SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COASTAL PHYSICIAN GROUP, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:
<PAGE>
[LOGO]
COASTAL PHYSICIAN GROUP, INC.
2828 Croasdaile Drive
Durham, North Carolina 27705
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,
/s/ Steven M. Scott, M.D.
STEVEN M. SCOTT, M.D.
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
July 20, 1998
<PAGE>
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 pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors,
/s/ Steven M. Scott, M.D.
STEVEN M. SCOTT, M.D.
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Durham, North Carolina
July 20, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU 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.
<PAGE>
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 20, 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 37,664,208 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
1
<PAGE>
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"), broker-dealers 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") unless
they receive voting instructions from beneficial holders. 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.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS (1) AMOUNT AND NATURE PERCENT OF TOTAL VOTING
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(2) POWER (2) (3)
- ------------------------------ --------------------------- ------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Common Stock Steven M. Scott, M.D. 18,308,574(4) 48.6% 43.5%
Series D Convertible
Preferred Stock Steven M. Scott, M.D. 444,974 100.0% 10.6%
Common Stock Bertram E. Walls, M.D. 1,473,908(5) 3.9% 3.5%
Common Stock Edward L. Suggs, Jr. 44,075(6) * *
Common Stock Sherman M. Podolsky, M.D. 46,075(7) * *
Common Stock Charles E. Potter 40,341(8) * *
Common Stock Deborah L. Redd 400(13) * *
Common Stock Eugene F. Dauchert, Jr. 8,883(9) * *
Common Stock Mitchell W. Berger 19,000(10) * *
Common Stock Jacque J. Sokolov, M.D. 3,696(12) * *
Common Stock Henry J. Murphy --(13) * *
Shares owned by all directors
and executive officers as
a group (10 persons):
Common Stock 19,799,852(11) 52.6% 47.1%
Series D Convertible
Preferred Stock 444,974 100.0% 10.6%
</TABLE>
2
<PAGE>
- ---------
(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 7,953,311 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 1,500,000 shares held by Doctors Health Plan, Inc.,
a company controlled by Dr. Scott. 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.
(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 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. Mr.
Berger resigned from the Board effective July 10, 1998.
(11) Includes 72,312 shares subject to presently exercisable stock options and
66,311 shares reserved for issuance under the Deferred Compensation Plan,
(12) Includes 3,000 shares subject to presently exercisable stock options. Dr.
Sokolov resigned effective January 18, 1998. Dr. Sokolov claims ownership
of an additional 540,000 shares subject to presently exercisable stock
options pursuant to his employment agreement. The Company disagrees with
Dr. Sokolov's interpretation of the agreement which is currently in
arbitration. See "Employment and Certain Other Agreements."
(13) Ms. Redd resigned effective February 19, 1998. Mr. Murphy's employment
ended February 28, 1997.
3
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company and executive officers of
subsidiaries of the Company who have significant policy-making authority:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ----- ---------------------------------------------------
<S> <C> <C>
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)(3) 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.
</TABLE>
- ---------
(1) Member of the Audit Committee of the Board
(2) Member of the Compensation Committee of the Board
(3) Mr. Berger resigned from the Board effective July 10, 1998
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 board-certified in obstetrics and gynecology and
is a member of the clinical faculty at Duke University Medical Center. Dr.
Scott received his undergraduate degree and medical education from Indiana
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 served as a director of the Company from September 1996 until
July 10, 1998. 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. From January 1, 1995 through May 31, 1998,
Dr. Walls was 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
4
<PAGE>
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. On July
10, 1998, Mr. Berger 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.
5
<PAGE>
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. On
July 10, 1998, Mr. Berger 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 and its four other most highly compensated executive
officers who were serving as executive officers 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
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------------- ---------------------
NUMBER OF SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION (1)($) OPTIONS/SARS (#) COMPENSATION (2)($)
- ------------------------------- ------ ------------ ----------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Scott, M.D. (3) 1997 400,000 -- -- -- 4,290
Chairman of the Board, 1996 333,333 -- 12,806 -- 5,296
President and Chief 1995 333,333 -- 51,492 103,529 165,818
Executive Officer of the
Company
Jacque J. Sokolov, M.D. 1997 233,333 -- -- -- 2,817
Former Vice Chairman of the 1996 400,000 400,000 -- -- 5,464
Board and Chief Executive 1995 400,000 150,000 -- 3,883 4,215
Officer, Advanced Health
Plans, Inc. (4)(3)
Deborah L. Redd 1997 228,154 63,563 -- 100,000 4,167
Former Director and 1996 237,519 35,000 -- 20,000 3,538
President, Coastal Managed 1995 47,163 -- -- -- 70
Healthcare, Inc. (3)(5)
Eugene F. Dauchert, Jr. 1997 160,000 54,745 -- 100,000 4,405
Director and Executive Vice 1996 160,000 8,500 -- -- 4,481
President 1995 160,000 -- -- 48,883 3,918
Edward L. Suggs, Jr. 1997 213,654 50,769 -- 100,000 4,049
Director, President and 1996 190,000 -- -- -- 2,442
Chief Executive Officer, 1995 188,539 -- -- 40,000 3,754
Healthcare Business
Resources, Inc. (6)
Henry J. Murphy (3) 1997 60,000 100,000 -- -- 725
Former President and 1996 69,130 -- -- 100,000(7) --
Chief Executive Officer
</TABLE>
- ---------
(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, and
$725 for Dr. Scott, Dr. Sokolov, Ms. Redd, Mr. Dauchert, Mr. Suggs, and
Mr. Murphy, respectively.
(3) Mr. Murphy served as President and Chief Executive Officer of the Company
from October 24, 1996 to March 1, 1997. Dr. Scott served as President and
Chief Executive Officer of the Company from March 1, 1997 to December 31,
1997.
6
<PAGE>
Dr. Sokolov resigned effective January 18, 1998. Ms. Redd resigned effective
February 19, 1998. See "Employment and Certain Other Agreements" below.
(4) Advanced Health Plans, Inc. is a subsidiary of the Company.
(5) Coastal Managed Healthcare, Inc. is a subsidiary of the Company.
(6) Healthcare Business Resources, Inc. is a subsidiary of the Company.
(7) Mr. Murphy was granted 100,000 stock appreciation rights ("SARs") on
November 1, 1996. 12,000 SARs were scheduled to vest on each of November
1, 1996, December 1, 1996, January 1, 1997, February 1, 1997 and February
28, 1997. Due to the termination of Mr. Murphy's employment on March 1,
1997, the 20,000 SARs scheduled to vest on March 31, 1997, and an
additional 20,000 SARs scheduled to vest on April 30, 1997 were forfeited.
STOCK OPTION AND SAR GRANTS
The following table provides certain information with respect to stock
options and SARs granted during 1997 to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS/SAR'S EMPLOYEES IN OF BASE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR (%) PRICE ($/SH)(1) DATE 5%($) 10%($)
- ------------------------- --------------- ----------------- ----------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Deborah L. Redd 100,000(2) 6.3 2.00 April 6, 2007 81,500 243,200
Eugene F. Dauchert, Jr. 100,000 6.3 2.00 April 6, 2007 81,500 243,200
Edward L. Suggs, Jr. 100,000 6.3 2.00 April 6, 2007 81,500 243,200
</TABLE>
- ---------
(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.
<TABLE>
<CAPTION>
UNEXERCISED AT FISCAL YEAR-END
NUMBER OF SECURITIES
------------------------------
NAME EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- ----------------
<S> <C> <C>
Steven M. Scott, M.D. 5,921 126,196
Jacque J. Sokolov, M.D. 363,000 543,883(2)
Deborah L. Redd -- 120,000(1)
Eugene F. Dauchert, Jr. 3,883 170,000
Edward L. Suggs, Jr. 22,976 231,316
</TABLE>
- ---------
(1) Options were forfeited on February 19, 1998.
(2) Dr. Sokolov resigned effective January 18, 1998. The Company believes that
all options except for 3,000 presently exercisable options were forfeited
as of that date in accordance with the provisions of the Company's 1987
Nonqualified Stock Option Plan. This matter is currently in arbitration.
See "Employment and Certain Other Agreements."
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
7
<PAGE>
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 thirty-six months
preceding the disability. The incentive compensation would equal the greater of
(i) the average of the incentive compensation paid or payable to Dr. Scott
during the thirty-six months preceding the disability or (ii) an amount equal
to (x) 50% of Dr. Scott's base salary for any year in which the Company's
revenues and operating profits increased 12% over the prior year, (y) 75% of
Dr. Scott's base salary if the Company's annual revenues and operating profits
increased 17% over the prior year or (z) 100% of Dr. Scott's base salary if the
Company's annual revenues and operating profits increased 22% over the prior
year. If the disability is continuous for a period of twelve consecutive
months, Dr. Scott would be entitled to receive 75% of his base salary and the
averages of both incentive compensation and bonus compensation paid or payable
during the thirty-six months preceding the disability, which amount shall be
increased by five percent annually. In the event of Dr. Scott's death prior to
the age of 70, his surviving spouse (or his estate in the event of her death or
remarriage) would be entitled to receive for ten years an amount equal to Dr.
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 of certain clinics
and Doctors Health Plan, Inc. by Scott Medical Group, LLC (see "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.
8
<PAGE>
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 an alleged breach of
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 initial term expired on June 30, 1998, but the agreement has been extended
until notice of termination is given by either party in accordance with the
agreement. 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. He is eligible to
receive a divestiture bonus of 0.5% (approximately $50,000) 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
9
<PAGE>
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. Berger resigned from the Board effective
July 10, 1998. 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
10
<PAGE>
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
11
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on the Common Stock for each of the last
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.,
Humana Inc. and Coventry Healthcare, 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. The composite for 1997 has been adjusted to reflect the exclusion of
Healthsource, Inc., U.S. Healthcare, Inc. and Physicians Corporation of America
following the merger of each company into unaffiliated entities. The composite
has also been adjusted to reflect the inclusion of Medpartners, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG COASTAL PHYSICIAN GROUP, INC.,
S&P 500 INDEX AND MANAGED CARE/HEALTH CARE SERVICES COMPOSITE
+ COASTAL [ ] PEER * S&P
PHYSICIAN GROUP 500
YEAR GROUP, INC. INDEX INDEX
-------- ------------- ----------- -----------
1992 100.00 100.00 100.00
1993 140.71 168.65 110.08
1994 96.9 215.19 111.54
1995 47.79 277.27 153.45
1996 12.39 176.62 188.69
1997 2.88 191.67 251.64
Assumes $100 invested on Jan. 1, 1993
Assumes Dividend Reinvested
Fiscal Year Ending Dec. 31, 1997
12
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engages in transactions with American Alliance Holding Company
and certain of its affiliates ("Alliance"), including Century 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 May 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. Each share of Series A Preferred, Series B Preferred
and Series C Preferred, subject to approval by the Company's shareholders, was
convertible into 10 shares of Common Stock.
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.
In June 1997, Dr. Scott invested $10 million in cash in the Company and
received 1,000,000 shares of Series C Preferred. 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.
13
<PAGE>
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 to be paid pursuant to a promissory
note due May 31, 1998, with interest at 12% per annum, which has been paid in
full. In addition, Scott Medical gave a promissory note in the amount of
$803,088 for the purchase of 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. On June 2, 1998, Scott Medical paid $252,591 of the balance due under
the note, leaving a balance of $630,806. The parties are currently in
negotiations concerning the appropriate valuation of the accounts receivable
sold and an appropriate adjustment to the balance due on the note. After the
May 31, 1997 closing, the Company advanced certain expenses for the benefit of
Scott Medical with respect to these clinics, which advances were subsequently
reconciled and adjusted in connection with the IPN Sale described below.
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.
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 for expenses advanced with
respect to the May Clinic Sale such that the net balance owed was $810,283,
which is to be repaid pursuant to the terms of a promissory note due December
31, 1998, plus interest at an annual rate of 5.84%.
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.
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. Pursuant to the terms of the
purchase agreement, $150,000 was paid in cash and the balance was added to the
Receivables Purchase Note. The Company has additionally advanced $920,298 to
Scott Medical since January 1, 1998.
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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 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 IPN 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 180 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 IPN 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
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deferred by the North Carolina Commissioner of Insurance and is 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 the Company 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
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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 $2,000,000 in the
Company in exchange for a $2,000,000 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.
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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. After this election,
there will be three vacancies on the Board which will be filled in accordance
with the Bylaws.
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.
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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-by-option 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
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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
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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.
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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.
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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 20, 1998
23
<PAGE>
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 ss. 1.382-2T(f)(l3)) 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.)
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<PAGE>
(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 ss. 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 ss. 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
A-2
<PAGE>
(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.
A-3
<PAGE>
(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 ss. 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
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<PAGE>
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
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<PAGE>
***************************************************
APPENDIX
<PAGE>
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.
<TABLE>
<S> <C>
(1) ELECTION OF DIRECTORS:
[ ] VOTE FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as indicated to the contrary below). to vote for all nominees listed below.
</TABLE>
STEVEN M. SCOTT, M.D. BERTRAM E. WALLS, M.D. SHERMAN M. PODOLSKY, M.D.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(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 FEDERAL
INCOME TAX PURPOSES:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) PROPOSAL TO RATIFY 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
</TABLE>
PLEASE SIGN AND DATE ON THE OTHER SIDE
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
OF
COASTAL PHYSICIAN GROUP, INC.
2828 CROASDAILE DRIVE
DURHAM, NC 27705
Please date, sign exactly as name(s) appear below and return promptly in
the enclosed envelope.
This proxy when properly executed
will be voted in the manner
directed herein by the undersigned
shareholder. IN THE ABSENCE OF
SPECIFIED DIRECTIONS, THIS PROXY
WILL BE VOTED IN FAVOR OF THE
ELECTION OF ALL NOMINEES NAMED IN
THIS PROXY 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 adjournments or
postponements 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
