-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JqTdMUkDWA/6VJvMgD9g1R1o34AYrcXHeBO/d+RASQRSqPnDQk5bhSj6q5ynXAw1 4HXhBQdm2OpW+vQdhUF3uA== 0000950168-96-001246.txt : 19961010 0000950168-96-001246.hdr.sgml : 19961010 ACCESSION NUMBER: 0000950168-96-001246 CONFORMED SUBMISSION TYPE: PREC14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19960711 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTAL PHYSICIAN GROUP INC CENTRAL INDEX KEY: 0000874787 STANDARD INDUSTRIAL CLASSIFICATION: 7363 IRS NUMBER: 561379244 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PREC14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13460 FILM NUMBER: 96593556 BUSINESS ADDRESS: STREET 1: 2828 CROASDAILE DR CITY: DURHAM STATE: NC ZIP: 27705 BUSINESS PHONE: 9193830355 MAIL ADDRESS: STREET 1: 2828 CROASDAILE DR CITY: DURHAM STATE: NC ZIP: 27704 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL HEALTHCARE GROUP INC DATE OF NAME CHANGE: 19930328 PRE 14A 1 COASTAL PHYSICIAN GROUP PRE14A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (X ) Filed by the Registrant ( ) Filed by a Party other than the Registrant Check the appropriate box: (X ) Preliminary Proxy Statement ( ) Confidential, for Use of the Commission Only (as permitted by Rule 14a-b(e)(2)) ( ) Definitive Proxy Statement ( ) Definitive Additional Materials ( ) Soliciting Material Pursuant to (section mark)240.14a-11(c) or (section mark)240.14a-12 Coastal Physician Group, Inc. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement If Other Than Registrant) PAYMENT OF FILING FEE (Check the appropriate box): ( ) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2). (X ) $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). ( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: * 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: (Set forth the amount on which the filing fee is calculated and state how it was determined) ( ) Fee previously paid with preliminary materials. ( ) Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: $ 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION (Logo appears here) COASTAL PHYSICIAN GROUP, INC. 2828 CROASDAILE DRIVE DURHAM, NORTH CAROLINA 27705 , 1996 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held at on day, , 1996, at 9:00 a.m., local time. The Notice of Annual Meeting of Shareholders and Proxy Statement are attached hereto. The matters to be acted upon by our shareholders are set forth in the Notice of Annual Meeting of Shareholders and discussed in the Proxy Statement. We would appreciate your signing, dating and returning the enclosed proxy card in the envelope provided at your earliest convenience. If you choose to attend the meeting, you may revoke your proxy and personally cast your votes. We look forward to seeing you at our Annual Meeting. Sincerely yours, Jacque J. Sokolov, M.D. Joseph G. Piemont Chairman President and Chief Executive Officer YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING WHITE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION COASTAL PHYSICIAN GROUP, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1996 TO THE SHAREHOLDERS OF COASTAL PHYSICIAN GROUP, INC. NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of Coastal Physician Group, Inc., a Delaware corporation (the "Company"), will be held at 9:00 a.m., local time, on , 1996, at for the following purposes: (1) To elect three members to the Company's Board of Directors to hold office until the 1999 Annual Meeting or until their successors are duly elected and qualified; (2) To ratify the action of the Board of Directors in selecting KPMG Peat Marwick LLP as independent certified public accountants of the Company for the fiscal year ending December 31, 1996; and (3) To transact such other business as may properly come before the Annual Meeting. The Board of Directors has fixed the close of business on , 1996 as the record date for determining those shareholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. Whether or not you expect to be present, please sign, date and return the enclosed proxy card in the enclosed pre-addressed envelope as promptly as possible. No postage is required if mailed in the United States. By Order of the Board of Directors, Joseph G. Piemont President and Chief Executive Officer Durham, North Carolina , 1996 YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING WHITE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION 1996 ANNUAL MEETING OF SHAREHOLDERS OF COASTAL PHYSICIAN GROUP, INC. PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Coastal Physician Group, Inc., a Delaware corporation (the "Company"), of proxies from the holders of the Company's Common Stock (the "Common Stock") for use at the 1996 Annual Meeting of Shareholders of the Company to be held at , at 9:00 a.m., local time, on , 1996 or at any adjournments or postponements thereof (the "Annual Meeting"). The approximate date that this Proxy Statement and the enclosed form of proxy are first being sent or given to holders of Common Stock is , 1996. Shareholders should review the information provided herein in conjunction with the Company's 1995 Annual Report to Shareholders. The Company's principal executive offices are located at 2828 Croasdaile Drive, Durham, North Carolina 27705, and its telephone number is (919) 383-0355. INFORMATION CONCERNING PROXY The enclosed proxy is solicited on behalf of the Board of Directors. The giving of a proxy does not preclude the right to vote in person should any shareholder giving the proxy so desire. THE BOARD URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE WHITE PROXY CARD IN THE ENCLOSED WHITE ENVELOPE. Shareholders have a right to revoke their proxy at any time prior to the exercise thereof, either in person at the Annual Meeting or by filing with the Company's Secretary at the Company's principal executive offices a written revocation or duly executed proxy bearing a later date; however, no such revocation will be effective until written notice of the revocation is received by the Company at or prior to the Annual Meeting. DO NOT SIGN ANY PROXY CARD SENT TO YOU BY DR. STEVEN SCOTT. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY CARD IN THE ENCLOSED ENVELOPE. IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE, ONLY YOUR BANK OR BROKER CAN VOTE YOUR SHARES AND ONLY UPON YOUR SPECIFIC INSTRUCTIONS. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT HIM OR HER TO VOTE THE WHITE PROXY CARD AS SOON AS POSSIBLE. Remember, it will not help to return a proxy card to Dr. Scott marked "withhold." The only way to support the Board's nominee's is to vote "FOR" those nominees on the WHITE proxy card. If you have any questions or need further assistance in voting your shares, please call: MACKENZIE PARTNERS, INC. 156 FIFTH AVENUE NEW YORK, NY 10010 (212) 929-5500 (COLLECT) OR CALL TOLL FREE 1-800-322-2885 PURPOSES OF THE MEETING At the Annual Meeting, the Company's shareholders will consider and vote upon the following matters: (1) The election of three members to the Board of Directors to serve until the 1999 Annual Meeting or until their successors are duly elected and qualified; (2) The proposal to ratify the action of the Board of Directors in selecting KPMG Peat Marwick LLP as independent certified public accountants of the Company for the fiscal year ending December 31, 1996; and (3) Such other business as may properly come before the Annual Meeting. 1 Unless contrary instructions are indicated on the enclosed proxy, all shares represented by valid proxies received pursuant to this solicitation will be voted in favor of the election of the three nominees named herein and in favor of the other proposal set forth herein. In the event a shareholder specifies a different choice by means of the enclosed proxy, his or her shares will be voted in accordance with the specification so made. OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS The Board of Directors has set the close of business on , 1996 as the record date (the "Record Date") for determining shareholders of the Company entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were shares of Common Stock outstanding, all of which are entitled to one vote per share on all matters to be acted upon at the Annual Meeting. The representation in person or by proxy of a majority of the issued and outstanding shares of Common Stock entitled to vote is necessary to provide a quorum at the Annual Meeting. Directors of the Company are elected by a plurality vote. Approval of Proposal 2 requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote. With respect to the election of directors, votes may be cast in favor of nominees or withheld. Withheld votes will be excluded entirely from the vote and will have no effect thereon. Abstentions may be specified with respect to Proposal 2 and will be counted as present for purposes of that proposal. Since Proposal 2 requires the approval of a majority of the shares present and entitled to vote, abstentions will have the practical effect of a negative vote on that proposal. Pursuant to Delaware law, broker nonvotes are treated as shares as to which voting power has been withheld by the beneficial owners thereof and, therefore, as shares not entitled to vote. Thus, although broker nonvotes on Proposal 2 will have no effect on the vote for that proposal, they have the practical effect of reducing the number of affirmative votes required to approve that proposal by reducing the total number of shares entitled to vote thereon. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Except as indicated under "Security Ownership of Management," the following is the only shareholder known to the Company to be the beneficial owner of more than five percent of the Common Stock as of May 31, 1996:
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK Heartland Advisors, Inc................................................... 2,567,050(1) 10.8% 790 North Milwaukee Street Milwaukee, Wisconsin 53202
(1) Includes 2,319,450 shares with respect to which the shareholder has voting and investment power and 247,600 shares with respect to which the shareholder has investment power only. 2 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth certain information with respect to beneficial ownership of the Common Stock as of May 31, 1996 by: (i) each director and nominee for director of the Company; (ii) each executive officer named in the Summary Compensation Table; and (iii) all directors and executive officers of the Company as a group. Except as otherwise indicated, each shareholder named has sole voting and investment power with respect to such shareholder's shares.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OWNERSHIP COMMON STOCK(1) Steven M. Scott, M.D................................................................... 7,146,193(2) 29.92% Bertram E. Walls, M.D.................................................................. 404,235(3) 1.69 Jacque J. Sokolov, M.D................................................................. 83,423(4) * John A. Hemingway...................................................................... 79,903(5) * David W. Singley, Jr................................................................... 5,775(6) * Robert V. Hatcher, Jr.................................................................. 16,808(7) * Stephen D. Corman...................................................................... 10,138(8) * John P. Mahoney, M.D................................................................... 4,090(9) * Richard Janeway, M.D................................................................... 11,451(10) * Norman H. Chenven, M.D................................................................. -- * All directors and executive officers as a group (14 persons)........................... 7,803,460(11) 32.67%
(1) An asterisk (*) indicates less than one percent. (2) Includes 6,342,318 shares held by Scott Medical Partners, L.P., of which Dr. Scott is the sole general partner. Also includes 556,061 shares held by two partnerships, the partners of which are Dr. Scott and certain trusts established for the benefit of Dr. Scott's children. Dr. Scott has sole investment power with respect to these shares, but has sole voting power with respect to only 410,961 shares. Voting power with respect to the remaining 145,100 shares is held by Dr. Walls, as trustee of the trusts. Also includes 66,000 shares held by a foundation and 61,714 shares held by two charitable remainder unitrusts with respect to which Dr. Scott shares voting and investment power. Also includes 120,000 shares held by Century American Insurance Company ("Century Insurance") over which Dr. Scott may be deemed to share voting and investment power. Dr. Scott disclaims beneficial ownership of the shares held by Century Insurance. The remaining 100 shares are held directly by Dr. Scott. Dr. Scott's address is 3711 Stoneybrook Drive, Durham, North Carolina 27705. The foregoing information is taken from preliminary proxy materials filed with the Securities and Exchange Commission by Dr. Scott. (3) Includes 145,100 shares with respect to which Dr. Walls has voting power and Dr. Scott has investment power. Such shares also are included under the beneficial ownership of Dr. Scott. Also includes 248,915 shares held by certain trusts established for the benefit of Dr. Scott's children with respect to which Dr. Walls, as trustee, holds voting and investment power. Includes 4,000 shares subject to presently exercisable stock options and 4,220 shares reserved for issuance under the Deferred Compensation Plan for Outside Directors (the "Deferred Compensation Plan"). (4) Includes 3,000 shares subject to presently exercisable stock options and 696 shares reserved for issuance under the Deferred Compensation Plan. (5) Includes 20,345 shares subject to presently exercisable stock options. (6) Includes 665 shares owned by Mr. Singley's wife. (7) Includes 8,000 shares subject to presently exercisable stock options, 5,608 shares reserved for issuance under the Deferred Compensation Plan and 300 shares owned by Mr. Hatcher's wife. Mr. Hatcher disclaims beneficial ownership of the shares held by his wife. (8) Includes 5,000 shares subject to presently exercisable stock options and 2,438 shares reserved for issuance under the Deferred Compensation Plan. (9) Includes 4,090 shares reserved for issuance under the Deferred Compensation Plan. (10) Includes 6,000 shares subject to presently exercisable stock options and 4,251 shares reserved for issuance under the Deferred Compensation Plan. (11) Includes 66,690 shares subject to presently exercisable stock options and 21,303 shares reserved for issuance under the Deferred Compensation Plan. 3 PROPOSAL 1 ELECTION OF DIRECTORS THE COMPANY'S NOMINEES The Company's Certificate of Incorporation and Bylaws provide for nine directors of whom one-third are elected each year to serve for three-year terms. Each director elected at the Annual Meeting will serve for a term expiring at the 1999 Annual Meeting of Shareholders, or until his successor has been duly elected and qualified. The Company's Board of Directors has nominated Norman H. Chenven, M.D., Robert V. Hatcher, Jr. and Richard Janeway, M.D. for election for terms expiring in 1999. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE ABOVE-NAMED NOMINEES FOR ELECTION AS DIRECTORS. Each of the Board's nominees is a current member of the Board of Directors. See "Executive Officers and Directors." The Board of Directors has no reason to believe that any of its nominees will refuse to act or be unable to accept election; however, in the event that any such nominee is unable to accept election or if any unforeseen contingencies should arise, it is intended that proxies will be voted for the remaining nominees, if any, and for such other person or persons as may be designated by the Board of Directors, unless it is directed by a proxy to do otherwise. OTHER NOMINEES Any shareholder who is a shareholder on the Record Date and at the time of giving the Notice (as defined below) may nominate a person or persons for election to the Board of Directors provided that shareholder complies with the following procedures. Written notice of the shareholder's intent to submit a nomination at the Annual Meeting must be delivered to the Secretary of the Company not later than the close of business on (the "Notice"). The Notice must set forth (i) as to each proposed nominee, all information relating to such person that is required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to be disclosed in solicitations of proxies for election of directors; (ii) each nominee's written consent to be named as a nominee and to serve if elected; (iii) the name and address of the nominating shareholder as they appear on the Company's books and records; (iv) the number of shares of Common Stock owned by the nominating shareholder; (v) a description of all arrangements or understandings between the nominating shareholder and each nominee or any other person pursuant to which the nomination is to be made by the nominating shareholder. Nominating shareholders also must comply with all applicable requirements of the Exchange Act and the regulations promulgated thereunder with respect to a nomination submitted pursuant to the Notice. If the chairman of the Annual Meeting determines and declares that the nominating shareholder has not complied with this procedure, the nomination will not be accepted. On July 9, 1996, Steven M. Scott, M.D., a director and shareholder of the Company, announced his intention to solicit proxies in support of the election of two new directors at the 1996 Annual Meeting. As of July 10, 1996, the Company has not received the required Notice of such nominations. Until May 29, 1996, Dr. Scott was the President and Chief Executive Officer of the Company. Pursuant to resolutions adopted by the Board of Directors on May 29, 1996, Dr. Scott has been placed on a sabbatical leave of absence through December 31, 1996. Joseph G. Piemont, formerly Executive Vice President and General Counsel of the Company, has been appointed by the Board to serve as President and Chief Executive Officer. Dr. Scott continues to serve as a director of the Company. 4 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 Joseph G. Piemont 41 President and Chief Executive Officer Jacque J. Sokolov, M.D. (1)(2)(5) 41 Chairman of the Board; Chief Executive Officer, Advanced Health Plans, Inc. Steven M. Scott, M.D. 48 Director Stephen D. Corman (1) 53 Director, Executive Vice President and Chief Financial Officer Robert V. Hatcher, Jr. (3)(4)(5) 65 Director John A. Hemingway (1) 60 Vice Chairman of the Board, Senior Executive Vice President and Secretary; Chairman of the Board, Coastal Physician Services, Inc. Richard Janeway, M.D. (3)(4)(5) 63 Director John P. Mahoney, M.D. (1)(2)(5) 47 Director Bertram E. Walls, M.D. (2) 44 Director Norman H. Chenven, M.D. (2)(5) 50 Director John G. Ball 57 President, Coastal Physician Services, Inc. Timothy W. Trost 38 Vice President, Corporate Controller and Chief Accounting Officer
(1) Member of the Executive Committee of the Board of Directors. (2) Member of the Nominating Committee of the Board of Directors. (3) Member of the Audit Committee of the Board of Directors. (4) Member of the Compensation Committee of the Board of Directors. (5) Member of the Management Plan Committee of the Board of Directors. Dr. Sokolov serves as chairman and a nonvoting member of this committee. Mr. Piemont was appointed President and Chief Executive Officer on May 29, 1996 after serving as Senior Vice President and General Counsel of the Company from August 1993 to May 1995, when he was promoted to Executive Vice President. Mr. Piemont was General Counsel of Amresco Holdings, Inc. ("Amresco"), a financial services company and former subsidiary of NationsBank Corporation, from 1992 until joining the Company. Prior to his association with Amresco, Mr. Piemont was Associate General Counsel of NationsBank of Texas, N.A. Mr. Piemont is a member of the North Carolina and American Bar Associations and received a B.A. degree in Economics from the University of North Carolina at Charlotte and a J.D. degree from Emory University Law School. Dr. Sokolov has been Chairman of the Board since December 1, 1994. He is the founder and Chief Executive Officer of Advanced Health Plans, Inc., which became a subsidiary of the Company in November 1994. Dr. Sokolov received a B.A. degree in medicine from the University of Southern California and an M.D. with honors from the University of Southern California School of Medicine. He completed his internal medicine residency at the Mayo Graduate School of Medicine and his fellowship in cardiovascular diseases from the University of Texas -- Southwestern Medical School. Dr. Sokolov previously held and currently holds academic appointments and advisory board responsibilities, including positions in the Schools of Medicine, Management, Public Health and Pharmacy at Harvard University, the Massachusetts Institute of Technology, the University of Pennsylvania, the University of California at Los Angeles, the University of Southern California and the Wharton School of the University of Pennsylvania. He serves on the boards of the Washington Business Group on Health, the National Fund for Medical Education, the National Health Foundation and California Health Decisions. Dr. Sokolov also serves on the advisory boards of the National Health Policy Council, the National Resource Center on Worksite Promotion, the White House Health Project and the Health Care Advisory Committee for California Insurance Commissioner John Garamedi. Dr. Scott has been a director of the Company since its formation in 1977. Dr. Scott served as Chairman of the Board of Directors from 1977 to December 1, 1994, and as President and Chief Executive Officer of the Company from 1977 to May 29, 1996. As noted above, on May 29, 1996, Dr. Scott was placed on sabbatical leave of absence from his positions as President and Chief Executive Officer. Dr. Scott has obstetrics and gynecology practice experience and clinical and administrative emergency department experience. He is board-certified in obstetrics and gynecology and is a member of the clinical faculty at Duke University Medical Center. Dr. Scott received his undergraduate degree and medical education from Indiana 5 University. Dr. Scott completed his residency in the Department of Obstetrics and Gynecology at Duke University Medical Center. Mr. Corman became Chief Financial Officer in May 1995 and has been a director since 1991. He was a director and Vice President of Finance of Burroughs Wellcome Co., a pharmaceutical company, from 1986 to 1995 and its Chief Financial Officer from 1989 to 1995. Mr. Corman worked for Burroughs Wellcome Co. from 1975 to 1995 and, in addition to the positions previously described, held positions as Assistant to the Controller, Assistant to the Treasurer, Controller and Treasurer. Previously, he was Treasurer and Chief Financial Officer of Cooper U.S.A., Inc., a pharmaceutical company, and senior auditor for the accounting firm of Price Waterhouse LLP ("Price Waterhouse"). Mr. Corman received a B.S. degree in Accounting from Indiana University and is a member of several professional associations, including the American Institute of Certified Public Accountants, the North Carolina Association of Certified Public Accountants, the Tax Executives Institute and the Financial Executives Institute. Mr. Hatcher has been a director since 1991. He was Chief Executive Officer of Johnson & Higgins, a provider of insurance consulting and brokerage services, from 1981 until his retirement in 1990, and its Chairman from 1982 until his retirement. While with Johnson & Higgins from 1968 until 1981, Mr. Hatcher held the positions of President and Chief Operating Officer. Mr. Hatcher received a B.A. degree in Economics from the University of Virginia in 1953. He is currently a director of Media General, Inc., a diversified media company. Mr. Hemingway, a director since 1982, has been Vice Chairman of the Board of Directors since 1987. Mr. Hemingway also serves as Senior Executive Vice President of the Company and served as Chief Executive Officer of Coastal Physician Services, Inc. ("CPS"), a subsidiary of the Company, from January 1996 to May 1996, when he was named Chairman of the Board of CPS. From 1992 to 1993, Mr. Hemingway served as President of Coastal Physician Contract Services Group, Inc. From 1990 to 1992, he served as President of Coastal Emergency Services Management Group, Inc. From 1983 to 1990, he served as the Company's Senior Vice President of New Business Development. Previously, he was Executive Vice President and Chief Operating Officer of Liggett & Myers International, Inc., where he worked for 19 years. Mr. Hemingway received a B.A. degree from Duke University. Dr. Janeway, a director since April 1994, has been a member of the faculty since 1966 and a Professor of Neurology since 1971 of The Bowman Gray School of Medicine of Wake Forest University. He served as Vice President for Health Affairs of Wake Forest University from 1983 until 1990, Dean of the Bowman Gray School from 1971 until 1994 and has served as Executive Vice President for Health Affairs of Wake Forest University since 1990. He is a director of Southern National Corporation, the bank holding company for Branch Banking and Trust Company, which is a participating lender under the Company's senior credit facility. Dr. Janeway received his undergraduate degree from Colgate University and his medical degree from the University of Pennsylvania School of Medicine. Dr. Mahoney, a director since December 1994, served as Chief Executive Officer of Health Enterprises, Inc. from 1987 until it was acquired by the Company in November 1994. Dr. Mahoney served as President and Chief Executive Officer of Healthplan Southeast, Inc., a subsidiary of the Company, from December 1994 through December 1995. In December 1995, he returned to private practice as a board-certified pathologist. Through 1994, Dr. Mahoney was employed on a part-time basis by Health Enterprises, Inc. while maintaining his private practice as a board-certified pathologist with Ketchum, Wood, Burgert, Chartered d/b/a Pathology Associates. In addition to his medical degree, Dr. Mahoney holds a Masters of Business Administration degree from the University of South Florida. Dr. Walls, a director since 1991, was President of Coastal Physician Contract Services Group, Inc. from January through December 1994. Effective January 1, 1995, Dr. Walls became the President of Century Insurance. From 1992 to 1993, Dr. Walls was the President of Sunlife OB/GYN Services, Inc., a subsidiary of the Company, as well as its Chief Medical Officer from 1991 to 1993. From 1981 through 1990, Dr. Walls was in the private practice of obstetrics and gynecology with Valley Women's Center, P.A. in Fayetteville, North Carolina. He is board certified in obstetrics and gynecology and is a member of the clinical faculty at Duke University Medical Center. Dr. Walls received a B.S. degree in Science from North Carolina A&T State University and his medical degree from Duke University. He completed his residency in obstetrics and gynecology at Duke University Medical Center. Dr. Chenven became a director of the Company on September 1, 1995. Dr. Chenven is the founder, President and Chief Executive Officer of Austin Regional Clinic, P.A. ("ARC"). Dr. Chenven is board-certified in family practice and received his medical degree from State University of New York, Brooklyn, New York. Dr. Chenven is active with the Travis County Medical Society and the Texas Medical Association ("TMA"). He has served on TMA's Special Committee on Health System Reform and is currently an advisor to TMA's Physician Service Organization. 6 Dr. Ball became President of CPS on May 22, 1996. Since 1989, Dr. Ball has been a principal of High Performance Partners, a firm providing financial, strategic planning, marketing and turnaround advisory services and interim management to a variety of public and private companies. Dr. Ball received a B.S. degree in chemical engineering from Louisiana Tech University, a Ph.D. in chemical engineering from the University of Texas, a M.B.A. from the University of Richmond, and a M.S. in organizational behavior from Carnegie Mellon University. Mr. Trost joined the Company as Vice President of Corporate Development in March 1994 and was named Vice President, Corporate Controller and Chief Accounting Officer in January 1996. Prior to joining the Company, Mr. Trost served since 1992 as Vice President of Finance/Controller for Morganite North America Inc., the U.S. holding company of The Morgan Crucible Company plc, a manufacturer of specialized materials and components. Prior to that, Mr. Trost spent a total of 12 years (in four offices) with the accounting firm of Price Waterhouse. Mr. Trost received a B.S. degree in Accounting from the University of Illinois at Urbana-Champaign, is a certified public accountant, and is a member of the American Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS During 1995, the Company's Board of Directors held 11 meetings and took certain actions by unanimous written consent. Dr. Chenven, who became a director during the third quarter of 1995, Dr. Walls and Mr. Hatcher were the only incumbent directors who attended fewer than 75% of the Board of Directors and assigned committee meetings held during 1995. Dr. Scott, Mr. Hemingway and Dr. Walls served as members of the Executive Committee during 1995. The Executive Committee is authorized to exercise the authority of the Board of Directors. The Executive Committee did not meet during 1995 but took action by unanimous written consent eight times during the year. On May 29, 1996, the Executive Committee was expanded to four members and Drs. Sokolov and Mahoney and Messrs. Hemingway and Corman were appointed to the committee. Mr. Hatcher and Dr. Janeway served as members of the Audit Committee during 1995. Until becoming Chief Financial Officer in May 1995, Mr. Corman also served as a member of this committee. The principal functions of this committee are to make recommendations to the Board of Directors with respect to the selection of the Company's independent certified public accountants, to review the Company's internal controls and confer with and make recommendations to the Company's independent certified public accountants concerning the scope and results of their audit. The Audit Committee met five times during 1995. Mr. Hatcher and Dr. Janeway also served as members of the Compensation Committee during 1995. Until becoming Chief Financial Officer of the Company in May 1995, Mr. Corman also served as a member of this committee. The principal functions of this committee are to review and make recommendations to the Board of Directors with respect to the compensation of the executive officers of the Company. The Compensation Committee met twice during 1995. Mr. Hemingway and Dr. Walls served as members of the Nominating Committee during 1995. The Nominating Committee did not meet during 1995 but took action by unanimous written consent twice during the year. On May 29, 1996, the Nominating Committee was increased to four members and Drs. Sokolov, Mahoney, Walls and Chenven were named to the committee. The principal functions of this committee are to recommend to the Board of Directors nominees for election as directors at the Company's annual meetings of shareholders and to recommend nominees to fill any vacancies occurring between such meetings. MANAGEMENT ACTION PLAN On March 19, 1996, the Board of Directors approved the implementation of a management action plan (the "Plan") that entails a review of all aspects of the Company's operations and business units and the implementation of actions to improve the cash flow and financial results of the Company as a whole and the contribution of each business unit to the Company's overall financial and strategic objectives. On July 8, 1996, in furtherance of the Plan and following a study undertaken in conjunction with Morgan Stanley & Co., Incorporated, the Board of Directors approved a comprehensive financial and strategic plan to re-focus on its core operations and to divest certain operating units in order to address its debt service requirements and improve the enterprise value of the Company. The Board determined to divest certain clinical operations and other non-strategic core businesses to enable the Company to focus primarily on its hospital-based contract services and billing businesses, and its Southeastern managed care operations. In addition to the divestitures, the Company's executive management, with the support of the Business Turnaround Services unit of Price Waterhouse LLP, is continuing the revitalization 7 program underway in the Company's operations, with a view toward returning the Company to sustainable cash flow and profitability. Effective April 4, the Board of Directors approved an engagement letter (the "Engagement Letter") pursuant to which the Company engaged Price Waterhouse to implement the Plan and appointed Dennis I. Simon and Bettina M. Whyte of Price Waterhouse as plan managers (the "Plan Managers"). The Engagement Letter provides that the Plan Managers will at all times be under the supervision, control and direction of a special committee of the Board of Directors composed of directors who are not employed by or affiliated with the Company (the "Management Plan Committee"). The Management Plan Committee was formed by resolutions also adopted by the Board on April 4, 1996 and consists of Drs. Janeway, Chenven and Mahoney and Mr. Hatcher, with Dr. Sokolov serving as chairman and a nonvoting member. The Management Plan Committee is authorized to (i) supervise, control and direct implementation of the Plan, (ii) meet and consult with the Plan Managers, other members of the Board of Directors, and the officers of the Company and its subsidiaries regarding implementation of the Plan and (iii) take any and all further actions deemed appropriate and in the best interests of the Company relating to the Plan and its implementation by the Plan Managers. The Engagement Letter will remain in effect, unless sooner terminated by the Company or Price Waterhouse, for a period of twelve months or the repayment of the Company's outstanding obligations under its bank credit facilities or any amendment or restructuring thereof. Pursuant to the Engagement Letter, the Company has agreed to pay Price Waterhouse $70,000 per month for the services of the Plan Managers, and $46,400 per month for any additional Price Waterhouse personnel that may provide services under the agreement. In addition, the Company granted Price Waterhouse an option, granted in consideration of a credit of $250,000 against fees payable by the Company to Price Waterhouse in the eleventh and twelve months of their engagement, to purchase 50,000 shares of common stock of the Company at a price of $7 7/8, which option is not yet vested, and a separate option to purchase up to 50,000 shares of common stock of the Company, which option shall vest at the rate of 10,000 shares each month for five months commencing May 15, 1996, at a strike price equal to the average closing price of the common stock on the New York Stock Exchange for the first ten trading days of each month prior to the vesting date. In performing their duties under the Engagement Letter, the Plan Managers have broad authority to conduct the day-to-day operations of the Company, including making operational decisions relevant to cash flows, implementing cost containment measures, hiring and terminating nonexecutive employees, making recommendations to the Special Committee regarding asset dispositions and related matters, managing and controlling cash outflows and commitments, including those related to contractual obligations and employee compensation plans, and submitting recommendations regarding the retention of investment bankers and other professional advisors to the Company. Set forth below are descriptions of the business experience of each of the Plan Managers during the past five years. Mr. Simon, age 54, currently serves as a Senior Managing Director and a National Director of Business Turnaround Services for Price Waterhouse. He has been associated with Price Waterhouse since 1993. Mr. Simon served as Executive Vice President and Western Managing Director of Buccino & Associates from October 1990 through January 1993. He currently serves on the Board of Directors for the Turnaround Management Association. Mr. Simon received a B.A. in economics from American International College and a M.B.A. with distinction from Harvard University. Ms. Whyte, age 47, currently serves as a Partner and a National Director of Business Turnaround Services for Price Waterhouse. She has been associated with Price Waterhouse since 1990. Ms. Whyte is a member of the Certification Committee for the Association of Turnaround Professionals, the National Association of Bankruptcy Trustees, the American Bankruptcy Institute, and the American Institute of Insolvency Accountants. She is a Certified Insolvency and Restructuring Accountant and serves on the Board of the Association of Insolvency Accountants and on the Advisory Board of the Commercial Finance Association. Ms. Whyte graduated Phi Beta Kappa with a B.S. in Economics from Purdue University and received a M.B.A. from Northwestern University where she was named the Cunningham Scholar. 8 EXECUTIVE COMPENSATION The following table sets forth the compensation received by the President and Chief Executive Officer of the Company and its four other most highly compensated executive officers (collectively, the "Named Executive Officers") for services rendered to the Company or its subsidiaries during the years ended December 31, 1995, 1994 and 1993: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION NUMBER OF OTHER ANNUAL SECURITIES ALL OTHER SALARY BONUS COMPENSATION UNDERLYING COMPENSATION (1) NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS/SARS (#) ($) Jacque J. Sokolov, M.D. 1995 400,000 150,000 -- 3,883 4,215 Chairman of the Board of 1994 33,333 12,500 -- 903,000 -- the Company and Chief Executive Officer, Advanced Health Plans, Inc. (2) John A. Hemingway 1995 200,000 -- -- 33,883 5,175 Vice Chairman of the Board, 1994 183,330 19,500 -- 93,947 5,250 Senior Executive Vice President 1993 191,500 36,000 -- 6,250 5,050 and Secretary of the Company and President and Chief Executive Officer, Coastal Physician Services, Inc. (3) David W. Singley, Jr. 1995 243,897 -- -- 63,883 45,040 Executive Vice President 1994 181,670 35,000 -- 153,947 3,844 of the Company and Chief Executive 1993 166,100 53,000 -- 6,250 2,157 Officer, Coastal Physician Group of Florida, Inc. (4) John P. Mahoney, M.D. 1995 244,294 -- -- -- 1,826 President and Chief Executive Officer, 1994 14,802 8,881 -- -- -- Healthplan Southeast, Inc.(5) Steven M. Scott, M.D. 1995 333,333 -- 51,492(7) 103,529 165,818 President and Chief Executive Officer of 1994 357,290 120,000 -- 28,588 193,730 the Company (6) 1993 362,500 180,000 -- -- 3,368
(1) Includes for 1995: (i) contributions made under the Company's 401(k) plan of $3,620, $1,125, $3,721, $1,763 and $4,000, for Dr. Sokolov, Mr. Hemingway, Mr. Singley, Dr. Mahoney and Dr. Scott, respectively, and (ii) premiums paid for term life insurance policies of $595, $4,050, $522, $63 and $1,566, for Dr. Sokolov, Mr. Hemingway, Mr. Singley, Dr. Mahoney and Dr. Scott, respectively. In addition, the 1995 amount for Dr. Scott includes $160,252 which represents the present value of the imputed interest for premiums paid by the Company under a split dollar life insurance arrangement. The arrangement is designed so that, if the assumptions made under the policy are realized, the Company will recover all of its insurance premium payments. The 1995 amount for Mr. Singley also includes $40,797 of relocation expenses paid by the Company. (2) Advanced Health Plans, Inc. is a subsidiary of the Company. (3) Coastal Physician Services, Inc. is a subsidiary of the Company. (4) Coastal Physician Group of Florida, Inc. is a subsidiary of the Company. Mr. Singley's employment with the Company terminated on April 30, 1996. (5) Healthplan Southeast, Inc. is a subsidiary of the Company. Dr. Mahoney's employment with the Company terminated on 1996. (6) As noted above, Dr. Scott was placed on sabbatical leave of absence from his positions as President and Chief Executive Officer on May 29, 1996. (7) Reflects amount allocated for personal use of the Company's aircraft. 9 STOCK OPTION GRANTS The following table provides certain information with respect to stock options granted during 1995 to the Named Executive Officers: OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE NUMBER OF VALUE AT ASSUMED SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK UNDERLYING OPTIONS GRANTED PRICE APPRECIATION OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION FOR OPTION TERM NAME GRANTED(#) FISCAL YEAR(%) PRICE($/SH) DATE 5%($) 10%($) Jacque J. Sokolov, M.D. 3,883(1) 0.2 25.75 03/03/05 62,882 159,350 John A. Hemingway 10,000(2) 0.5 25.75 03/03/05 161,942 410,378 20,000(2) 0.9 13.88 11/17/05 174,583 442,411 3,883(1) 0.2 25.75 03/03/05 62,882 159,350 David W. Singley, Jr. 10,000(2) 0.5 25.75 03/03/05 161,942 410,378 50,000(2) 2.3 14.50 05/08/05 455,953 1,155,433 3,883(1) 0.2 25.75 03/03/05 62,882 159,350 Steven M. Scott, M.D. 100,000(2) 4.6 25.75 03/03/05 1,619,418 4,103,778 3,529(1) 0.2 28.33 03/03/05 62,875 159,333
(1) Option vests and becomes fully exercisable on the third anniversary of the date of grant. (2) Option vests and becomes fully exercisable on the fifth anniversary of the date of grant. AGGREGATED OPTION EXERCISES AND OPTION VALUES The following table provides certain information concerning the number of securities underlying unexercised options held by each of the Named Executive Officers and the value of such officers' unexercised options at December 31, 1995: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN- THE-MONEY NUMBER OF SECURITIES OPTIONS AT UNDERLYING UNEXERCISED FISCAL SHARES OPTIONS AT FISCAL YEAR-END YEAR-END ACQUIRED ON VALUE (#) ($) NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Jacque J. Sokolov, M.D. -- -- 3,000 903,883 -- -- John A. Hemingway -- -- 20,345 127,830 18,477 -- David W. Singley, Jr. -- -- 20,345 217,830 18,477 -- John P. Mahoney, M.D. 10,000 113,928 -- -- -- -- Steven M. Scott, M.D. -- -- -- 132,117 -- --
401(K) PLAN The Company maintains a defined contribution retirement and savings plan for all employees who have reached the age of twenty-one and who have completed one year of service with the Company. The plan is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). Under the plan, a participant may contribute from one to twelve percent of his or her base compensation, not to exceed an amount which would cause the plan to violate Section 401(k) or other applicable sections of the Code. The Company matches contributions in amounts equal to 50% of the first 3% and 25% of the next 3% of each participant's contribution, not to exceed 2.25% of the participant's compensation. All contributions are invested, in accordance with the participant's election, in various investment funds managed by the plan trustee. The Company also may make discretionary contributions from its current or accumulated net earnings which are allocated among all eligible participants' accounts, regardless of whether they currently contribute to the plan, based on a formula which takes into account participants' compensation and allocates a portion of such contribution on the basis of compensation in excess of the Social Security taxable wage base. The Company pays all costs of administering the plan. 10 Participants in the plan are fully vested in their own contributions and in the earnings attributable to their contributions. A participant becomes 50% vested in the remainder of the participant's account after two years of continuous service, 75% vested after three years and 100% vested after four years of continuous service. The plan permits withdrawals in the event of disability, death, attainment of age 59 1/2, termination of employment or proven financial hardship. In the case of termination of service, a participant's vested account balance is distributed to the participant in a lump sum, installment or annuity form of payment, as described in the plan. COMPENSATION OF DIRECTORS Each director who is not an officer or employee of the Company (an "Independent Director") receives $20,000 annually for serving as a director plus $1,200 for each meeting of the Board of Directors attended. The respective Chairmen of the Audit and Compensation Committees receive an additional $1,200 annually for services rendered in that capacity. At each director's election, compensation may be paid either currently, in cash, or deferred and paid in cash or in shares of Common Stock at the distribution date of the deferred compensation. Pursuant to the Company's 1994 Independent Directors' Stock Option Plan, an Independent Director who is elected to the Board of Directors automatically receives an option to purchase 3,000 shares of Common Stock and any Independent Director who continues to serve as a director following an annual meeting of shareholders automatically receives an option for 1,000 shares of Common Stock. The respective Chairmen of the Audit and Compensation Committees automatically receive an additional option to purchase 2,000 shares of Common Stock as of the first committee meeting following an annual meeting of shareholders. The exercise price of these options is the fair market value of the underlying shares on the date of grant. The options become exercisable one year from the date of grant and have a ten year term. AGREEMENTS WITH CERTAIN OFFICERS In April 1991, Dr. Scott and the Company entered into a five-year employment agreement which renews automatically each year, unless either party gives notice of nonrenewal, and terminates in any event when Dr. Scott reaches age 70. The employment agreement provides for an annual base salary of $400,000, which is to be reviewed annually by, and can be increased at the discretion of, the Compensation Committee. Dr. Scott is also entitled to incentive compensation in an amount determined at the discretion of the Compensation Committee, based on its consideration of the Company's financial results, the development, implementation and attainment of strategic business planning goals and objectives, increases in the Company's revenues and operating profits, and other factors deemed relevant by the Compensation Committee in evaluating Dr. Scott's performance. Although not a requirement, the target for Dr. Scott's incentive compensation is two percent of the Company's earnings before interest and taxes, not to exceed his annual base salary. In addition, the Compensation Committee may grant Dr. Scott discretionary bonuses from time to time. In its discretion, the Compensation Committee may award any incentive or discretionary bonus compensation payable to Dr. Scott as an immediately payable cash payment, a deferred cash payment or in nonqualified stock options. A range of valuation for any such options will be established by the Compensation Committee using the Black-Scholes or binomial pricing model, or other recognized pricing model, or using the assumptions and specifications adopted by the Securities and Exchange Commission (the "Commission") which govern the disclosure of executive compensation in proxy statements and other Commission filings. Any such options will expire after the earlier to occur of the tenth anniversary of the termination of Dr. Scott's employment, the date of Dr. Scott's 70th birthday or the expiration of the maximum term of such options set forth in the stock option plan pursuant to which such options are granted. In the event of Dr. Scott's disability prior to the age of 70, he would be entitled to base compensation, incentive compensation and bonus compensation for twelve months. The bonus compensation would equal the average of the bonus compensation paid or payable to Dr. Scott during the thirty-six months preceding the disability. The incentive compensation would equal the greater of (i) the average of the incentive compensation paid or payable to Dr. Scott during the thirty-six months preceding the disability or (ii) an amount equal to (x) 50% of Dr. Scott's base salary for any year in which the Company's revenues and operating profits increased 12% over the prior year, (y) 75% of Dr. Scott's base salary if the Company's annual revenues and operating profits increased 17% over the prior year or (z) 100% of Dr. Scott's base salary if the Company's annual revenues and operating profits increased 22% over the prior year. If the disability is continuous for a period of twelve consecutive months, Dr. Scott would be entitled to receive 75% of his base salary and the averages of both incentive compensation and bonus compensation paid or payable during the thirty-six months preceding the disability, which amount shall be increased by five percent annually. In the event of Dr. Scott's death prior to the age of 70, his surviving spouse (or his estate in the event of her death or remarriage) would be entitled to receive for ten years an amount equal to Dr. 11 Scott's base salary and the average of both incentive compensation and bonus compensation paid or payable during the thirty-six months preceding his death, which amount shall be increased by five percent annually. If the Company terminates Dr. Scott without cause, Dr. Scott would be entitled to receive for the remainder of the then existing five-year term of the agreement his base salary and the averages of both incentive compensation and bonus compensation paid or payable during the thirty-six months preceding termination, which amount shall be increased by five percent annually. In the event that Dr. Scott terminates his employment agreement as a result of the Company's material breach thereof, which breach remains uncured for 60 days after written notice, Dr. Scott would be entitled to receive compensation equal to that payable to him upon termination by the Company without cause. On June 1, 1996, the Company entered into an employment agreement with Mr. Piemont pursuant to which Mr. Piemont became employed as Chief Executive Officer and President of the Company and will be nominated for election to the Board of Directors at such time as a directorship is available and, if so elected to the Board of Directors, to the Executive Committee. The agreement provides for an initial term through December 31, 1996, which, in the event of extension and renewal, would extend through May 31, 1999, and automatically renew annually thereafter. Pursuant to the employment agreement, Mr. Piemont is entitled to receive an initial base salary of $350,000, which may be increased on the basis of criteria established by the Compensation Committee, and a bonus not to exceed 50% of base salary based on the attainment of specified performance criteria. Pursuant to the agreement, the Company also granted to Mr. Piemont options to purchase 200,000 shares of Common Stock at an exercise price equal to the fair market value of the shares of Common Stock on the date of grant. The options are exercisable for 10 years from the date of grant and vest at a rate of 5,555 a month over 36 months. In the event that Mr. Piemont's employment is extended beyond December 31, 1996, each year during the term he will be granted additional options to purchase up to 50,000 shares exercisable for ten years at the market price on the grant date, such number of options to be determined by the Compensation Committee based on performance criteria established in advance. The employment agreement provides that if the Company terminates Mr. Piemont's employment without "cause" or if Mr. Piemont terminates his employment for "good reason," or if the Company fails to exercise its right to renew the agreement through May 31, 1999, then Mr. Piemont will receive a lump sum payment equal to, (i) in the event of termination on or before May 31, 1997, an amount equal to his then current base salary, and last incentive compensation, payable for the period through May 31, 1999, and (ii) in the event of termination after May 31, 1997, an amount equal to two times his then current base salary and incentive compensation paid in the prior year. In addition, all options held by Mr. Piemont would immediately vest and Mr. Piemont would continue to receive benefits until May 31, 1999. "Cause" includes fraud, dishonesty, substantial and continuing nonperformance by Mr. Piemont of assigned duties, certain criminal conduct and a material breach of the employment agreement. "Good reason" includes the assignment of duties inconsistent with his position or the reduction in his duties or positions, relocation, a breach or noncompliance of the agreement by the Company not immediately remedied and certain changes in the composition of the Board of Directors such that independent members of the Board of Directors on April 4, 1996 do not continue to serve as members of the Board of Directors or any new member is elected or appointed to be Board of Directors who was not approved by a majority of such independent directors. In the event that a "parachute" excise tax would be imposed on any payments to Mr. Piemont, Mr. Piemont would also be entitled to tax reimbursement payments. In connection with its acquisition of Advanced Health Plans, Inc. in November 1994, the Company entered into an employment agreement with Dr. Sokolov. During the five year term of the agreement, the Company is obligated to use its best efforts to cause Dr. Sokolov to be elected Chairman of the Board of Directors. In addition to serving as Chairman, Dr. Sokolov will serve in other appropriate management positions with the Company or its subsidiaries and report directly to the Chief Executive Officer. Dr. Sokolov's base salary under the agreement is $400,000 per year. He also is entitled to receive incentive cash compensation in the amount of not less than $150,000 per year. In addition, in the event the compensation paid to Dr. Sokolov by third parties for speaking and consulting engagements is less than $450,000 per year, Dr. Sokolov will receive from the Company the difference between the amount actually paid as a result of such engagements and $450,000. The employment agreement imposes certain confidentiality obligations upon Dr. Sokolov and contains a covenant not to compete with the Company or solicit its employees for a specified period of time. Under the agreement, Dr. Sokolov is entitled to participate in the employee benefit programs available to other senior executive officers of the Company. The agreement is terminable by either party upon 90 days notice. If Dr. Sokolov is terminated without cause, he is entitled to receive a lump sum payment equal to his base salary for the remainder of the term of the agreement. In June 1995, the Company entered into an employment agreement with Mr. Singley. The effective date of the agreement was May 15, 1995, with an initial term continuing through May 14, 1998. Under the agreement, Mr. Singley had primary responsibility for the Company's interests in Florida and reported directly to the Chief Executive Officer. 12 Mr. Singley's base salary under the agreement was $280,000 per year. He also received certain benefits associated with his relocation from North Carolina to Florida. The employment agreement imposed certain confidentiality obligations upon Mr. Singley and contained a covenant by Mr. Singley not to compete with the Company or solicit its employees for a specified period of time. The Company and Mr. Singley mutually agreed to terminate this agreement as of April 30, 1996. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Hatcher and Dr. Janeway served as members of the Compensation Committee during 1995. From January through April 1995, Mr. Corman also served as a member of the Compensation Committee. Neither Mr. Hatcher nor Dr. Janeway has ever served as an officer or employee of the Company or any of its subsidiaries. Prior to his appointment as Chief Financial Officer in May 1995, Mr. Corman had not served as an officer or employee of the Company or any of its subsidiaries. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION GENERAL The goals of the Company's compensation program for executive officers are to pay competitively, to base compensation on the attainment of performance objectives and to establish compensation levels that will enable the Company to attract and retain physicians and other persons as key executives. To achieve these goals, the Company has established a compensation program consisting of three principal components. The components are base salary, cash incentive bonus awards and discretionary bonuses in the form of equity-based compensation consisting primarily of qualified (I.E., incentive) and nonqualified stock options. The Company strives to structure its compensation program to enable it to attract, retain and reward executive officers whose contributions are critical to the long-term success of the Company. To ensure that compensation is competitive, the Company subscribes to two nationally recognized data bases which compile executive compensation data with respect to publicly-traded nonmanufacturing companies (including some healthcare organizations) having revenues comparable to the Company's. Of these two data bases, one consists of 394 companies and the other consists of 232 companies. Although the companies included in these data bases are not identical to the companies included in the Managed Care/Health Care Services Composite Index used in the Corporate Performance Graph, the Company believes that the data base companies more accurately reflect the market in which the Company competes for executive talent. The base salaries and incentive bonus award programs for presidents of the Company's subsidiaries and divisional managers are generally targeted to be not less than the 50th percentile nor more than the 75th percentile in the data base surveys. The Company pays a premium for physicians that are key executives. In order to recruit and retain physicians as executive officers, it is necessary to pay competitively in the market compared to what such a physician could earn in private professional practice. This necessitates an adjustment to compensation that places the physician executives near the upper ranges of the parameters as determined in the executive compensation surveys. The following discussion regarding the base salaries and incentive bonus awards for the Company's executive officers excludes Drs. Scott, Sokolov and Mahoney and Mr. Singley, whose base salaries and incentive bonuses are governed by the terms of employment agreements with the Company. The employment agreements entered into with Drs. Sokolov and Mahoney were negotiated in connection with acquisitions effected by the Company in 1994. See "Executive Compensation -- Employment Agreements." BASE SALARY In addition to competitive compensation data gathered from the database surveys, the Company considers the sustained performance of its executives in establishing base salaries, which involves length of service with the Company, individual performance, scope of responsibilities and successful management of operating subsidiaries or divisions. Determining successful management is based on both qualitative factors, such as leadership qualities, and quantitative factors, such as growth of revenues and operating earnings and management of expenses. Historically, including in 1995, the Chief Executive Officer has evaluated the overall performance of the other executives named in the Summary Compensation Table as well as the performance of other key executives. Financial and business goals and objectives would be discussed with key executives and regular meetings of key executives would be held to discuss business strategies, financial and business performance, budgeting matters and strategic planning matters. An executive's overall evaluation has been a combination of a qualitative review by fellow executives and the Chief Executive Officer and the attainment of established business and financial objectives. Pursuant to the Engagement Letter with Price 13 Waterhouse, during the term of the Engagement Letter the Plan Managers will recommend certain compensation decisions to the Compensation Committee. The recommendation for a particular base salary level was determined primarily by the Chief Executive Officer based on the above factors, with no specified weight being given to any particular performance factor or business or financial objective. The recommendations, together with statistical data from the executive compensation data bases subscribed to by the Company, would be presented to the Compensation Committee for review and approval. Because the financial goals established for determining adjustments to base salary were not met in 1995, the only adjustments in base salaries for executive officers made in 1995 were related to promotions or changes in responsibility. INCENTIVE BONUS AWARDS Early in each fiscal year, the Chief Executive Officer determines the potential incentive bonus available for each executive and submits his recommendations to the Compensation Committee for approval. The potential incentive bonus generally falls between 10% and 35% of the executive's annual base salary and is based upon the achievement by the executive's business unit or subsidiary of specified financial performance goals. Incentive awards generally are paid in cash on a quarterly basis if the relevant business unit or subsidiary meets or exceeds financial performance goals set for the quarter. None of the factors considered in determining an executive's incentive bonus is assigned a specific weight. Incentive bonuses are generally awarded to all executives if substantially all operating subsidiaries and business units meet or exceed the established goals. Because the financial goals established for the payment of incentive compensation were not met in 1995, no incentive bonuses were awarded to executive officers during the year except where required by contract. DISCRETIONARY BONUS AWARDS/EQUITY BASED COMPENSATION The Company also has rewarded its executives with discretionary compensation awards. These discretionary compensation awards generally take the form of incentive stock options and nonqualified stock options. Through the granting of stock options, the Company seeks to align the interests of key employees more closely with those of the Company's shareholders by motivating and rewarding actions which lead to long-term value creation for shareholders. In addition, the Company recognizes that stock options are a necessary part of its competitive compensation program which, as discussed above, is designed to attract and retain qualified executives. As previously mentioned, the companies included in the data bases used for compensation comparisons are not identical to those included in the indexes used in the Corporate Performance Graph because the Company believes that the data base companies more accurately reflect the market in which the Company competes for executives. The discretionary bonus awards are generally targeted to be in the median range of such data base surveys. Generally, options granted to executives and other employees do not vest for at least three years in order to encourage executives and other key employees to remain in the employ of the Company and to encourage a medium-term perspective. In 1995, the Company used incentive and nonqualified stock options to achieve the competitive compensation levels it determined to be necessary for a number of key executives, including four of the Named Executive Officers. The options granted to executive officers in 1995 vest over three to five years and, accordingly, are a form of medium-term compensation. The options were granted by the Compensation Committee acting as the stock option committee under the Company's 1991 Stock Option Plan and the Company's 1987 Stock Option Plan. In determining the number of options granted, the Compensation Committee received a recommended list of key employees that was compiled by the Chief Executive Officer and the operating subsidiary presidents. In determining the size of the individual option awards, the number of outstanding unvested options held and the size of previous option awards were not considered. In addition, the Company implemented an option replacement program in 1995 for key employees who were not then executive officers. Under this program, selected employees received one option for every two options surrendered. The exercise price of the newly issued options was the market price of the Common Stock on the date of grant. The exercise dates of the replacement options are the same as the dates provided in the original grants. CHIEF EXECUTIVE OFFICER'S COMPENSATION Dr. Scott served as the Company's Chief Executive Officer throughout 1995. The compensation of Dr. Scott is determined pursuant to the terms of his employment agreement with the Company. See "Executive Compensation -- Employment Agreements." Dr. Scott's employment agreement provides for an annual base salary of $400,000 and a cash incentive bonus based on a percentage of the Company's earnings before taxes. The agreement also authorizes the Compensation Committee, in its discretion, to adjust Dr. Scott's annual base salary and to award additional bonus compensation. Due to the failure of the Company to meet financial performance goals set for the second quarter of 1995, the Company and Dr. Scott, at 14 Dr. Scott's initiative, mutually agreed to reduce Dr. Scott's annual base salary under his employment agreement to $240,000 for the remainder of 1995. This arrangement became effective on August 1, 1995. Dr. Scott did not receive an incentive bonus for 1995. He was, however, awarded a discretionary bonus in the form of nonqualifed stock options which vest on the third and fifth anniversaries of the date of grant. The award of stock options to Dr. Scott was motivated by a desire to better align all executive officers' compensation with the long-term financial performance of the Company. The number of stock options awarded to Dr. Scott was deemed appropriate relative to the option grants made to other executive officers. As noted above, on May 29, 1996, Dr. Scott was placed on sabbatical leave from his positions as President and Chief Executive Officer of the Company. Joseph G. Piemont, formerly Executive Vice President and General Counsel of the Company, has been appointed by the Board to serve as President and Chief Executive Officer. Mr. Piemont's employment agreement is described above under "Agreements With Certain Officers." SECTION 162(M) OF THE INTERNAL REVENUE CODE The Company does not expect Section 162(m) of the Code and the proposed regulations thereunder (collectively, "Section 162(m)") to affect the deductibility for federal income tax purposes of the compensation of the Company's five highest paid executive officers in 1995. If and when the deductibility of the compensation of such officers may be impacted by Section 162(m), the Company intends to review the applicability of Section 162(m) to the Company's compensation programs, including its potential impact on stock options awarded under the Company's stock option plans, and to determine the Company's policy with respect to its compliance with Section 162(m). COMPENSATION COMMITTEE Robert V. Hatcher, Jr., Chairman Richard Janeway, M.D. 15 CORPORATE PERFORMANCE GRAPH The following graph compares the yearly percentage change in the Company's cumulative total shareholder return on the Common Stock for each of the last three fiscal years with the cumulative total return of (i) the S & P 500 Index and (ii) a composite of eight managed care/health care services companies. This composite consists of: Phycor, Inc.; Pacific Physicians Services, Inc.; Medaphis Corporation; Humana Inc.; Healthsource, Inc.; U.S. Healthcare, Inc.; Coventry Corporation; and Physicians Corporation of America. The Company has selected these peer issuers based on the greater similarity of their businesses to the Company's business than those companies included in the S & P Health Care Composite Index. [GRAPH APPEARS HERE] COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG COASTAL PHYSICIAN GROUP, INC., S&P 500 INDEX AND MANAGED CARE/HEALTH CARE SERVICES COMPOSITE INDEX
MANAGED CARE/ COASTAL PHYSICIAN HEALTH CARE MEASUREMENT PERIOD GROUP INC. S&P 500 SERVICES COMPOSITE FISCAL YEAR COVERED INDEX INDEX INDEX Measurement Pt -- 06/21/91 $100.00 $100.00 $ 100.00 FYE 12/31/91 $222.00 $111.10 $ 94.33 FYE 12/31/92 $226.00 $116.06 $ 107.42 FYE 12/31/93 $318.00 $124.25 $ 129.28 FYE 12/30/94 $219.00 $122.33 $ 148.59 FYE 12/29/95 $108.00 $164.06 $ 190.07
(Comparison chart appears here. Plot points are below.) Coastal S&P Managed 6/21/91 100 100 100 12/31/91 210 110 90 12/31/92 210 115 100 12/31/93 320 120 130 12/30/94 210 120 140 12/29/95 100 160 175 16 CERTAIN TRANSACTIONS The Company has entered into various transactions and has continuing relationships with American Alliance Holding Company ("Alliance") and its affiliates, Century Insurance and Medical Risk Prevention Consultants, Inc. ("MRPC") and affiliates thereof. Dr. Scott is the beneficial owner of all of the outstanding shares of common stock of Alliance. These transactions and relationships are described below. The Company and certain of its subsidiaries sublease office space in Durham, North Carolina, consisting of approximately 49,000 square feet, from Alliance under sublease agreements which are generally renewed annually in July. The building is owned by Century Insurance which leases the building to Alliance. During the year ended December 31, 1995, the Company paid Alliance approximately $745,000 under these sublease agreements. Under the sublease agreements, the Company is contingently liable to the holder of a first mortgage on the property for the total rentals specified in the prime lease. The prime lease commenced in August 1988 and has a fifteen-year term requiring minimum lease payments of approximately $788,000 per year for years one through five, $959,000 for years six through ten and $1,166,000 per year for years eleven through fifteen. The Company paid approximately $2,330,000 in insurance premiums to Century Insurance for professional liability insurance for itself and its subsidiaries for the year ended December 31, 1995. The Company paid MRPC approximately $387,000 for consulting services related to risk management assistance provided by the Company to certain of its hospital clients for the year ended December 31, 1995. The Company received approximately $1,222,000 for certain computer, financial, statistical and other advice and services provided to Alliance and its subsidiaries for the year ended December 31, 1995. The Company leases an office facility in Durham, North Carolina, consisting of approximately 27,000 square feet from Chateau LLC, which is controlled by Dr. Scott. The Company paid approximately $258,000 to Chateau LLC for this space during 1995. The Company also leases 3,600 square feet of space in Rocky Mount, North Carolina from Durham Investment Corp. and 43,852 square feet of space in Ft. Lauderdale, Florida from Coral Ridge LP, which entities are also controlled by Dr. Scott. During 1995, the Company paid approximately $90,000 for the Rocky Mount space and $157,000 for the Ft. Lauderdale space. In addition, the Company leases a clinical facility in Fayetteville, North Carolina, consisting of approximately 5,000 square feet, from Sunco Properties, a general partnership in which Drs. Scott and Walls each have a 50% interest. During 1995, the Company paid Sunco Properties approximately $68,000. From time to time during 1995, the Company chartered two airplanes owned by Alliance Aviation, Inc. ("Alliance Aviation"), a wholly-owned subsidiary of Alliance. Charter fees paid by the Company to Alliance Aviation during 1995 totaled approximately $848,000. On March 31, 1995, the Company purchased one of these airplanes from Alliance Aviation. The $6,600,000 purchase price was based upon a third-party appraisal performed on March 6, 1995. The Board of Directors authorized the purchase of the airplane on March 28, 1995. In connection with the relocation of his family from North Carolina to Florida, Mr. Singley received advances during 1995 from the Company in the amount of $145,147. Under the promissory note issued to the Company by Mr. Singley and his wife for such advances, the principal amount advanced bears interest at an annual rate of three percent. Interest under the note is payable monthly. The principal amount is to be repaid on the earlier of (i) the sale of Mr. Singley's principal residence in Florida, (ii) the date which is 180 days subsequent to the termination of Mr. Singley's employment for any reason or (iii) August 1, 1998. 17 PROPOSAL 2 RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS The firm of KPMG Peat Marwick LLP, independent certified public accountants, has been the Company's auditor since 1987 and has advised the Company that it does not have any direct financial interest or indirect financial interest in the Company. The Board of Directors, on the recommendation of the Audit Committee, has selected KPMG Peat Marwick LLP as the Company's independent certified public accountants for the year ending December 31, 1996, subject to the approval of the shareholders. One or more representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions from shareholders. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1996. CERTAIN LEGAL PROCEEDINGS On July 9, 1996, Dr. Scott and Bertram E. Walls, M.D., filed, on their own behalf and derivatively on behalf of the Company, an action in the General Court of Justice of the State of North Carolina in the County of Durham against the Company and Dr. Sokolov and Messrs. Piemont and Corman. The plaintiffs allege, among other things, that certain members of the Board of Directors breached their fiduciary duties and wasted corporate assets by removing Dr. Scott from his position as President and Chief Executive Officer of the Company and by approving the entry by the Company into an employment agreement with Mr. Piemont. The plaintiffs allege that these actions were taken to wrongfully remove Scott and to enrich the defendants at the expense of the Company and its stockholders, and that these and other recent actions of the Board of Directors, including the approval of efforts to sell certain corporate assets, were taken in breach of the Board of Directors' duty of care. The complaint seeks as relief, among other things, an order of the court enjoining the Board of Directors from proceeding with potential asset sales, declaring the Piemont employment agreement unenforceable, declaring the Board of Directors' conduct in placing Dr. Scott on leave to be contrary to Delaware law and requiring the Board of Directors to consider ratifying a contract with Century Insurance. In addition, the complaint seeks damages in an unspecified amount in excess of $10,000.00 against the individual defendants. The Company believes that these allegations are without merit and intends to defend the actions vigorously. COST AND METHOD OF SOLICITATION The cost of preparing and mailing this Proxy Statement, the Notice of Annual Meeting of Shareholders and the enclosed proxy will be borne by the Company. In addition to the use of mail, directors, officers and employees of the Company may solicit proxies personally and by telephone or telecopy. The Company will pay for the cost of these solicitations, but these individuals will receive no compensation for soliciting proxies other than their regular salaries. The Company may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy material to their principals and to request authority for the execution of proxies. MacKenzie Partners, Inc. ("MacKenzie") has been retained by the Company to assist in the solicitation of proxies. The fee for such services will be approximately $ , plus reimbursement of reasonable out-of-pocket expenses. The Company will also reimburse brokers, fiduciaries, custodians and other nominees, as well as persons holding stock for others who have the right to give voting instructions, for out-of-pocket expenses incurred in forwarding this proxy statement and related materials to, and obtaining instructions or authorizations relating to such materials from, beneficial owners of the Company's Common Stock. OTHER BUSINESS Any shareholder who is a shareholder on the Record Date and at the time of the notice described below may bring business before the Annual Meeting. Written notice of the shareholder's intent to bring such business before the Annual Meeting must be delivered to the Secretary of the Company not later than the close of business on [INSERT DATE]. Such notice must set forth (i) a brief description of the business desired to be brought before the meeting and the reasons for considering the business, and (ii) the name and address of the shareholder, the class and number of shares of capital stock of the Company owned by such shareholder and any material interest of such shareholder in the proposed business. Shareholders proposing 18 such business must also comply with all applicable requirements of the Exchange Act and the regulations promulgated thereunder with respect to business proposed pursuant to such notice. If the chairman of the meeting determines and declares that the proposing shareholder has not complied with this procedure, the business shall not be considered. In the press release announcing his intention to nominate two directors for election at the 1996 Annual Meeting and in preliminary proxy materials filed with the Securities and Exchange Commission, Dr. Scott also announced his intention to seek shareholder approval of a resolution requesting that a committee of independent directors be established to consider and recommend the means by which shareholder value may be maximized. As of July 10, 1996, the Company has not received the required notice of such proposed business as discussed above. Except as described above, the Board of Directors knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will vote proxies as in their discretion they may deem appropriate, unless they are directed by a proxy to do otherwise. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than ten percent of the Common Stock, to file initial reports of ownership and reports of changes in ownership of the Common Stock with the Commission. Officers, directors and greater than ten percent shareholders are required by Commission regulations to furnish the Company with copies of all such Section 16(a) reports they file. To the Company's knowledge, based solely on its review of the copies of such reports received by the Company and written representations from certain reporting persons that no other reports were required for those persons, during fiscal 1995, all Section 16(a) filing requirements applicable to the Company's officers, directors and greater than ten percent shareholders were complied with, except that Jonathan E. Kennedy's initial Form 3 after he became Vice President, Corporate Controller and Chief Accounting Officer of the Company on June 15, 1995 was filed late. INFORMATION CONCERNING SHAREHOLDER PROPOSALS Pursuant to Rule 14a-8 promulgated under the Exchange Act, any shareholder proposal intended for inclusion in the Company's proxy statement and form of proxy relating to the Company's 1997 Annual Meeting of Shareholders must be received in writing by the Secretary of the Company at the Company's principal executive offices on or before [DATE]. Pursuant to the Company's Bylaws, notice of any business to be brought by shareholders before a meeting of shareholders must be received by the Secretary of the Company not less than 45 days nor more than 60 days prior to the date of the meeting; provided, however, that in the event that less than 45 days notice or prior public disclosure of the date of the meeting is given, such notice must be received not later than the close of business on the tenth day following the day notice of the meeting date is mailed or public disclosure is made and provided further that such notice must be received not later than the close of business on the seventh day preceding the day on which the meeting is to be held. By Order of the Board of Directors, Jacque J. Sokolov, M.D. Joseph G. Piemont Chairman President and Chief Executive Officer Durham, North Carolina , 1996 If you have any questions or need assistance in voting your shares, please contact MacKenzie Partners, Inc. at its toll free number: 1-800-322-2885. 19 APPENDIX I SUPPLEMENTAL DIRECTOR INFORMATION Set forth below is (a) the name and business address of each of the participants and their associates (except the Company) in the solicitation made pursuant to this Proxy Statement, and (b) the dates, types and amounts of each participant's purchases and sales of the Company's debt and equity securities within the past two years.
NAME AND DATE OF PURCHASE (P) TYPE AND BUSINESS ADDRESS (1) TRANSACTION OR SALES (S) AMOUNT Jacque J. Sokolov, M.D................................................................ David W. Singley, Jr.................................................................. Robert V. Hatcher, Jr................................................................. Stephen D. Corman..................................................................... John P. Mahoney, M.D.................................................................. Richard Janeway, M.D.................................................................. Norman H. Chenven, M.D................................................................ Joseph G. Piemont..................................................................... Dennis I. Simon....................................................................... Bettina M. Whyte......................................................................
The Company has agreed to pay Price Waterhouse $70,000 per month for the services of the Plan Managers, and $46,400 per month for any additional Price Waterhouse personnel that may provide services under the agreement. In addition, the Company granted Price Waterhouse an option, granted in consideration of a credit of $250,000 against fees payable by the Company to Price Waterhouse in the eleventh and twelfth months of their engagement, to purchase 50,000 shares of common stock of the Company at a price of $7 7/8, which option is not yet vested, and a separate option to purchase up to 50,000 shares of common stock of the Company, which option shall vest at the rate of 10,000 shares each month for five months commencing May 15, 1996, at a strike price equal to the average closing price of the common stock on the New York Stock Exchange for the first ten trading days of each month prior to the vesting date. In addition to the persons set forth above, Steven M. Scott, M.D., Bertram E. Walls, M.D. and John A. Hemmingway are directors of the Company, but are not expected to solicit proxies on behalf of the Company. Except as set forth in the Proxy Statement or this Appendix, to the best of the Company's knowledge, none of the directors or, in the case of clause (a) only, any of their associates (a) owns of record or has direct or indirect beneficial ownership of any securities issued by the Company or any of its subsidiaries; (b) has purchased or sold any securities issued by the Company within the past two years; (c) has incurred any outstanding indebtedness to acquire or hold securities issued by the Company; or (d) has been a party to any contract, arrangement or understanding with respect to any securities of the Company during the past year. Except as set forth in the Proxy Statement or this Appendix, to the best of the Company's knowledge, (a) none of the participants or any of their associates has any arrangement or understanding with respect to any future employment or any future transactions with the Company or any of its affiliates, and (b) none of the participants, executive officers of the Company, any person known to the Company to own beneficially or of record more than five percent of any class of Company voting securities, or any of their associates has entered into any transaction or series of similar transactions with the Company or any of its subsidiaries since the beginning of the Company's last fiscal year in which such person had or will have a direct or indirect material interest, and no such transactions are currently proposed. ******************************************************************************* APPENDIX PRELIMINARY PROXY MATERIALS SUBJECT TO COMPLETION COASTAL PHYSICIAN GROUP, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COASTAL PHYSICIAN GROUP, INC. The undersigned hereby appoints Jacque J. Sokolov, M.D., Stephen D. Corman and Joseph G. Piemont, and each of them, proxies, with power of substitution, to represent the undersigned at the Annual Meeting of Shareholders of Coastal Physician Group, Inc. (the "Company"), to be held at 9:00 a.m., local time, on , 1996, at and at any adjournments thereof, to vote all shares of common stock which the undersigned would be entitled to vote if present in person in such manner as such proxies may determine, and to vote on the following proposals as specified below by the undersigned. (1) Election of Directors: [ ] VOTE FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY to vote for BELOW all nominees listed below. (except as marked to the contrary below).
NORMAN H. CHENVEN, M.D. ROBERT V. HATCHER, JR. RICHARD JANEWAY, M.D. (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT ONLY THE NAME(S) OF THE PERSON(S) FOR WHOM YOU WISH TO WITHHOLD AUTHORITY IN THE SPACE PROVIDED BELOW) (2) Proposal to approve the appointment of KPMG Peat Marwick LLP as the Company's independent certified public accountants for the fiscal year ending December 31, 1996: [ ] FOR [ ] AGAINST [ ] ABSTAIN PLEASE SIGN AND DATE ON THE OTHER SIDE Annual Meeting of Shareholders of COASTAL PHYSICIAN GROUP, INC. 2828 Croasdaile Drive Durham, NC 27705 Please date, sign exactly as name(s) appear below and return promptly in the enclosed envelope. This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. IN THE ABSENCE OF SPECIFIED DIRECTIONS, THIS PROXY WILL BE VOTED IN FAVOR OF THE ELECTION OF ALL NOMINEES NAMED IN THIS PROXY FOR WHOM AUTHORITY IS NOT SPECIFICALLY WITHHELD AND IN FAVOR OF THE PROPOSALS LISTED IN THIS PROXY. The proxies are also authorized to vote in their discretion upon such other matters as may properly come before the meeting or any adjournment thereof. If signing as attorney, administrator, executor, guardian, trustee or as a custodian for a minor, please add your title as such. If a corporation, please sign in full corporate name and indicate the signer's office. If a partner, please sign in the partnership's name. X X Dated , 1996 -----END PRIVACY-ENHANCED MESSAGE-----