COASTAL PHYSICIAN GROUP, INC.
2828 CROASDAILE DRIVE
DURHAM, NORTH CAROLINA 27705
June 28, 1999
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 Thursday July 29, 1999, at 10:00
a.m.,
local time.
The Notice of Annual Meeting of Shareholders and Proxy
Statement are
attached hereto. The matters to be acted upon by our
shareholders are
set forth in the Notice of Annual Meeting of Shareholders
and
discussed in the Proxy Statement.
We would appreciate your signing, dating and returning the
enclosed
proxy card in the envelope provided at your earliest
convenience. If
you choose to attend the meeting, you may revoke your proxy
and
personally cast your votes. We look forward to seeing you at
our
Annual Meeting.
Sincerely yours,
Steven M. Scott,
M.D.
Chairman,
President and
Chief Executive
Officer
COASTAL PHYSICIAN GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 29, 1999
TO THE SHAREHOLDERS OF COASTAL PHYSICIAN GROUP, INC.
NOTICE IS HEREBY GIVEN that the 1999 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 July 29, 1999, 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 2002 Annual Meeting or until
their
successors are duly elected and qualified;
(2) To consider and act upon a proposal to approve the
issuance of
Common Stock upon conversion of Series D Convertible
Preferred
Stock;
(3) To consider and act upon a proposal to amend the
Company's
Certificate of Incorporation to change the Company's
name from
Coastal Physician Group, Inc. to PhyAmerica Physician
Group,
Inc.
(4) To consider and act upon a proposal to amend the
Company's
Certificate of Incorporation to authorize the Company
to issue
100,000,000 shares of nonvoting common stock with a par
value of
$0.01 per share
(5) To consider and act upon a proposal to ratify the
action of
the Board of Directors in selecting KPMG LLP as
independent
certified public accountants of the Company for the
fiscal year
ending December 31, 1999; and
(6) To transact such other business as may properly come
before
the Annual Meeting.
The Board of Directors has fixed the close of business on
May 31,
1999 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,
Steven M. Scott,
M.D.
Chairman,
President and
Chief Executive
Officer
Durham, North Carolina
June 28, 1999
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN
PERSON. THOSE
SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE URGED TO EXECUTE
AND RETURN
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE.
SHAREHOLDERS WHO
EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING,
REVOKE THEIR
PROXY AND VOTE THEIR SHARES IN PERSON.
1999 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 1999 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 July 29, 1999 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 June 28,
1999. 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) To elect three members to the Company's Board of
Directors to
hold office until the 2002 Annual Meeting or until
their
successors are duly elected and qualified;
(2) To consider and act upon a proposal to approve the
issuance of
Common Stock upon conversion of Series D Convertible
Preferred
Stock;
(3) To consider and act upon a proposal to amend the
Company's
Certificate of Incorporation to change the Company's
name from
Coastal Physician Group, Inc. to PhyAmerica Physician
Group,
Inc.
(4) To consider and act upon a proposal to amend the
Company's
Certificate of Incorporation to authorize the Company
to issue
100,000,000 shares of nonvoting common stock with a par
value of
$0.01 per share
(5) To consider and act upon a proposal to ratify the
action of
the Board of Directors in selecting KPMG LLP as
independent
certified public accountants of the Company for the
fiscal year
ending December 31, 1999; and
(6) 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 Board of Directors (the "Board") has set the close of
business
on May 31, 1999 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 37,953,249
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 on each matter to be acted
upon at the
Annual Meeting. Each share of Preferred Stock is entitled to
ten votes
on each matter to be acted upon at the Annual Meeting except
Proposal
2.
The representation in person or by proxy of a majority of
the votes
entitled to be cast 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 and
abstentions will not be counted as votes cast and will have
no effect
on the results of the vote. Proposal 2 will be voted on
only by the
holders of Common Stock on the Record Date and will
require the
affirmative vote of the majority of the votes cast on the
proposal,
provided that more than 50% of the shares of Common Stock
outstanding
on the Record Date are cast. 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.
Proposals 2, 3 and 4 are not considered routine matters.
Accordingly,
broker-dealers who hold shares in street name will not have
authority
to vote on these proposals ("broker nonvotes"). For
purposes of the
vote on Proposal 2, an abstention or a broker nonvote will
have the
effect of a vote against the proposal, unless holders of
more than 50%
of the shares of Common Stock outstanding on the Record
Date cast
votes on the proposal, in which event neither an
abstention nor a
broker nonvote will have any effect on the result of
the vote.
Approval of Proposals 3, 4 and 5 requires the affirmative
vote of the
majority of the total votes. For purposes of the vote
on these
proposals, broker nonvotes and abstentions will have the
same effect
as votes against the proposal.
On the Record Date, Steven M. Scott, M.D., the Chairman,
President
and Chief Executive Officer, owned approximately 48% of the
outstanding Common Stock and 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 Proposals 3, 4 and 5 and
makes the
approval of Proposal 2 highly probable.
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 Common Stock as of April
30, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with
respect to
the beneficial ownership of the Common Stock and Preferred
Stock as of
April 30, 1999 by: (i) each director of the Company; (ii)
each
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.
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)
Common Stock Steven M. Scott, M.D.18,364,760 (4) 48.4%
43.3%
Series D Steven M. Scott, M.D. 444,974 100.0%
10.5%
Convertible
Preferred Stock
Common Stock Bertram E. Walls, M.D.1,418,733 (5) 3.7%
3.3%
Common Stock Edward L. Suggs, Jr.135,391 (6) *
*
Common Stock Charles E. Potter 103,804(7) *
*
Common Stock Sherman M. Podolsky, M.D.69,415(8) *
*
Common Stock Eugene F. Dauchert, Jr.8,883 (9) *
*
Common Stock W. Randall Dickerson5,012(10) *
*
Shares owned by all
directors and executive
officers as a group
(7 persons):
Common Stock 19,960,898 (11)
52.6%
47.1%
Series D Convertible 444,974 100.0%
10.5%
Preferred Stock
________________________
(1) 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 5,434,977 held by Scott Medical Partners
LLC,
1,703,344 shares held by American Alliance Holding Company,
1,500,000
held by Doctors Health Plan, Inc., 815,000 shares held by
Scott
Medical Partners II Limited Partnership and 119,143 shares
held by S
and W Limited Partnership, entities that are controlled by
Dr. Scott.
Dr. Scott disclaims beneficial ownership of shares held by
Doctors
Health Plan, Inc. 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 79,100 shares held by Mrs. Scott as to
which Dr.
Scott disclaims beneficial ownership. Also includes 32,117
shares
subject to presently exercisable options. Dr. Scott
disclaims
beneficial ownership of the shares held by American Alliance
Holding
Company. The remaining 8,145,323 shares are held by Dr.
Scott
directly.
(5) Includes 145,100 shares with respect to which Dr.
Walls has
voting power and Dr. Scott has investment power. Such shares
also are
included under the beneficial ownership of Dr. Scott. Also
includes
1,171,695 shares held by certain trusts established for the
benefit of
Dr. Scott's children with respect to which Dr. Walls, as
trustee,
holds voting and investment power. Includes 2,000 shares
owned
directly by Dr. Walls, 6,000 shares subject to presently
exercisable
stock options and 93,938 shares reserved for issuance under
the
Deferred Compensation Plan.
(6) Includes 114,292 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 4,000 shares subject to presently
exercisable stock
options and 99,804 shares reserved for issuance under the
Deferred
Compensation Plan.
(8) Includes 23,939 shares subject to presently
exercisable stock
options.
(9) Includes 3,883 shares subject to presently
exercisable stock
options.
(10) Includes 5,012 shares subject to presently
exercisable stock
options.
(11) Includes 189,243 shares subject to presently
exercisable stock
options and 193,742 shares reserved for issuance under the
Deferred
Compensation Plan.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with
respect
to the executive officers and directors of the Company and
executive
officers of subsidiaries of the Company who have significant
policy-
making authority:
Name Age Position
Steven M. Scott, M.D. 51 Chairman of the Board,
President
and
Chief Executive Officer
Bertram E. Walls, M.D. 47 Director
Eugene F. Dauchert, Jr. 45 Director, Secretary,
Executive
Vice President
Edward L. Suggs, Jr. 47 Director, President and
Chief
Executive Officer,
Healthcare Business
Resources,
Inc.
Charles E. Potter (1) 55 Director
Sherman M. Podolsky, M.D. 48 Director, President,
Coastal
Physician Services
of South Florida, Inc.
W. Randall Dickerson 45 Director, Executive Vice
President
and Chief Financial
Officer
_________________________
(1) Member of the Audit Committee and Compensation Committee
of the
Board of Directors.
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 of Directors 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
of Directors 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 medicine 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.
Dr. Walls, a director since 1991, is President and Chief
Executive Officer of Doctors Health Plan, Inc., a former
subsidiary of
the Company. The Company sold Doctors Health Plan, Inc. on
March 18,
1998. Dr. Walls also served as President of Coastal
Physician Contract
Services Group, Inc., a subsidiary of the Company, from
January
through December 1994. Effective January 1, 1995, Dr. Walls
became the
President and Chief Executive Officer of Century American
Insurance
Company ("Century Insurance"). From 1992 to 1993, Dr. Walls
was the
President of Sunlife OB/GYN Services, Inc., a subsidiary of
the
Company, as well as its Chief Medical Officer from 1991 to
1993. He is
board certified in obstetrics and gynecology and is a member
of the
clinical faculty at Duke University Medical Center. Dr.
Walls received
his undergraduate degree from North Carolina A&T State
University and
his medical degree from Duke University. He completed his
residency in
obstetrics and gynecology at Duke University Medical Center.
In
addition, Dr. Walls holds a masters of business
administration degree
from the Duke University Fuqua School of Business.
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 his undergraduate degree from the
University of
North Carolina at Chapel Hill and a juris doctor 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 an undergraduate 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.
Mr. Potter, a director of the Company since April 1997,
has been
President of The Potter Financial Group, an independent
financial
planning firm in central North Carolina since 1984 and is a
Principal
in The Potter Financial Advisory Group, LLC, a registered
investment
advisory firm. He received an undergraduate degree in
marketing from
St. Peters College in Jersey City, New Jersey in 1966 and
has been
active in the financial services industry in various
capacities since
that time. 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.
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.
Mr. Dickerson became Chief Financial Officer on
September 21,
1998. He previously served as Interim Chief Financial
Officer from
March 17, 1997 until September 1, 1997. Mr. Dickerson was
appointed to
the Board of Directors on May 21, 1999. He joined the
Company in 1993
and has served as Chief Financial Officer of Healthcare
Business
Resources, Inc., a subsidiary of the Company, as Corporate
Controller
and as Corporate Treasurer. Prior to joining the Company,
Mr.
Dickerson was a partner with the accounting firm of Ernst &
Young LLP.
He is a certified public accountant and a graduate of the
University
of South Carolina.
MEETINGS AND CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 12 meetings during 1998.
Mitchell W.
Berger and Mr. Potter were the members of the Audit
Committee on
January 1, 1998. On July 10, 1998, Mr. Berger resigned from
the Board
of Directors. Mr. Mark J. Pastin was appointed to the Board
of
Directors and the Audit Committee on August 12, 1998. Mr.
Pastin
resigned from the Board of Directors on December 31, 1998.
The
principal functions of this committee are to make
recommendations to
the Board of Directors with respect to the selection of the
Company's
independent accountants, to review the Company's internal
controls and
confer with and make recommendations to the Company's
independent
accountants concerning the scope and results of their audit.
The Audit
Committee met five times during 1998.
Mr. Berger and Mr. Potter were the members of the
Compensation
Committee on January 1, 1998. On July 10, 1998, Mr. Berger
resigned
from the Board of Directors. Mr. Mark J. Pastin was
appointed to the
Board of Directors and the Compensation Committee on August
12, 1998.
Mr. Pastin resigned from the Board of Directors on December
31, 1998.
The principal functions of the committee are to review and
make
recommendations to the Board of Directors with respect to
the
compensation of the executive officers of the Company. The
Compensation Committee met two times during 1998.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received
by the
President and Chief Executive Officer of the Company during
1998 and
its four other most highly compensated executive officers
who were
incumbent at December 31, 1998 (collectively, the "Named
Executive
Officers") for services rendered to the Company or its
subsidiaries
during the years ended December 31, 1998, 1997 and 1996, as
applicable:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation
Awards
Other Annual Securities
All Other
Name and Principal SalaryBonus Compensation(1) Underlying
Compensation
Position Year($) ($) ($)
Options/SARs(#)
($) (2)
Steven M. Scott, M.D.(3) 1998 400,000 -- -- --
5,416
Chairman of the 1997 400,000 -- -- --
4,290
Board, President 1996 333,333 -- 12,806 --
5,296
and Chief Executive
Officer of the
Company
Eugene F. Dauchert, Jr. 1998 190,000 -- -- --
3,645
Director and 1997 160,000 54,745 --
100,000
4,405
Executive Vice 1996 160,000 8,500 -- --
4,481
President
Edward L. Suggs, Jr. 1998 228,462 -- -- --
4,342
Director, President and 1997 213,654 50,769 --
100,000 4,049
Chief Executive Officer, 1996 190,000 -- -- --
2,442
Healthcare Business
Resources, Inc. (3)
Sherman M. Podolsky, 1998 242,430 28,800 -- --
4,411
M.D. Director, 1997 176,667 50,000 -- --
3,563
President, 1996 92,030 9,000 -- --
3,303
Coastal Physician
Services of South
Florida, Inc. (4)
W. Randall Dickerson 1998 154,734 -- --
- -- 273
Director, Executive 1997 126,182 80,000 -- --
97
Vice President 1996 113,431 -- -- --
108
and Chief Financial
Officer
_________________
(1) Reflects imputed income for personal use of the
Company's
aircraft.
(2) Includes for 1998: (i) contributions made under the
Company's
401(k) plan of $3,400, $3,263, $3,750 and $3,750 for Dr.
Scott, Mr.
Dauchert, Mr. Suggs and Dr. Podolsky, respectively, and (ii)
premiums
paid for group life insurance policies of $2,016, $383,
$661, $592,
and $273 for Dr. Scott, Mr. Dauchert, Mr. Suggs, Dr.
Podolsky, and Mr.
Dickerson, respectively
(3) Healthcare Business Resources, Inc. ("HBR") is a
subsidiary of the
Company.
(4) Coastal Physician Services of South Florida, Inc. is a
subsidiary
of the Company.
AGGREGATED OPTION/SAR EXERCISES AND OPTION/SAR VALUES
The following table provides certain information
concerning the
number of securities underlying unexercised options held by
each of
the Named Executive Officers and the value of such officers'
unexercised options at December 31, 1998:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying
Unexercised
Options/SARs at Fiscal Year -End (#) (1)
Name Exercisable Unexercisable
Steven M. Scott, M.D. 32,117 100,000
Eugene F. Dauchert, Jr. 3,883 170,000
Edward L. Suggs, Jr. 82,976 171,316
Sherman M. Podolsky, M.D. 23,939 50,000
W. Randall Dickerson 5,012 20,000
_______________________
(1) No unexercised options were in the money at fiscal year-
end.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the
Company
(an "Independent Director") receives $20,000 annually for
serving as a
director plus $1,200 for each meeting of the Board of
Directors
attended. The respective Chair of the Audit and Compensation
Committees receive an additional $1,200 annually for
services rendered
in that capacity. At each director's election, compensation
may be
paid either currently, in cash, or deferred and paid in cash
or in
shares of Common Stock at the distribution date of the
deferred
compensation. Pursuant to the Company's 1994 Independent
Directors'
Stock Option Plan, an Independent Director who is elected to
the Board
of Directors automatically receives an option to purchase
3,000 shares
of Common Stock and any Independent Director who continues
to serve as
a director following an annual meeting of shareholders
automatically
receives an option to purchase 1,000 shares of Common Stock.
The
respective Chair of the Audit and Compensation Committees
automatically receive an additional option to purchase 2,000
shares of
Common Stock as of the first committee meeting following an
annual
meeting of shareholders. The exercise price of these options
is the
fair market value of the underlying shares on the date of
grant. The
options become exercisable one year from the date of grant
and have a
ten-year term.
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 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. The release allows Scott Medical
Group, LLC and
any other entity owned or controlled by Dr. Scott to own,
manage,
operate or otherwise provide physician practice and
management
services to physician and clinic practices.
In order to facilitate the purchase by Dr. Scott of
Doctors Health
Plan, Inc. and Health Enterprises, Inc. ("HPSE") in 1998
(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. The
release
allows Dr. Scott and any other entity owned or controlled by
Dr. Scott
to own, manage, operate or otherwise provide services to
health
maintenance organizations ("HMOs"). Dr. Scott and any other
entity
owned or controlled by Dr. Scott are permitted to increase
and expand
their ownership, management and operation of HMOs, including
without
limitation creating start-up locations or acquiring
additional HMOs in
any geographic location.
Eugene F. Dauchert, Jr.
On July 1, 1997, Mr. Dauchert entered into a restated and
amended
employment agreement pursuant to which Mr. Dauchert serves
as
Executive Vice President and Chief Administrative Officer of
the
Company. The initial term of the Agreement was from July 1,
1997
through June 30, 1998. Thereafter, the Agreement continues
until and
unless terminated by either party. The agreement provides
for an
annual increase in base salary of 7.5% on July 1 unless
other terms
are agreed upon between the parties. Under the agreement,
Mr. Dauchert
received an annual base salary of $180,000 in 1998, and was
eligible
for certain incentive or performance bonuses based upon the
achievement of certain cash flow goals during the second
fiscal
quarter of 1998, and for certain other incentive or
divestiture
bonuses based upon the successful divestiture of certain
operating
subsidiaries. Certain of these subsidiaries were divested in
1998, and
Mr. Dauchert was entitled to a divestiture bonus of $56,387.
Effective January 1, 1999, Mr. Dauchert entered into an
amended
employment agreement which provided for the divestiture
bonus and the
increase in base salary for the period July 1, 1998 through
December
31, 1998 to be deferred until January 1, 1999 and paid
during the
first six months of 1999. The amendment deferred the annual
increase
in base salary from July 1, 1999 to January 1, 2000 and
provides for
certain incentive bonuses as follows: (i) an incentive bonus
payable
based upon significant mergers, acquisitions, divestitures,
recoveries
or refinancings being successfully completed, (ii) a bonus
equal to
2.5% of base salary per quarter based upon the net
profitability of
the Company, (iii) a discretionary bonus of up to 15% of
annual base
salary, and (iv) an aggregate cap on all bonuses during any
one year
equal to 40% of base salary.
The employment agreement continues to impose certain
confidentiality obligations on Mr. Dauchert and contains a
covenant
not to compete with the Company or its affiliates for a
specified time
in the event of a termination of the agreement.
Edward L. Suggs, Jr.
On March 1, 1997, Mr. Suggs entered into an employment
agreement
with 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 and on the Board of the Company. 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
to the then outstanding indebtedness of approximately
$16,000
evidenced by a promissory note in the original face amount
of $25,000.
Mr. Suggs will be 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.
Sherman M. Podolsky, M.D.
On January 1, 1998, Dr. Podolsky entered into an
employment
agreement with Coastal Physician Services of South Florida,
Inc. ("CPS
of South Florida"), a subsidiary of the Company. The initial
term of
the agreement is from January 1, 1998 through December 31,
2000. Under
the agreement, Dr. Podolsky serves as the President and
Chief
Executive Officer of CPS of South Florida. Dr. Podolsky
receives an
annual base salary of $240,000, subject to annual review and
adjustment as of each January 1 during the term of the
agreement. Dr.
Podolsky will be eligible for incentive bonuses based upon
certain
cash improvement target quotas and other factors which are
established
by the President of Coastal Physician Services, Inc., a
subsidiary of
the Company. The employment agreement imposes certain
confidentiality
obligations upon Dr. Podolsky and contains a covenant not to
compete
with CPS of South Florida or its affiliates or solicit its
employees
for a specified period of time.
W. Randall Dickerson
In March 1999, Mr. Dickerson entered into an employment
agreement
with the Company pursuant to which Mr. Dickerson will serve
as an
Executive Vice President and Chief Financial Officer of the
Company.
The initial term of the agreement is November 1, 1998
through October
31, 1999. Under the agreement, Mr. Dickerson receives an
annual base
salary of $180,000 and will be eligible for an incentive
bonus based
upon certain performance goals. The employment agreement
imposes
certain confidentiality obligations upon Mr. Dickerson and
contains a
covenant not to compete with the Company or its affiliates
or solicit
its employees for a specified period of time.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
GENERAL
Historically, the Company's compensation policies have
been
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 compensated under employment
agreements during
1998, base salaries and discretionary bonuses were generally
determined by the Compensation Committee based on the
recommendations
of the Chief Executive Officer and operating subsidiary
presidents.
Management's focus during 1998 was on completing its
divestiture
strategy and continuing to operate and improve the
performance of the
Company's core businesses. In addition, emphasis was placed
on
increasing accountability and measurement of operating
results for
operating divisions and subsidiaries. The Company's
compensation
philosophy provides for salary and bonus arrangements based
on
performance of operating subsidiaries or divisions,
particularly upon
improvements in cash flow from quarter to quarter, or
achievement of
certain goals by the corporate group executives. This
philosophy has
been integrated into the provisions of each executive
employment
agreement entered into during 1998 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 OFFICER'S COMPENSATION
Dr. Scott, as the Company's Chairman, President and Chief
Executive
Officer, is currently 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 1998. See "Employment and
Certain
Other Agreements."
Charles E. Potter*
* See "Meetings and Certain Committees of the Board of
Directors" for
a description of changes in the membership of the
Compensation
Committee during 1998.
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:
American Physician Partners, Inc., Medaphis Corporation,
MedPartners,
Inc., Pediatrix Medical Group, Inc. and Sheridan Healthcare,
Inc.
("The New Peer Group") The Company has selected the New Peer
Group
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 or the peer group included in the proxy
statement for
the 1998 Annual Meeting, which consisted of Medaphis
Corporation,
MedPartners, Inc., Humana, Inc., Coventry Healthcare Inc.,
and Phycor,
Inc. (the "Old Peer Group"). The New Peer Group was
developed because
of changes in the Company's core business focus, including
the
divestitures of it HMOs and clinic operations which were
heavily
represented in the Old Peer Group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG COASTAL PHYSICIAN GROUP, INC.,
S&P 500 INDEX AND MANAGED CARE/HEALTH CARE SERVICES
COMPOSITE
1993 1994 1995 1996 1997
1998
Coastal Physician 100 68.87 33.96 8.81 2.04
.94
Group, Inc.
New Peer Group 100 140.91 224.24 131.97 128.77
109.56
Index
S&P 500 Index 100 101.32 139.40 171.41 228.59
293.92
Old Peer Group 100 127.97 166.79 105.73 112.51
78.88
Index
Assumes $100 invested on Jan. 1, 1994
Assumes Dividend Reinvested
Fiscal Year Ending Dec. 31, 1998
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engaged in transactions with entities owned or
controlled by Dr. Scott including American Alliance Holding
Company
and certain of its affiliates ("Alliance"), which included
Century
American Insurance Company ("Century Insurance") until
Century
Insurance was sold by Alliance to a purchaser unaffiliated
with the
Company in May 1998. Dr. Scott is the beneficial owner of
all of the
outstanding shares of Common Stock of Alliance. Amounts paid
by the
Company to these entities, including amounts paid to Century
Insurance
through May 1998, net of amounts received, were net receipts
of
$6,978,000 for the year ended December 31, 1998 and net
payments of
$4,186,000 and $5,135,000 for the years ended December 31,
1997 and
1996, respectively. These transactions and relationships are
described
below.
On January 1, 1998, the Company and Medical Group
Purchasing
Association ("MGPA") entered into a Risk Management
Agreement with
Century Insurance 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 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 for coverage on
substantially
the same terms and conditions. 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.
Effective December 31, 1998, the Company and the MGPA
elected to
"opt out" of coverage under the policy and agreed to
purchase
insurance policies from an unaffiliated company to provide
professional liability insurance for the Company and the
physicians
and other medical and clinical providers under contract with
the
Company. The terms and conditions of the coverage are the
same as has
historically been provided to the Company and MGPA by
Century
Insurance in the past. The premium for the coverage is based
on the
underwriting criteria and loss experience of the account.
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 American Alliance Realty Company
("Alliance Realty") and leased to Century Insurance. During
the year
ended December 31, 1998, the Company paid approximately
$676,000 under
these sublease agreements. The Company, Alliance Realty 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
Realty with
respect to the total rentals. 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 1998 of
$33,000. As
discussed below, the Company entered into a termination of
the
remaining lease obligations for certain office space under
lease
through 2002.
Effective May 31, 1997, the Company sold certain assets
related to
seven primary care clinics operated by the Company (the "May
Clinic
Sale") to Scott Medical Group LLC ("Scott Medical"). Scott
Medical is
a privately held limited liability company which is
controlled by Dr.
Scott. The purchase price for the assets of the seven
clinics was
$388,657 paid pursuant to a promissory note due May 31,
1998, with
interest at 12% per annum, which was paid in full. In
addition, Scott
Medical gave a promissory note in the amount of $803,088 for
certain
other assets, primarily accounts receivable, related to two
other
clinic locations previously sold to unrelated third parties.
This note
was also due May 31, 1998 with interest at 10% per annum. On
June 2,
1998, Scott Medical paid principal and interest of $252,591
of the
balance due under the note. As a result of lower than
expected
collections on the accounts receivable sold, the principal
amount of
the note was reduced by $571,252 leaving a balance of $2,208
at
December 31, 1998. Interest was recalculated based on the
adjusted
principal amount.
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. ("NCFE").
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 was paid 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 was $1,000,727, the book value of the Sunlife
Receivables. The Receivables Purchase Note provided for
interest at
5.68% through October 31, 1998 and 10.94% thereafter,
payable
quarterly, with all principal and accrued but unpaid
interest payable
in full on October 31, 1998. The Receivables Purchase Note
was subject
to adjustment if the actual collections with respect to the
Sunlife
Receivables varied five percent from the principal amount of
the
Receivables Purchase Note. The resulting adjustment
retroactively
reduced the principal amount of the note by $687,857 to
$312,870 upon
which interest was recalculated.
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. 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 added to the
Receivables
Purchase Note. Effective December 31, 1998, the purchase
price was
further reduced by $657,558 based upon the actual
collections of the
outstanding accounts receivable of IPN, Prim Med, Inc. and
the
professional corporations under management by IPN as agreed
upon by
the parties.
On March 18, 1998, the Company completed the sale of DHP
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.
After a thorough review of the operations of DHP 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.
Effective
October 30, 1998, the principal amount of the DHP note and
accrued
interest of $396,164 were paid and all collateral was
released.
Proceeds were used to reduce debt of the Company.
For a period of 12 months from the closing, the Company
had the
right to market and sell Doctors Health Plan to potential
third party
purchasers. No third party purchasers were identified prior
to March
18, 1999.
As part of the transaction, the Company agreed to a
partial release
of its non-compete agreement with Dr. Scott . This partial
release
allows Dr. Scott to operate health maintenance organizations
and
similar organizations in all areas, other than those areas
in Florida
and Georgia where the Company and/or its affiliates operate
health
maintenance organizations. In addition, the Company agreed
that for a
one year period following the closing date, the Company will
not
engage in the business of providing health maintenance
organization or
similar services in the State of North Carolina and those
service
areas in the State of South Carolina served by Doctors
Health Plan.
On March 3, 1998, Dr. Walls made an investment of $2.0
million in
the Company in exchange for a $2.0 million convertible
debenture due
July 1, 1998 bearing interest at 10% per annum. The
debenture,
including accrued interest, was convertible, at the holder's
option,
into the Company's Common Stock and a new series of
Preferred Stock.
The conversion price for the Common Stock was equal to the
lower of:
(i) the average closing price of the Common Stock on the New
York
Stock Exchange for the 10 trading days ending on March 3,
1998, the
date of the issuance of the debenture, or (ii) the average
closing
price for the 10 trading days ending on June 30, 1998. The
conversion
price for the Preferred Stock was ten times the conversion
price for
the Common Stock. On May 1, 1998, Dr. Scott acquired the
debenture
from Dr. Walls. On June 29, 1998, the debenture was amended
to provide
for conversion solely into Series D Convertible Preferred
Stock
("Series D Preferred"). On June 30, 1998, Dr. Scott elected
to convert
the debenture into 444,974 shares of Series D Preferred. The
Series D
Preferred is convertible into 10 shares of Common Stock for
each share
of Preferred Stock only upon approval by the holders of the
Common
Stock.
On October 30, 1998, the Company completed the sale of
Health
Enterprises, Inc., whose primary operating subsidiary is
Healthplan
Southeast, Inc. ("HPSE"), to Dr. Scott. Dr. Scott acquired
all of the
outstanding stock of HPSE in a transaction which is
effective as of
October 1, 1998 for financial reporting purposes. The
purchase price
of $15 million was used to decrease debt.
HPSE is an HMO licensed to operate in the State of Florida
with
approximately 80,000 members. For the nine months ended
September 30,
1998, Health Enterprises, Inc., reported unaudited
consolidated
revenues of approximately $82,815,000 and net losses of
approximately
$5,181,000. As a result of these losses, the Company was
required to
make significant capital contributions to HPSE in 1998 prior
to its
sale, and the Company anticipated that substantial
additional capital
contributions would be required during the balance of 1998.
The Company retained the investment banking firm of
Salomon Smith
Barney to advise the Company, to assist in completing the
sale and
advise the Company on the financial aspects of the
transaction. After
a thorough review of the operations of HPSE 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 purchase price was determined by negotiation
between the
Company and Dr. Scott.
The Florida Department of Insurance issued a consent
granting
approval of the Purchaser's acquisition of the outstanding
voting
securities of HPSE.
For a period of twelve (12) months from the closing, the
Company
has the right to market and sell HPSE to potential third
party
purchasers. If the Company located a third party purchaser
before
October 31, 1999 who was willing to purchase HPSE at a price
that
exceeded the Strike Price (as defined in the purchase
agreement), then
the Company may have elected to have the sale take place. If
the
Company elected to sell to the third party, Dr. Scott had
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. If the Company entered into a definitive
agreement to
sell HPSE at a price greater than the Strike Price before
December 31,
1998, the net proceeds (after payment of marketing expenses
of the
sale to the third party) of the sale would have been
remitted to the
Company. No third party purchaser was located prior to
December 31,
1998. If the Company enters into a definitive agreement to
sell HPSE
at a price greater than the Strike Price after December 31,
1998 but
before October 30, 1999, the net proceeds (after payment of
marketing
expenses of the sale to the third party) of the sale will be
divided
between Dr. Scott and the Company.
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 Dr. Scott's net investment in HPSE
plus a twelve
percent (12%) annualized return on the net investment. Dr.
Scott's net
investment shall be equal to his purchase price plus his
contributions
to HPSE plus his out-of-pocket costs to acquire, finance and
operate
HPSE minus any distributions or dividends Dr. Scott receives
from
HPSE. If the sale is prior to October 31, 1999, Dr. Scott
will be
entitled to receive from net proceeds (after payment of
marketing
expenses of the sale to the third party) the greater of (i)
his net
investment plus a twelve percent (12%) annualized return on
such
amounts or (ii) an amount equal to his net investment plus
fifty
percent (50%) of the difference between (x) the amount of
the net
proceeds less the Company's investment banker fees and
expenses in
selling HPSE to Dr. Scott minus (y) his net investment and
the Company
will receive the balance of the proceeds. In all potential
sales to
third party purchasers, Dr. Scott has the right to retain
ownership of
HPSE 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 a
partial release
of its non-compete agreement with Dr. Scott. See "Executive
Compensation."
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation and Bylaws
provide for
nine directors of whom two or three are elected each year
to serve
for three-year terms. Three directors are to be elected at
the Annual
Meeting to serve for a term expiring at the 2002 Annual
Meeting of
Shareholders, expected to be held in June 2002, or
until his/her
successor has been duly elected and qualified. The
nominees for
election to a term ending in 2002 are Charles E. Potter,
Eugene F.
Dauchert, Jr., and Edward L. Suggs, Jr.
The nominees are current members of the Board. See
"Executive
Officers and Directors." The Board has no reason to believe
that the
nominees will refuse to act or be unable to accept
election; however,
in the event that the nominees are unable to accept election
or if any
unforeseen contingencies should arise, it is intended
that proxies
will be voted for other nominees, if any, and for such other
person as
may be designated by the Board, unless it is directed by a
proxy to do
otherwise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES
FOR ELECTION AS DIRECTORS.
PROPOSAL 2
ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE SERIES D
CONVERTIBLE
PREFERRED STOCK
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of
100,000,000
shares of Common Stock and 10,000,000 shares of preferred
stock, all
of which have a par value of $0.01.
COMMON STOCK. The holders of Common Stock are entitled
to one
vote per share on all matters to be voted on by the
shareholders.
Subject to preferences that may be applicable to any
outstanding
shares of preferred stock, the holders of Common Stock are
entitled to
receive ratably such dividends, if any, as may be declared
from time
to time by the Board of Directors out of funds legally
available
therefor. In the event of liquidation, dissolution or
winding up of
the Company, holders of Common Stock are entitled to share
ratably in
all assets remaining after payment of liabilities, subject
to prior
liquidation rights of holders of preferred stock, if any,
then
outstanding. The Common Stock has no preemptive or
conversion rights
or other subscription rights. There are no redemption or
sinking fund
provisions applicable to the Common Stock. All outstanding
shares of
Common Stock are fully paid and nonassessable. The Common
Stock is
quoted on the over the counter market.
PREFERRED STOCK. The Board of Directors, without any
further vote
or action by the shareholders, has authority under the
Company's
Certificate of Incorporation to issue preferred stock in one
or more
series and to fix the rights, preferences, privileges, and
restrictions granted to or imposed upon any unissued series
of shares
of undesignated preferred stock and to fix the number of
shares
constituting any series and the designations of such series.
DESCRIPTION OF THE SERIES D CONVERTIBLE PREFERRED STOCK
The Board of Directors has authorized 1,200,000 shares
of Series
D Convertible Preferred ("Series D Preferred"). Certificates
of
Designation for Series D Preferred have been filed with the
Secretary
of State of Delaware.
DIVIDENDS. Holders of the Series D Preferred are
entitled to
receive dividends, when, as and if declared by the Board of
Directors
out of funds legally available therefor. The amount of
dividends
payable in respect of each share of Series D Preferred will
be equal
to the result obtained by multiplying (I) the number of
shares
(including factions) of the Company's Common Stock, into
which such
share of Series D Preferred is convertible (whether or not
shareholder
approval of the convertibility of the Series D Preferred has
occurred)
by (ii) the amount of dividends declared and paid on each
share of the
Common Stock. No dividend may be paid or declared on any
share of the
Common Stock, unless a dividend, payable in the same
consideration and
manner, is simultaneously paid or declared, as the case may
be, on
each share of the Common Stock. No dividend may be paid or
declared on
any share of the Common Stock, unless a dividend, payable in
the same
consideration and manner, is simultaneously paid or
declared, as the
case may be, on each share of the Common Stock, in each case
without
preferences or priority of any kind.
LIQUIDATION PREFERENCES. Upon any liquidation,
dissolution or
winding up of the Company, no distribution shall be made to
the
holders of shares of stock ranking junior to the Series D
Preferred,
unless, prior thereto, the holders of shares of Series D
Preferred
shall have received $4.50 per share. Following the payment
of the full
amount of such liquidation preferences, no additional
distributions
shall be made to the holders of the Series D Preferred.
CONVERSION RIGHTS AND ANTIDILUTION PROVISIONS. If the
holders of
the Common Stock approve Proposal 2, as applicable, shares
of Series D
Preferred will become convertible, in whole or in part, at
the option
of either the holder or the Company, into Common Stock, at
any time
or from time to time. The conversion rate will be ten (10)
shares of
Common Stock for each share of Series D Preferred, subject
to
adjustment for any subsequent subdivisions or combinations
of the
outstanding shares of Common Stock into a different number
of shares
of Common Stock. In the event of any business combination
transaction
involving the Company, each share of Series D Preferred will
thereafter be convertible into, in lieu of Common Stock, the
same kind
and amounts of securities or other assets, if any, which
were issuable
or distributable to the holders of shares of outstanding
Common Stock
in connection with such business combination transaction.
REDEMPTION. The Series D Preferred is not redeemable.
VOTING RIGHTS. The holders of Series D Preferred are
entitled to
that number of votes per share equal to the number of shares
of Common
Stock into which such share of Series D Preferred would be
convertible
(upon shareholder approval) at all meetings of stockholders
of the
Company; provided, however, that shares of Series D
Preferred are not
be entitled to vote on the approval of the issuance of
Common Stock
upon conversion of the Series D Preferred. Thus, holders of
the Series
D Preferred are not entitled to vote on Proposal 2 at the
Annual
Meeting.
REASONS FOR PROPOSAL 2 AND PRO FORMA EFFECT OF CONVERSION
OF SERIES
D PREFERRED
On March 3, 1998, Bertram E. Walls, M.D., a Director of
the
Company, made an investment of $2.0 million in the Company
in exchange
for a $2.0 million convertible debenture due July 1, 1998
bearing
interest at 10% per annum. The debenture, including accrued
interest,
was convertible, at the holder's option, into the Company's
Common
Stock and a new series of Preferred Stock. The conversion
price for
the Common Stock was equal to the lower of: (i) the average
closing
price of the Common Stock on the New York Stock Exchange for
the 10
trading days ending on March 3, 1998, the date of the
issuance of the
debenture, or (ii) the average closing price for the 10
trading days
ending on June 30, 1998. The conversion price for the
Preferred Stock
was ten times the conversion price for the Common Stock. On
May 1,
1998, Steven M. Scott, M.D., the Company's Chief Executive
Officer, a
Director and largest shareholder acquired the debenture from
Dr.
Walls. On June 29, 1998, the debenture was amended to
provide for
conversion solely into 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. This transaction was not
registered
under the Securities Act pursuant to the exemption provided
by Section
4(2) thereof for transactions not involving any public
offering.
Each Certificate of Designation for the Series D
Preferred
provides, in effect, that the Preferred Stock becomes
convertible into
Common Stock only after a vote of the Company's shareholders
at any
annual or special meeting at which a quorum is present and
at which
the issuance of shares of Common Stock voted at such
meeting, provided
that the total vote cast on the proposal represents over 50%
in
interest of all the Company's securities entitled to vote on
the
proposal.
In accordance with the Certificates of Designation for
the Series
D Preferred, the Board of Directors is submitting Proposal 2
for
consideration and approval by the Company's shareholders at
the Annual
Meeting. In the event the shareholders approve Proposal 2
and assuming
the Series D Preferred is converted into shares of Common
Stock at the
current conversion rate and such shares are included in the
Company's
outstanding Common Stock, the number of shares of Common
Stock that
would be issued upon conversion of the Series D Preferred
would be
4,449,740, and these shares would represent approximately
10.5% of the
Company's outstanding Common Stock. For information
regarding Dr.
Scott's beneficial ownership of the Common Stock and Series
D
Preferred as of the Record Date, see "Security Ownership of
Certain
Beneficial Owners and Management."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ISSUANCE
OF COMMON
STOCK UPON CONVERSION OF THE SERIES D CONVERTIBLE
PREFERRED STOCK.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION
TO CHANGE THE COMPANY'S NAME FROM COASTAL PHYSICIAN
GROUP, INC.
TO PHYAMERICA PHYSICIAN GROUP, INC.
The Company's Board of Directors has adopted a resolution
approving
and recommending to the Company's shareholders for their
approval, an
amendment to Section 1 of the Company's Certificate of
Incorporation
to change the Company's corporate name from Coastal
Physician Group,
Inc. to PhyAmerica Physician Group, Inc. The Board of
Directors
believes the new name is more indicative of the nature of
the
Company's business than the current Company name. Although
physicians
remain integral to the Company's business, the new name
better
reflects the Company's target market area and area of
expertise. The
Board of Directors believes the new name will improve the
Company's
name recognition both in markets in which it operates and in
the
investment community.
For the text of Section 1 of the Company's Certificate
of
Incorporation as currently in effect and as proposed to be
amended,
see Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT
TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 4
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF
INCORPORATION TO AUTHORIZE THE COMPANY TO ISSUE 100,000,000
SHARES OF
NONVOTING COMMON STOCK WITH A PAR VALUE OF $0.01 PER
SHARE
The Company's Board of Directors has adopted a
resolution
approving and recommending to the Company's Shareholders for
approval
an amendment to Section 4(a) of the Company's Certificate of
Incorporation to provide for the creation of 100,000,000
shares of non-
voting Common Stock with a par value of $0.01 per share.
Section 4(a)
of the Certificate of Incorporation currently authorizes the
Company
to issue up to 100,000,000 shares of Common Stock, with each
share of
such Common Stock entitled to one vote on all matters upon
which
Shareholders are entitled to vote or to which Shareholders
are
entitled to give consent. The Board of Directors believes
that the
creation of a new class of Common Stock that has no voting
privileges
is in the best interests of the Company and its Shareholders
and
believes it advisable to authorize such shares to have them
available
for, among other things, possible issuance in connection
with such
activities as public or private offerings of shares for
cash,
dividends payable in stock of the Company, acquisitions of
other
companies and other Company purposes. The amendment to
Section 4(a) of
the Certificate of Incorporation would designate the
currently
authorized voting Common Stock as "Common Stock" and would
designate
the non-voting Common Stock as "Non-Voting Common Stock."
There are no present commitments, arrangements of plans
to issue
any of the Non-Voting Common Stock which would be authorized
by the
proposed amendment. Non-Voting Common Stock could be issued
for any
proper corporate purpose.
For the text of Section 4(a) of the Company's
Certificate of
Incorporation as currently in effect and as proposed to be
amended,
see Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT
TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
The firm of KPMG 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 LLP as the
Company's
independent certified public accountants for the year ending
December
31, 1999, subject to the ratification of shareholders. One
or more
representatives of KPMG 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 5.
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 1998, 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 2000 Annual
Meeting of
Shareholders must be received in writing by the
Secretary of the
Company by January 5, 2000. 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
June 28, 1999
EXHIBIT A
AS CURRENTLY IN EFFECT AS PROPOSED TO BE
AMENDED
Section 1 The name of the The name of the
Corporation ("the Corporation ("the
Corporation") is: COASTAL Corporation") is:
PHYSICIAN GROUP, INC. PHYAMERICA
PHYSICIAN
GROUP, INC.
Section 4(a) The Corporation shall The Corporation
shall
have authority to issue have the authority
to
One Hundred Million issue Two Hundred
Million
(100,000,000) shares of (200,000,000)
shares of
common stock with a par common stock with
a par
value of One Cent ($0.01) value of One Cent
($0.01)
per share. per share. One
Hundred
Million
(100,000,000)
shares shall be
designated as
"Common
Stock." Holders of
Common
Stock shall be
entitled
to cast one (1)
vote in
person or by proxy
for
each share of
Common
Stock upon all
matters
upon which
shareholders
are entitled to
vote or
to which
shareholders are
entitled to give
consent.
One Hundred
Million
(100,000,000)
shares
shall be
designated as
"Non-Voting Common
Stock." Except as
may
otherwise be
required by
law, the holders
of Non-
Voting Common
Stock shall
have no voting
rights and
shall not vote.
Holders
of Common Stock
and Non-
Voting Common
Stock shall
be entitled to
share
ratably in all
such
dividends or
distributions,
payable in
cash or otherwise,
as may
be declared
thereon by
the Board of
Directors
from time to time
out of
assets or funds of
the
Corporation
legally
available
therefor.
<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 Sherman M.
Podolsky, M.D., 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
July 29, 1999, at the Durham Hilton, 3800 Hillsborough
Road, Durham, North
Carolina, and at any adjournments or postponements
thereof, to vote the number
of shares which the undersigned would be entitled to vote
if present in person
in such manner as such proxies may determine, and to
vote on the following
proposals as specified below by the undersigned.
(1) ELECTION OF DIRECTORS:
VOTE FOR ALL NOMINEES LISTED BELOW WITHHOLD
AUTHORITY to vote for
(except as marked to the contrary below). all
nominees listed below.
EUGENE F. DAUCHERT, JR. CHARLES E. POTTER
EDWARD L. SUGGS, JR.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
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- --------------------
(2) APPROVAL OF ISSUANCE OF COMMON STOCK UPON
CONVERSION OF THE SERIES D
CONVERTIBLE PREFERRED STOCK.
FOR AGAINST
ABSTAIN
(3) APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO
CHANGE THE COMPANY'S NAME FROM COASTAL PHYSICIAN
GROUP, INC. TO PHYAMERICA
PHYSICIAN GROUP, INC.
FOR AGAINST
ABSTAIN
(4) APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO
AUTHORIZE THE COMPANY TO ISSUE 100,000,000 OF NONVOTING
COMMON STOCK WITH A
PAR VALUE OF $0.01 PER SHARE.
FOR AGAINST
ABSTAIN
(5) RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999:
FOR AGAINST
ABSTAIN
PLEASE SIGN AND DATE ON THE OTHER SIDE
ANNUAL MEETING OF SHAREHOLDERS
OF
COASTAL PHYSICIAN GROUP, INC.
2828 CROASDAILE DRIVE
DURHAM, NC 27705
Please date, sign exactly as name(s) appear below and
return promptly in the
enclosed envelope.
This proxy when properly executed will be voted in the
manner directed herein by
the undersigned shareholder. IN THE ABSENCE OF SPECIFIED
DIRECTIONS, THIS PROXY
WILL BE VOTED IN FAVOR OF THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY AND
IN FAVOR OF THE PROPOSALS LISTED IN THIS PROXY. The proxies
are also authorized
to vote in their discretion upon such other matters as may
properly come before
the meeting or any adjournment thereof.
If signing as attorney, administrator, executor,
guardian, trustee or as a
custodian for a minor, please add your title as such. If a
corporation, please
sign in full corporate name and indicate the signer's
office. If a partner,
please sign in the partnership's name
X
- -----------------------------------------
X
- -----------------------------------------
Dated , 1999
-----------------------------
