale or sales in an orderly fashion and
shall not be required to effect any such
sale within any specific time frame if, in
the Agent's discretion, such sale or sales
would disrupt the market for the Common
Stock or other securities of the
Corporation or otherwise would adversely
affect the value of the Common Stock or
such other securities. If the Purported
Transferee has resold the Excess Shares
before receiving the Corporation's demand
to surrender the Excess Shares to the
Agent, the Purported Transferee shall be
deemed to have sold the Excess Shares for
the Agent, and shall be required to
transfer to the Agent the proceeds of such
resale and any Prohibited Distributions,
except to the extent that the Agent grants
written permission to the Purported
Transferee to retain a portion of such
proceeds not exceeding the amount that the
Purported Transferee would have received
from the Agent pursuant to subparagraph
(d)(3) of this paragraph 12 if the Agent
rather than the Purported Transferee had
resold the Excess Shares.
(3) The Agent shall apply any
proceeds of a sale by it of Excess Shares
and, if the Purported Transferee has
previously resold the Excess Shares, any
amounts received by the Agent from a
Purported Transferee, as follows: (A)
first, such amounts shall be paid to the
Agent to the extent necessary to cover its
costs and expenses incurred in connection
with its duties hereunder; (B) second, any
remaining amounts shall be paid to the
Purported Transferee, up to the amount
paid by the Purported Transferee for the
Excess Shares, which amount shall be
determined in the discretion of the Board;
and (C) third, any remaining amounts shall
be paid to one or more organizations
qualifying under Section 501(c)(3) of the
Code (and any comparable successor
provision) ("Section 501(c)(3)") selected
by the Board, and if the Excess Shares
(including any Excess Shares arising from
a previous Prohibited Transfer not sold by
the Agent in a prior sale or sales),
represent a 5% or greater Percentage
Interest in any class of Stock, then any
such remaining amounts to the extent
attributable to the disposition of the
portion of such Excess Shares exceeding a
4.99 Percentage Interest in such class
shall be paid to one or more other
organizations qualifying under Section
501(c)(3) selected by the Board. The
recourse of any Purported Transferee in
respect of any Prohibited Transfer shall
be limited to the amount payable to the
Purported Transferee pursuant to clause
(B) of the preceding sentence. In no
event shall the proceeds of any sale of
Excess Shares pursuant to this
subparagraph 12(d)(3) inure to the benefit
of the Corporation.
(4) If the Purported Transferee fails
to surrender the Excess Shares or the
proceeds of a sale thereof to the Agent
within thirty business days from the date
on which the Corporation makes a demand
pursuant to subparagraph (d)(2), then the
Corporation may institute legal
proceedings to compel the surrender.
(5) The Corporation shall make the
demand described in subparagraph (d)(2)
hereof within thirty days of the date on
which the Board determines that a
Prohibited Transfer has occurred;
provided, however, that if the Corporation
makes such demand at a later date, the
provisions of this paragraph 12 shall
apply nonetheless.
(e) Reliance on Certain Information. In
determining whether any Person has become or
would become an Acquiring Person under this
paragraph 12, to the extent permitted by
section 382 of the Code and the Treasury
regulations thereunder:
(1) the Corporation shall be entitled
to rely on the existence and absence, as
of the date of the relevant Acquisition,
of filings of Schedules 13D and 13G (or
any similar schedules) under the Act to
identify any 5% Stockholder of the
Corporation; and
(2) in the case of any "first tier
entity" or "higher tier entity" (as such
term is defined in Treasury regulation
1.382-2T(f)(14)) whose Percentage Interest
in the Corporation equals or exceeds 5
percent, the Corporation may rely on a
statement signed under oath or an
affirmation by an authorized officer or
similar responsible person on behalf of
such entity, to establish the extent, if
any, to which the Percentage Interests of
such entity's owners have changed as of
the date of the relevant Acquisition;
provided that the Corporation may not rely
on a statement of such entity if (i) the
Corporation knows that the statement is
false, or (ii) the entity's Percentage
Interest in the Corporation equals or
exceeds 50 percent.
(f) Legend. All certificates representing
Stock issued after the effectiveness of
paragraph 12 shall bear a conspicuous legend as
follows:
"THE TRANSFER OF THE SECURITIES
REPRESENTED HEREBY IS SUBJECT TO
RESTRICTIONS PURSUANT TO PARAGRAPH 12
OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
COASTAL PHYSICIAN GROUP, INC.
REPRINTED IN ITS ENTIRETY ON THE BACK
OF THIS CERTIFICATE.
(g) Procedures. The Board may, to the
extent permitted by law, from time to time
establish, modify, amend or rescind, by by-law
or otherwise, procedures not inconsistent with
the express provisions of this paragraph 12,
the Code, the Treasury Regulations thereunder,
and Delaware law for determining whether any
Acquisition of Stock would jeopardize the
Corporation's ability to preserve and use its
Section 382 Attributes, and for the orderly
application, administration and implementation
of the provisions of this paragraph 12. Such
procedures as may be adopted by the Board shall
be kept on file with the Secretary of the
Corporation and shall be made available for
inspection by the public and, upon request,
shall be mailed to any holder of Stock of the
Corporation.
(h) General Authorization. The purpose of
this paragraph 12 is to facilitate the
Corporation's ability to preserve and use its
Section 382 Attributes and to that end the
Board is authorized to take such action, to the
extent permitted by law and not inconsistent
with this paragraph 12, as it may deem
necessary or advisable to protect the
Corporation and the interests of its
stockholders in preserving the Corporation's
ability to preserve and use its Section 382
Attributes.
(i) Full Protection of Board. In
administering the provisions of paragraph 12
hereof and determining whether a Person is or
may be an Acquiring Person, the Board and any
committee designated by the Board shall be
fully protected in relying in good faith upon
the information, opinions, reports or
statements provided to the Board or any such
committee by the Corporation's executive
officers or the Corporation's legal counsel or
independent accountants.
(j) Notice to Corporation. Any Person who
Acquires Stock or attempts to Acquire Stock in
a transaction that constitutes a Prohibited
Transfer shall immediately give, or cause to be
given, written notice thereof to the
Corporation of such event and shall provide the
Corporation such other information as the
Corporation may request to determine the status
of such Person as an Acquiring Person or a
Purported Transferee of Excess Shares.
(k) No Claim Against Transferor. The
Purported Transferee of Excess Shares shall
have no claim, cause of action, or any other
recourse whatsoever against the purported
transferor of Excess Shares to the Purported
Transferee. The Purported Transferee's sole
right with respect to such shares shall be
limited to the amount payable to the Purported
Transferee pursuant to subparagraph 12(d)(3)
hereof.
(l) Partial Invalidity. If any provision
of this paragraph 12 or any application of any
such provision is determined to be invalid by
any federal or state court having jurisdiction
over the issues, the validity of the remaining
provisions shall not be affected and other
applications of such provision shall be
affected only to the extent necessary to comply
with the determination of such court.
3.The foregoing amendment to the Amended and Restated
Certificate of Incorporation herein certified was duly
adopted in accordance with the applicable provisions of
Sections 242 of the General Corporation Law of State of
Delaware.
Signed on the _____ day of August 1998.
COASTAL PHYSICIAN GROUP, INC.
By:______________________________
Steven M. Scott, M.D.
Chairman and Chief Executive Officer
COASTAL PHYSICIAN GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS OF COASTAL PHYSICIAN GROUP,
INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COASTAL PHYSICIAN GROUP, INC.
The undersigned hereby appoints Steven M. Scott, M.D. and
Edward L. Suggs, Jr., 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 10:00 a.m., local time, on August
14, 1998, at the Durham Hilton, 3800 Hillsborough Road,
Durham, North Carolina, and at any adjournments or
postponements thereof, to vote the number of shares 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. (1)
Election of Directors:
VOTE FOR ALL NOMINEES LISTED BELOW WITHHOLD AUTHORITY to
vote for all nominees listed below.
(except as marked to the contrary below).
STEVEN M. SCOTT, M.D.
BERTRAM E. WALLS, M.D.
SHERMAN M. PODOLSKY, M.D.
(I INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME IN
THE SPACE PROVIDED BELOW.)
(2) Proposal to approve the amendment of the Company's
Amended and Restated Certificate of Incorporation to include
a new paragraph 12 which is intended to facilitate the
Company's preservation and use of its net operating loss
carryforwards.
FOR AGAINST ABSTAIN
(3) 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,
1998: FOR AGAINST ABSTAIN
PLEASE SIGN AND DATE ON THE OTHER SIDE
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 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
, 1998
