<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other
than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROVINCE HEALTHCARE COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PROVINCE HEALTHCARE COMPANY
105 WESTWOOD PLACE, SUITE 400
BRENTWOOD, TN 37027
April 16, 1999
TO THE SHAREHOLDERS OF
PROVINCE HEALTHCARE COMPANY
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Province Healthcare Company, to be held on Thursday, May 20,
1999, at 9:00 a.m. (Central Daylight Time) at The Holiday Inn, 760 Old Hickory
Boulevard, Brentwood, TN 37027. The following pages contain the formal notice of
the Annual Meeting and our Proxy Statement which describe the specific business
to be considered and voted upon at the Annual Meeting.
Please read the enclosed Annual Report to Shareholders and Proxy
Statement for the 1999 Annual Meeting. It is important that your shares be
represented at the Annual Meeting. Whether or not you plan to attend the Annual
Meeting, please sign, date and return the enclosed proxy card, which is being
solicited by the Board of Directors of the Company, as soon as possible so that
your vote will be recorded. If you attend the meeting, you may withdraw your
proxy should you wish to vote in person.
Sincerely,
Martin S. Rash
President, Chief Executive Officer and
Chairman of the Board
Enclosures:
1. Proxy Card and Business Reply Envelope
2. 1998 Annual Report
IMPORTANT
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY.
<PAGE> 3
PROVINCE HEALTHCARE COMPANY
105 WESTWOOD PLACE, SUITE 400
BRENTWOOD, TN 37027
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1999
---------------
TO THE SHAREHOLDERS OF
PROVINCE HEALTHCARE COMPANY
The 1999 Annual Meeting of Shareholders of Province Healthcare Company
(the "Company") will be held on Thursday, May 20, 1999, at 9:00 a.m. (Central
Daylight Time) at The Holiday Inn, 760 Old Hickory Boulevard, Brentwood,
Tennessee 37027, for the following purposes:
(1) To elect six nominees as directors;
(2) To consider and approve the amendment to the Province
Healthcare Company 1997 Long-Term Equity Incentive Plan to increase the
number of authorized shares;
(3) To ratify the appointment of the accounting firm of Ernst &
Young LLP as independent auditors of the Company and its subsidiaries
for the Company's 1999 fiscal year; and
(4) To transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on April 1,
1999, as the record date for determining shareholders entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof.
By order of the Board of Directors,
Howard T. Wall III, Esq.
Secretary
Nashville, Tennessee
April 16, 1999
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, TO ASSURE THE
PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY
CARD AS SOON AS POSSIBLE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES
PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 4
PROVINCE HEALTHCARE COMPANY
105 WESTWOOD PLACE, SUITE 400
BRENTWOOD, TN 37027
--------------
PROXY STATEMENT
--------------
INTRODUCTION
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Province Healthcare Company (the
"Company"), to be voted at the 1999 Annual Meeting of Shareholders (the "Annual
Meeting") for the purposes set forth in the accompanying notice, and at any
meeting following an adjournment thereof. The Annual Meeting will be held at The
Holiday Inn, 760 Old Hickory Boulevard, Brentwood, Tennessee 37027, on Thursday,
May 20, 1999, at 9:00 a.m. (Central Daylight Time). This Proxy Statement and the
accompanying form of proxy are first being mailed or given to shareholders of
the Company on or about April 16, 1999.
If the enclosed proxy is properly executed, returned and not revoked,
it will be voted in accordance with the instructions, if any, given by the
shareholder, and if no instructions are given, will be voted (a) FOR the
election as directors of the nominees listed thereon and described in this Proxy
Statement, (b) FOR approval of the amendment to the Province Healthcare Company
1997 Long-Term Equity Incentive Plan, (c) FOR ratification of the appointment of
the firm of Ernst & Young LLP as independent auditors of the Company and its
subsidiaries for the Company's 1999 fiscal year and (d) in accordance with the
recommendations of the Board of Directors on any other proposal that may
properly come before the Annual Meeting. The persons named as proxies in the
enclosed form of proxy were selected by the Board of Directors.
If any other matters are properly presented at the Annual Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place, the persons named as
proxies and acting thereunder will have discretion to vote on those matters
according to their best judgment to the same extent as the person delivering the
proxy would be entitled to vote. At the date this Proxy Statement went to press,
the Company did not anticipate that any other matters would be raised at the
Annual Meeting.
Shareholders who sign proxies have the right to revoke them by written
request to the Company at any time before they are voted. The giving of the
proxy will not affect the right of any shareholder to attend the Annual Meeting
and vote in person.
The close of business on April 1, 1999 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting. As of the close of business on April 1, 1999, the Company
had authorized 25,000,000 shares of common stock, $0.01 par value (the "Common
Stock"), of which 15,722,743 shares were outstanding and entitled to vote. The
Common Stock is the Company's only outstanding voting stock.
1
<PAGE> 5
PROPOSAL 1: ELECTION OF DIRECTORS
INTRODUCTION
The Bylaws of the Company (the "Bylaws") provide that the first Board
of Directors shall consist of six directors; thereafter, the number of directors
shall be established from time to time by resolution of the Board of Directors.
The terms of the Company's current directors, Martin S. Rash, Bruce V. Rauner,
Joseph P. Nolan, A.E. Brim, Michael T. Willis and David L. Steffy expire at the
Annual Meeting.
The Board of Directors has determined that the size of the Board of
Directors shall be set at six directors and has nominated Messrs. Rash, Rauner,
Nolan, Brim, Willis and Steffy for re-election at the Annual Meeting as
directors to serve until the annual meeting of shareholders in 2000 or until
their successors have been elected and qualified. Each of Messrs. Rash, Rauner,
Nolan, Brim, Willis and Steffy have consented to be candidates and to serve as
directors if elected.
In accordance with the Bylaws, directors are elected by a plurality of
the votes of the shares present in person or represented by proxy at a meeting
of shareholders (entitled to vote in the election of directors) at which a
quorum is present. The Company's Certificate of Incorporation does not provide
for cumulative voting, and, accordingly, the holders of Common Stock do not have
cumulative voting rights with respect to the election of directors.
Consequently, each shareholder may cast only one vote per share of Common Stock
for each of the nominees.
Unless your proxy specifies otherwise, the persons named in your proxy
shall vote your shares for the individuals nominated by the Board of Directors.
Should any nominee become unavailable for election, your shares will be voted
for a substitute nominee selected by the current Board of Directors.
The Board of Directors recommends that you vote FOR the election of the
following nominees:
2
<PAGE> 6
NOMINEES
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE DIRECTOR SINCE
- ---- --- ------------------- --------------
<S> <C> <C> <C>
Martin S. Rash 44 President and Chief Executive Officer, Province February 1996
Healthcare Company (Dec. 1996 - present); Chairman of
the Board, Province Healthcare Company (May 1998 -
present); Chief Executive Officer, Principal Hospital
Company ("PHC") (Feb. 1996 - Dec. 1996); Chief
Operating Officer, Community Health Systems, Inc.
(Feb. 1994 - Feb. 1996); Community Health Systems,
Inc. (1986 - 1996)
Bruce V. Rauner 43 Managing Principal, GTCR Golder Rauner, LLC (April February 1996
1998 - Present); Principal, Golder, Thoma, Cressey,
Rauner, Inc. (1981 - April 1998); Director, Principal
Hospital Company (Feb. 1996 - Dec. 1996); Director,
Lason, Inc.; Director, Polymer Group, Inc.; Director,
Coinmach Laundry Corporation; Director, AnswerThink
Consulting Group; Director, Esquire Communications,
Ltd.
Joseph P. Nolan 34 Principal, GTCR Golder Rauner, LLC (April 1998 - February 1996
Present); Principal, Golder, Thoma, Cressey, Rauner,
Inc. (July 1996 - April 1998); Director, Principal
Hospital Company (Feb. 1996 - Dec. 1996); Vice
President Corporate Finance, Dean Witter Reynolds
Inc. (May 1990 - Jan. 1994); Director, Lason, Inc.;
Director, Esquire Communications, Ltd.
A.E. Brim 68 Director, Chairman and Chief Executive Officer, Brim, December 1996
Inc. (founding - Dec. 1996)
Michael T. Willis 54 Chairman of the Board, Chief Executive Officer and August 1997
President, Metamor Worldwide, Inc. (formerly known as
COREStaff, Inc.) (1993 - Present); Director,
Southwest Bank of Texas; Director, Quanta Services,
Inc.
David L. Steffy 55 Director, Intensiva HealthCare Corporation August 1997
(1995-1998); Director, Odyessy Healthcare, Inc.
(1996-present); Director, Arcadian Healthcare
Management (1997-present); Vice Chairman and
Director, Community Health Systems, Inc. (1985 -
1996)
</TABLE>
3
<PAGE> 7
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company was incorporated in Delaware on August 7, 1997. From
January 1, 1998 until December 31, 1998, the Board of Directors took one action
by unanimous written consent. The Board of Directors held four regular meetings
and one special meeting during that period. The Board of Directors has
established the standing committees described below.
The Compensation Committee was appointed by the Board of Directors in
January 1998 to administer the Company's stock plans and recommend to the Board
of Directors compensation of the Company's executive officers. The Compensation
Committee is comprised of Messrs. Brim, Nolan and Willis. During 1998, the
Compensation Committee held four meetings, and took two actions by unanimous
written consent.
The Audit Committee was appointed by the Board of Directors in January
1998 to recommend the annual appointment of the Company's auditors, with whom
the Audit Committee reviews the scope of audit and non-audit assignments and
related fees, accounting principles used by the Company in financial reporting,
internal auditing procedures and the adequacy of the Company's internal control
principles. The Audit Committee is comprised of Messrs. Willis and Steffy.
During 1998, the Audit Committee held five meetings.
DIRECTOR COMPENSATION
Directors of the Company who are employees of the Company or its
subsidiaries are not entitled to receive any fees for serving as directors.
Non-employee directors of the Company receive a fee of $1,000 per board meeting
attended and are reimbursed for out-of-pocket expenses related to the Company's
business. In addition, non-employee directors of the Company are eligible to
participate in the Company's 1997 Long-Term Equity Incentive Plan. Non-employee
directors, however, are not eligible to participate in the Province Healthcare
Company Employee Stock Purchase Plan.
4
<PAGE> 8
PROPOSAL 2: APPROVAL OF AMENDMENT TO THE PROVINCE HEALTHCARE COMPANY 1997
LONG-TERM EQUITY INCENTIVE PLAN
The Board of Directors has adopted an amendment to the Company's 1997
Long-Term Equity Incentive Plan (the "1997 Plan") to increase the number of
authorized shares of Common Stock that are available for incentive awards by
1,400,000 shares. A copy of the 1997 Plan is available from the Company upon
request. The following brief description and explanation is qualified in its
entirety by reference to the full text of the 1997 Plan and the amendment. A
copy of the amendment is attached hereto as Appendix A.
DESCRIPTION OF PROPOSED AMENDMENT
The amendment to the 1997 Plan provides for an increase in the number
of shares of Common Stock available for issuance under the 1997 Plan from
1,209,016 to 2,609,016. Options to purchase 1,163,968 shares have been granted
under the 1997 Plan as of April 1, 1999. No other types of awards (i.e.,
restricted stock, performance awards, reload options, stock appreciation rights)
have ever been issued under the 1997 Plan.
REASON FOR CHANGES
The Board of Directors believes that this increase in shares under the
Plan is necessary to enable the Company to operate a meaningful stock incentive
program which constitutes a key component of the Company's executive recruitment
and expansion programs. Prior to the amendment, the number of shares under the
1997 Plan constituted 7.14% of the Company's outstanding stock on a
fully-diluted basis. Nearly all of these shares are subject to outstanding
options. The increase will raise the percentage to 14.23%. The Board of
Directors believes this level is typical for similarly-sized companies in the
Company's industry peer group. Moreover, without the increase, the Company would
not be able to grant meaningful incentives under the 1997 Plan.
GENERAL DESCRIPTION OF 1997 PLAN
The 1997 Plan is administered by the Compensation Committee. The
Compensation Committee may award grants of "incentive stock options," as defined
in section 422 of the Code ("incentive options"), stock options that do not
qualify as incentive options ("nonqualified options"), stock appreciation rights
("SARs"), reload options, restricted stock, performance awards, or any
combination thereof. Awards of options and SARs to any person under the 1997
Plan cannot exceed 114,754 shares of Common Stock in any calendar year. The
number of shares of Common Stock that are subject to an award, the vesting
schedule and the exercise price of any option will be determined by the
Compensation Committee in its discretion. However, with respect to incentive
options, the exercise price may not be less than the fair market value of Common
Stock on the date of grant (110% for 10% shareholders), and the maximum term is
ten years from the date of grant. In addition, incentive options must terminate
three months after the date on which a grantee ceases to be an employee of the
Company or its subsidiaries (one year after death or disability). The
Compensation Committee also may grant "reload options" at the time an option is
awarded or exercised to replace options that are exercised. The exercise price
of reload options is the fair market value of Common Stock on the date that the
options being replaced are exercised.
The Compensation Committee may grant SARs in tandem with stock options
to any optionee pursuant to the 1997 Plan. SARs become exercisable only when and
to the extent that the related options are exercisable, and they expire at the
same time the related options expire. The exercise of an option results in the
immediate forfeiture of any related SAR to the extent the option is exercised,
and the exercise of an SAR results in the immediate forfeiture of any related
option to the extent the SAR is exercised. Upon exercise of an SAR, the grantee
will receive an amount in cash and/or shares of Common Stock equal to the
difference between the fair market value of a share of Common Stock on
5
<PAGE> 9
the date of exercise and the exercise price of the option to which it relates,
multiplied by the number of shares as to which the SAR is exercised.
The Compensation Committee may award restricted stock subject to such
conditions and restrictions, and for such duration (which shall be at least six
months except as otherwise described below) as it determines in its discretion.
Except as otherwise provided by the Compensation Committee, all restrictions on
a grantee's restricted stock will lapse at the time of the grantee's death,
disability or retirement. If a grantee's relationship with the Company
terminates for any other reason, all restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.
The Compensation Committee may grant performance awards under which the
recipient can earn cash payments upon achieving specified performance goals.
Performance awards may include specific dollar-value target awards, performance
units, the value of which is established by the Compensation Committee at the
time of grant, and/or performance shares, the value of which is equal to the
fair market value of a share of Common Stock on the date of grant. The value of
a performance award may be fixed or fluctuate on the basis of specified
performance criteria.
All awards granted under the 1997 Plan become fully vested upon a
change in the corporate control of the Company. With respect to performance
awards, a recipient shall earn at least the amount that would have been earned
if the performance period ended on the change in control of the Company.
The Board may amend or terminate the 1997 Plan in its discretion,
except that no amendment will become effective without approval of the Company's
shareholders if such approval is necessary for continued compliance with the
incentive option requirements of section 422 of the Code, the performance-based
compensation exception of Section 162(m) of the Code, or any stock exchange
listing requirements. If not previously terminated by the Board, the 1997 Plan
will terminate on March 3, 2007.
As grants to be awarded under the 1997 Plan are made entirely in the
discretion of the Compensation Committee, the recipients, amounts and values of
future benefits to be received pursuant to the 1997 Plan are not determinable.
FEDERAL INCOME TAX CONSEQUENCES
Tax consequences to the Company and to individuals receiving awards
will vary with the type of award. Generally, a participant will not recognize
income, and the Company is not entitled to take a deduction, upon the grant of
an incentive option, a nonqualified option, a reload option, SARs or a
restricted stock award. An individual who exercises incentive options will not
recognize income on exercise if he or she does not sell the shares of Common
Stock acquired thereby for at least two years after the date of grant and one
year after exercising the incentive option. The exercise of an incentive option
does, however, give rise to an adjustment under the alternative minimum tax
rules. Any gain or loss on the sale of the Common Stock after these statutory
holding periods will be subject to capital gains treatment. The exercise price
of the incentive option is the basis for purposes of determining capital gains.
For options exercised after December 31, 2000, reduced capital gains rates apply
if the Common Stock is held for at least five years after the date of exercise.
An individual who disposes of the Common Stock before the holding
periods referenced above are satisfied will have engaged in a "disqualifying
disposition" and will recognize ordinary compensation income on the difference
between the exercise price of the incentive option and the fair market value of
the Common Stock at the time of sale. The individual's basis in the Common Stock
after a disqualifying disposition is its fair market value at the time of sale.
The individual will also be subject to tax on capital gain, if any, upon the
sale of the Common Stock on the amount realized in excess of the basis.
6
<PAGE> 10
Upon exercise of a nonqualified option, the individual recognizes
ordinary income on the difference between the fair market value of the Common
Stock and the exercise price paid under the nonqualified option. Similarly, the
exercise of an SAR will result in ordinary income on the value of the SAR to the
individual at the time of exercise. Unless an individual makes an election under
Section 83(b) of the Code to be taxed at the time of grant, he or she will
recognize ordinary income on the fair market value of the Common Stock at the
time shares of restricted stock become vested. The individual also is subject to
capital gains treatment on the subsequent sale of the Common Stock acquired
through a nonqualified option or restricted stock. For this purpose, the
individual's basis in the Common Stock is its fair market value at the time the
nonqualified option is exercised or the restricted stock becomes vested (or
transferred, if an election under Section 83(b) is made). Reload options are
taxed in the same manner as incentive options and nonqualified options,
depending on the type of option that is issued under the reload grant. Payments
made under performance shares are taxable as ordinary income at the time an
individual attains the performance goals and the payments are made available to
him or her.
Generally, the Company is not entitled to a tax deduction upon the
exercise of an incentive option under the 1997 Plan. However, if the individual
engages in a disqualifying disposition, the Company may take a tax deduction for
the amount of ordinary income recognized by the individual. The Company
generally is allowed to deduct from its taxable income an amount that
corresponds to the ordinary income an individual recognizes with respect to
options, SARs, restricted stock or performance shares at the same time the
income is recognized by the individual.
REGISTRATION UNDER THE SECURITIES ACT OF 1933
The Company intends to register the additional shares of Common Stock
authorized for issuance under the 1997 Plan on a Registration Statement on Form
S-8 following approval of the amendment by the shareholders.
REQUIRED VOTE
Approval of the proposed amendment to the 1997 Plan requires the
affirmative vote of a majority of the votes cast (in person or by proxy) by the
holders of Common Stock entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1997 LONG-TERM EQUITY INCENTIVE PLAN.
7
<PAGE> 11
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS
The Audit Committee of the Board of Directors has selected the firm of
Ernst & Young LLP as independent auditors of the Company for the year ending
December 31, 1999, subject to ratification by the shareholders. Ernst & Young
LLP has served as the independent auditors of the Company (or its predecessor,
Principal Hospital Company) since April 1996. One or more representatives of
Ernst & Young LLP are expected to be present at this year's Annual Meeting of
Shareholders, will have an opportunity to make a statement if he or she desires,
and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented and entitled to vote at the Annual Meeting
is needed to ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the year ending December 31, 1999. If the appointment is not
ratified, the matter will be referred to the Audit Committee for further review.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP.
8
<PAGE> 12
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's executive officers as of April 16, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Rash 44 President, Chief Executive Officer and Chairman of the Board
Richard D. Gore 46 Executive Vice President and Chief Financial Officer
John M. Rutledge 41 Senior Vice President and Chief Operating Officer
James Thomas Anderson 45 Senior Vice President of Acquisitions and Development
James O. McKinney 45 Senior Vice President of Managed Operations
Howard T. Wall III 40 Senior Vice President, General Counsel and Secretary
Brenda B. Rector 51 Vice President, Controller and Chief Accounting Officer
</TABLE>
Mr. Gore has served as Executive Vice President and Chief Financial
Officer of the Company since the Recapitalization in December 1996. From April
1996 to December 1996, Mr. Gore served as Executive Vice President and Chief
Financial Officer of PHC. Mr. Gore served as Vice President and Controller of
Quorum Health Group, Inc., a hospital management company, from February 1990 to
April 1996.
Mr. Rutledge has served as Senior Vice President and Chief Operating
Officer of the Company since December 1996. From 1986 to October 1996, Mr.
Rutledge served in several senior management positions with Community Health
Systems, Inc., most recently serving as a Regional Vice President/Group Director
from 1992 to October 1996.
Mr. Anderson has served as Senior Vice President of Acquisitions and
Development of the Company since January 1998. From January 1994 to January
1998, Mr. Anderson served as a Vice President/Group Director of Community Health
Systems, Inc., and was its Operations Controller from September 1992 to January
1994. From April 1990 to September 1992, Mr. Anderson served as Chief Financial
Officer of Clarksville Memorial Hospital in Clarksville, Tennessee, and from
1984 to April 1990, he served as Chief Executive Officer of Harton Medical
Center in Tullahoma, TN.
Mr. McKinney has served as Senior Vice President of Managed Operations
of the Company and President of Brim Healthcare, Inc. since January 1997. From
1994 to 1997, Mr. McKinney served as Senior Vice President of Brim Healthcare,
Inc. He served as a Vice President of Brim Healthcare, Inc. from 1990 to 1994.
Mr. Wall has served as Senior Vice President and General Counsel of the
Company since September 1997 and has served as Secretary since March 1998. From
1990 to September 1997, Mr. Wall was a partner at Waller Lansden Dortch & Davis,
PLLC, a law firm based in Nashville, Tennessee, where he chaired the firm's
health care group.
Ms. Rector has served as Vice President, Controller and Chief
Accounting Officer of the Company since the merger of Brim, Inc. into PHC in
December 1996. From October 1996 to December 1996, Ms. Rector served as Vice
President and Controller of PHC. From October 1990 to October 1996, Ms. Rector
served as a Partner in Ernst & Young LLP's health care industry practice.
9
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to ownership of
the Common Stock as of April 1, 1999, by (i) each person known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock, (ii) each
of the Company's directors, (iii) each of the executive officers named in the
Summary Compensation Table, and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated to the knowledge of the Company,
each shareholder listed below has sole voting and investment power with respect
to the shares beneficially owned. The Company is unaware of any person other
than those listed below that beneficially owns more than 5% of the outstanding
shares of the Company's Common Stock.
<TABLE>
<CAPTION>
Number of Shares Percent of Common Stock
Name of Beneficial Owner Beneficially Owned (1) Beneficially Owned (2)
- ------------------------ ---------------------- ----------------------
<S> <C> <C>
Golder, Thoma, Cressey, 2,301,258 14.6%
Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, IL 60606
Bruce V. Rauner(3) 2,318,632 14.7
Joseph P. Nolan(4) 2,307,943 14.6
Martin S. Rash(5)(10) 615,737 3.9
Richard D. Gore(10) 423,062 2.7
James T. Anderson(6)(10) 44,754 *
John M. Rutledge(7)(10) 91,716 *
Howard T. Wall III(8)(10) 6,964 *
A.E. Brim(9) 41,412 *
305 N.E. 102d Ave
Portland, OR 97020
Michael T. Willis 10,000 *
Metamor Worldwide, Inc.
4400 Post Oak Pkwy #1130
Houston, TX 77027-3413
David L. Steffy(10) 60,000 *
J.&W. Seligman & Co. 1,805,132 11.4
Incorporated(11)
100 Park Avenue
New York, NY 10017
Pilgrim Baxter & Associates, Ltd.(12) 1,407,600 8.9
825 Duportail Road
Wayne, PA 19087
Dresdner RCM Global Investors LLC(13) 901,250 5.7
Four Embarcadero Center
San Francisco, CA 94111
Chartwell Investment Partners(14) 819,592 5.2
1235 Westlakes Drive, Suite 330
Berwyn, PA 19312
Steven P. Taylor(15) 156,739 *
305 NE 102d Ave.
Portland, OR 97202
All executive officers and
directors as a group (12
persons)(16) 3,659,422 23.1%
</TABLE>
- ------------------------
* Less than 1%
10
<PAGE> 14
(1) Includes shares of Common Stock subject to options that are currently
exercisable or will be exercisable within 60 days of April 1, 1999.
(2) Based on 15,722,743 shares issued and outstanding as of April 1, 1999.
Shares of Common Stock subject to options that are currently
exercisable or will be exercisable within 60 days of April 1, 1999 are
considered to be outstanding for the purpose of determining the percent
of the shares held by a holder, but not for the purpose of computing
the percentage held by others.
(3) Includes 2,301,258 shares held by Golder, Thoma, Cressey, Rauner Fund
IV, L.P. ("GTCR Fund IV"). Golder, Thoma, Cressey, Rauner, Inc.
("GTCR") is the general partner of GTCR IV, L.P., which in turn is the
general partner of GTCR Fund IV. As a principal of GTCR, Mr. Rauner may
be deemed to share the power to vote and dispose of the shares held by
GTCR Fund IV. Mr. Rauner disclaims beneficial ownership of the shares
of Common Stock owned by GTCR Fund IV. Mr. Rauner also owns 17,374
shares individually. The address for Mr. Rauner is the same address
shown for GTCR Fund IV.
(4) Includes 2,301,258 shares held by GTCR Fund IV. GTCR is the general
partner of GTCR IV, L.P., which in turn is the general partner of GTCR
Fund IV. As a principal of GTCR, Mr. Nolan may be deemed to share the
power to vote and dispose of the shares held by GTCR Fund IV. Mr. Nolan
disclaims beneficial ownership of the shares of Common Stock owned by
GTCR Fund IV. Mr. Nolan also owns 6,685 shares individually. The
address for Mr. Nolan is the same address shown for GTCR Fund IV.
(5) Includes 614,968 shares owned directly by Mr. Rash and 769 shares owned
by the Emily Rash Trust Fund.
(6) Includes options to purchase 16,754 shares granted under the Company's
1997 Plan.
(7) Includes options to purchase 51,716 shares granted under the Company's
1997 Plan.
(8) Includes options to purchase 3,964 shares granted under the Company's
1997 Plan.
(9) Includes 40,046 shares held of record by Brim Capital Corporation, and
options to purchase 1,366 shares owned by Mr. Brim individually.
(10) The address of each of Messrs. Rash, Gore, Anderson, Rutledge, Steffy
and Wall is 105 Westwood Place, Suite 400, Nashville, TN 37027.
(11) Includes shares owned directly by Mr. William C. Morris, owner of a
majority of the outstanding voting securities of J.&W. Seligman & Co.
Incorporated. Information is as of December 31, 1998 and is derived
from a Schedule 13G/A filed with the Securities and Exchange Commission
on February 10, 1999.
(12) Information is as of December 31, 1998 and is derived from a Schedule
13G filed with the Securities and Exchange Commission on February 9,
1999.
(13) Information is as of December 31, 1998 and is derived from a Schedule
13G filed with the Securities and Exchange Commission on February 16,
1999.
(14) Information is as of December 31, 1998 and is derived from a Schedule
13G filed with the Securities and Exchange Commission on February 16,
1999.
(15) Mr. Taylor resigned from the Company in December 1997. However, SEC
rules require inclusion of his share ownership in this table based on
his status in 1998 as a "named executive officer" pursuant to Item
402(a)(3) of Regulation S-K. The number of shares shown as beneficially
owned by Mr. Taylor is based solely upon information currently
available to the Company.
(16) Includes options to purchase up to 89,209 shares, in the aggregate,
under the Company's 1997 Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own more
than 10% of the Common Stock to file with the SEC initial reports of ownership
and reports of changes in ownership of the Common Stock. These officers,
directors and shareholders also are required by SEC rules to furnish the Company
with copies of all Section 16(a) reports they file. There are specific dates by
which these reports are to be filed and the Company is required to report in
this Proxy Statement any failure to file reports as required during 1998.
Based solely upon review of the reports furnished to the Company and
written representations that no other reports were required, the Company
believes that these reporting and filing requirements were complied with during
1998, except that the Company has been advised that James Thomas Anderson
purchased 8,000 shares of the Company's Common Stock on November 4, 1998. Mr.
Anderson did not report this purchase on a Form 4 by December 10, 1998, but
subsequently reported it on a Form 5 filed January 29, 1999.
11
<PAGE> 15
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company and
its subsidiaries in 1996, 1997 and 1998 to: (i) the Company's Chief Executive
Officer; and (ii) the Company's four other most highly compensated executive
officers as of December 31, 1998 and the Company's former Senior Vice President
of Acquisitions and Development, who resigned in December 1997 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term All Other
Annual Compensation Compensation Compensation
------------------- ------------ ------------
Securities
Name and Principal Position Year Salary Annual Bonus Underlying Options
- --------------------------- ---- ------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Martin S. Rash(1) 1998 $299,729 $0 0 $22,373
President, Chairman and 1997 261,458 130,729 0 15,333
Chief Executive Officer 1996 229,166 114,583 0 0
Richard D. Gore(2) 1998 241,689 0 0 23,804
Executive Vice President 1997 181,205 90,602 0 10,236
and Chief Financial Officer 1996 123,958 61,979 0 0
John M. Rutledge(3) 1998 238,005 0 40,000 14,520
Senior Vice President 1997 172,005 86,002 109,290 9,959
and Chief Operating Officer 1996 7,167 0 0 0
James T. Anderson(4) 1998 243,598 90,000 83,770 31,373
Senior Vice President 1997 0 0 0 0
of Acquisition and 1996 0 0 0 0
Development
Howard T. Wall III(5) 1998 213,750 0 37,322 10,887
Senior Vice President, 1997 53,308 26,654 0 0
General Counsel 1996 0 0 0 0
Steven P. Taylor(6) 1998 14,666 314,000 0 356,113
Former Senior Vice President 1997 193,166 88,000 13,661 10,595
of Acquisitions and 1996 196,027 48,180 0 6,436
Development
</TABLE>
- -----------------------
(1) Mr. Rash was compensated at an annual salary of $250,000 in 1996, and
he joined Principal Hospital Company ("PHC") (predecessor-in-interest
by merger to the Company) upon its formation in February 1996 and
became the Company's Chief Executive Officer in December 1996. All
other compensation for 1998 included Company contributions of $4,800
under a 401(k) plan, $12,911 under a supplemental deferred compensation
plan, $750 for Company-paid life insurance and $3,912 for Company-paid
disability insurance. All other compensation for 1997 included Company
contributions of $4,800 under a 401(k) plan, $7,897 under a
supplemental deferred compensation plan, $740 for Company-paid life
insurance and $1,946 for Company-paid disability insurance.
(2) Mr. Gore was compensated at an annual salary of $175,000 in 1996, and
he joined PHC in April 1996 and became the Company's Executive Vice
President and Chief Financial Officer in December 1996. All other
compensation for 1998 included Company contributions of $4,800 under a
401(k) plan, $9,969 under a supplemental deferred compensation plan,
$8,760 for Company-paid disability insurance and $275 for membership
fees in a health club.
(3) Mr. Rutledge was compensated at an annual salary of $172,000 in 1996,
and he joined the Company in December 1996. All other compensation for
1998 included Company contributions of $4,800 under a 401(k) plan and
$9,720 under a supplemental deferred compensation plan.
12
<PAGE> 16
(4) Mr. Anderson's annual bonus, unlike the other named executive officers'
annual bonuses, is based exclusively on completed acquisitions. All
other compensation for 1998 included $18,440 in loan interest,
contributions of $3,525 under a 401(k) plan and $9,408 under a
supplemental deferred compensation plan.
(5) All other compensation for 1998 included Company contributions of
$3,375 under a 401(k) plan and $7,212 under the supplemental deferred
compensation plan in 1998 and $300 for membership fees in a health
club.
(6) Mr. Taylor resigned from the Company in December 1997. Mr. Taylor was
paid the remaining portion of his employment agreement in 1998. All
other compensation for 1998 included $330,941 in severance, Company
contributions of $4,800 under a 401(k) plan and $20,372 under a
supplemental deferred compensation plan.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding
grants of stock options under the 1997 Plan made to the Named Executive
Officers during the year ended December 31, 1998. No stock appreciation
rights have been granted under the 1997 Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PER SHARE(1) DATE 5% 10%
- -------------------- ------------ ------------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Rash 0 0% --- --- $0.00 $0.00
Richard D. Gore 0 0% --- --- $0.00 $0.00
John M. Rutledge 40,000 6.3% $16.00 February 10, 2008 $646,800.00 $1,409,200.00
James T. Anderson 10,000 1.6% $16.00 February 10, 2008 $161,700.00 $352,300.00
73,770 11.6% $16.00 February 10, 2008 $1,192,861.00 $2,598,917.00
Howard T. Wall III 27,322 4.3% $16.00 February 10, 2008 $441,797.00 $962,554.00
10,000 1.6% $16.00 February 10, 2008 $161,700.00 $352,300.00
Steven P. Taylor 0 0% --- --- $0.00 $0.00
</TABLE>
- ----------------
(1) Based upon the fair market value of the Common Stock on the date of
grant of options, as determined by the Company's Board of Directors.
(2) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission. There can be no assurance provided to any Named Executive
Officer or any other holder of the Company's securities that the actual
stock price appreciation over the term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of
the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the Named Executive Officers.
13
<PAGE> 17
OPTION EXERCISES AND YEAR-END VALUES
The following table provides certain information with respect to the
Named Executive Officers concerning the exercise of options during 1998 and with
respect to unexercised options at December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at December 31, Value of Unexercised In-the-Money
1998 Options at December 31, 1998(1)
--------------------------- ---------------------------------
Shares Acquired
Name Exercise on Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Rash - - - - - -
Richard D. Gore - - - - - -
John M. Rutledge - - 43,716 105,574 $1,368,042 $2,847,138
James T. Anderson - - - 83,770 - $1,664,929
Howard T. Wall III 3,500 $69,563 1,964 31,858 $39,035 $633,178
Steven P. Taylor - - - - - -
</TABLE>
- -------------------------
(1) Based upon the closing price of the Common Stock of $35.875 per share as
reported on the Nasdaq National Market on December 31, 1998, less the
exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company entered into Senior Management Agreements with Messrs. Rash
and Gore effective as of December 17, 1996. Messrs. Rash and Gore are the
Company's Chief Executive Officer and Chief Financial Officer, respectively, and
currently receive annual base salaries determined by the Company's Board of
Directors (the "Board") which will be adjusted by the Compensation Committee.
Mr. Rash's annual base salary may not be less than $250,000 and Mr. Gore's
salary may not be less than $175,000. Each will be eligible to receive a bonus
each year of up to fifty percent (50%) of his annual base salary for such year,
based on the achievement of certain operational and financial objectives. Their
employment periods continue until their resignation, disability, or death, or
until the Board determines that termination of their employment is in the best
interests of the Company. In the event Mr. Rash's or Mr. Gore's employment is
terminated by the Company without cause or as a result of death or disability,
the Company has agreed to pay to such executive an amount equal to twice his
annual base salary; provided that such severance payments cease upon acceptance
of employment with an entity that owns and operates rural hospitals. Messrs.
Rash and Gore have agreed not to compete with the Company or solicit Company
employees following the termination of their employment for a period of two
years in the case of Mr. Rash, or one year in the case of Mr. Gore.
The Company entered into an Employment Agreement with Mr. Brim
effective as of December 17, 1996. Mr. Brim receives an annual base salary of
$121,680, to be increased in accordance with increases in the salary of
similarly situated executives of the Company. Mr. Brim also is entitled to an
automobile and expense allowance, and the Company pays certain club dues on his
behalf. Mr. Brim's agreement terminates on the earliest to occur of his death,
permanent disability, termination for cause, voluntary termination or December
17, 1999. In the event that Mr. Brim's employment is terminated without cause,
the Company has agreed to pay him an amount equal to his base salary. Mr. Brim
has agreed not to compete with the Company or to solicit Company employees
during the term of his employment, and has agreed not to disclose confidential
information regarding the Company.
14
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently is composed of Messrs. Brim, Nolan
and Willis. Mr. Brim served as Chairman and Chief Executive Officer of Brim,
Inc. until the merger with Principal Hospital Company (predecessor-in-interest
by merger to the Company) in December 1996, and he is currently an employee of
the Company. See "Executive Compensation -- Employment Agreements" for a
description of Mr. Brim's employment agreement. Mr. Nolan is currently a
Principal of GTCR Golder Rauner, LLC.
No executive officer of the Company served as a member of the
Compensation Committee or as a director of any other entity whose executive
officer serves as a director of the Company.
15
<PAGE> 19
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee pursuant to the rules
adopted by the SEC which require disclosure with respect to compensation
policies applicable to the Company's executive officers (including the Named
Executive Officers), and with respect to the basis for the compensation of
Martin S. Rash as the Company's Chief Executive Officer. Generally, the
Compensation Committee is responsible for establishing and administering the
Company's executive compensation policies and programs within the framework and
strategy approved by the Board of Directors.
Compensation Strategy
The Company has developed and implemented a strategic compensation strategy
designed to improve its ability to attract, retain, and motivate superior
executive talent. The foundation of this strategy is a belief that executive and
shareholder interests should be aligned through the extensive use of variable
compensation opportunities, including both annual and long-term incentives. To
this end, the Company targets base salaries at the median market level based on
comparable positions in comparable organizations, and relies exclusively on
annual and long-term incentives to provide total compensation opportunities at
the 75th percentile market level when superior performance is achieved. This
highly-leveraged compensation mix is consistent with other growth companies, and
allows for executive compensation levels to move in tandem with changes in
shareholder value over time.
Compensation Program
The Company currently has three primary components to its executive compensation
program:
Base Salary. The Company believes that base salary ranges should reflect the
competitive employment market at the 50th percentile (median) for comparable
positions in comparable organizations. Individual base salary levels are
established based on these guidelines, with potential adjustments to reflect any
unique roles and responsibilities and/or the performance of the individual.
Annual increases to base salary are determined by an annual assessment of each
executive's performance, and are limited by the salary budget for the Company.
For the year ended December 31, 1998, aggregate base salary levels for officers
of the Company increased from $798,250 to $1,058,000, representing an average
annual increase in compensation of 34% per officer.
Annual Incentives. The Company believes that incentive compensation programs
should be designed to provide superior pay for superior performance.
Accordingly, the Company targets total cash compensation levels (base salary
plus annual incentives) at the 75th percentile of the competitive market when
superior performance is achieved. For the year ended December 31, 1998, Mr.
Anderson earned annual incentive compensation awards of $90,000, representing an
average incentive equal to 37% of his base salary. Mr. Anderson's annual
incentive award was based exclusively on completed acquisitions for the
Company's acquisition and development program. With respect to the other Named
Executive Officers, their bonuses are based on various other factors, including
budgeted earnings and growth targets for the entire Company as set in the
beginning of each year by the compensation committee. While the Company met its
own internal earnings and growth targets for 1998, it did not exceed such
targets sufficiently to qualify the Named Executive Officers for an annual bonus
for 1998 as provided by the compensation program.
Target award opportunities for the officers of the Company under the Company's
1999 annual incentive compensation plan range from 50% to 75% of their
respective base salary levels. Actual
16
<PAGE> 20
incentive awards earned under the program can be higher or lower than targeted
levels based on actual net income performance at the end of the year relative to
budgeted net income performance at the beginning of the year.
Long-Term Incentive. The Company believes that the interests of executives
should be aligned with the interests of shareholders through the use of
equity-based compensation. Accordingly, the Company makes periodic grants of
stock options to key executives in order to align compensation opportunities
with the creation of shareholder value. During the year ended December 31, 1998,
Messrs. Anderson, Rutledge and Wall received option grants of 83,770 shares,
40,000 shares, and 37,322 shares, respectively. This represents approximately
25% of total options granted to all employees during the year ended December 31,
1998.
Stock option grant levels in 1999 will be determined using the Black-Scholes
Option Pricing Model ("Black-Scholes") and are based on targeting total direct
compensation (total cash compensation plus long-term incentives) opportunities
at the 75th percentile market levels for comparable organizations.
CEO Compensation in 1998
The compensation program for the Chief Executive Officer falls within the
general compensation strategy, framework, and guidelines established for all
executive officers of the Company, with specific compensation levels and award
opportunities established by the Compensation Committee and approved by the
Board.
For the year ended December 31, 1998, Mr. Rash's base salary was set at
$312,000, representing a 19.3% increase over his base salary for 1997. This base
salary level is believed to be competitive at the 50th percentile for CEO's of
similarly sized companies in the healthcare industry (based on the review of
published survey sources and peer company data) and reflective of the Company's
performance.
For the year ended December 31, 1998, Mr. Rash, like all the other Named
Executive Officers of the Company (other than Mr. Anderson), did not receive an
annual bonus for 1998. While the Company met its own internal earnings and
growth targets for 1998, it did not exceed such targets sufficiently to qualify
the Named Executive Officers for an annual bonus for 1998, as provided by the
compensation program administered by the Compensation Committee.
During the year ended December 31, 1998, Mr. Rash was granted no stock options.
Internal Revenue Code Section 162(m)
The Committee believes that all compensation paid to officers of the Company
during the year ended 1998 qualified for deductibility under Section 162(m) of
the Internal Revenue Code.
COMPENSATION COMMITTEE
A.E. Brim, Chairman
Joseph P. Nolan
Michael T. Willis
17
<PAGE> 21
COMPARATIVE PERFORMANCE GRAPH
Rules promulgated by the SEC require that the Company include in this
Proxy Statement a line graph which compares the yearly percentage change in
cumulative total shareholder return on the Company's Common Stock with (a) the
performance of a broad equity market indicator, the CRSP Index for Nasdaq Stock
Market (U.S. Companies) (the "Broad Index") and (b) the performance of a
published industry index or peer group index, the CRSP Index for hospital
companies (SIC 8060-8069) (U.S. Companies) (the "Industry Index"). The following
graph compares the yearly percentage change in the return on the Company's
Common Stock since February 11, 1998, the date on which the Company's Common
Stock first began trading on the Nasdaq National Market, with the cumulative
total return on the Broad Index and the Industry Index. The graph assumes the
investment of $100 in the Company's Common Stock on February 11, 1998, the
investment of $100 in the Broad Index and the Industry Index on February 11,
1998, and that with respect to each hypothetical investment, all dividends were
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE PERIOD ENDING DECEMBER 31, 1998
[LINE CHART]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CRSP TOTAL RETURNS INDEX FOR: 2/11/98 2/27/98 3/31/98 6/30/98 9/30/98 12/31/98
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PROVINCE HEALTHCARE $100.000 $105.063 $132.911 $140.190 $172.468 $181.645
COMPANY
- ------------------------------------------------------------------------------------------------
NASDAQ STOCK MARKET 100.000 103.577 107.381 110.363 99.925 129.295
(US COMPANIES)
- ------------------------------------------------------------------------------------------------
NYSE/AMEX/NASDAQ STOCKS 100.000 106.984 115.625 109.763 81.581 91.764
(SIC 8060-8069 US
COMPANIES) HOSPITALS
- ------------------------------------------------------------------------------------------------
</TABLE>
A. The lines represent monthly index levels derived form compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding day is used.
D. The index level for all series was set to $100.00 on 2/11/98.
18
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE
In February 1998, of the estimated $67.4 million in net proceeds from
the Company's initial public offering, $22.7 million was used to redeem all of
the outstanding shares of the Senior Preferred Stock, which was held by Leeway &
Co. In addition, in connection with the offering, all outstanding shares of
Junior Preferred Stock were converted into shares of Common Stock based on the
liquidation value of the Junior Preferred Stock and the initial public offering
price, and the Company used a portion of the proceeds from the offering to
repurchase from GTCR Fund IV and Leeway & Co. the shares of Common Stock which
were issued upon conversion of 13,636 of their shares of Junior Preferred Stock
for an aggregate purchase price of $14.9 million. Dividends accrued daily at a
rate of 11.0% per annum on the Senior Preferred Stock and 8.0% per annum on the
Junior Preferred Stock since the date of issuance. Since such repurchase, the
Common Stock is the Company's only outstanding voting stock.
EXECUTIVE NOTES
In December 1996, Brim, Inc. (a predecessor-in-interest by merger to
the Company) ("Brim") was recapitalized (the "Recapitalization"). In connection
with the Recapitalization, the Company loaned $112,956 to Mr. Rash and $67,768
to Mr. Gore pursuant to two promissory notes, respectively (the "Executive
Notes"). In addition, in connection with the Recapitalization, Mr. Gore borrowed
an additional $211,200 from the Company pursuant to a demand note (the "Demand
Note") which was subsequently repaid. The Company loaned such amounts to Messrs.
Rash and Gore to finance a portion of their purchase of the Company's securities
pursuant to the Recapitalization. The Executive Notes and the Demand Note bear
interest at a rate per annum equal to the lesser of: (i) the rate designated in
The Wall Street Journal as the "prime rate" and (ii) the highest rate permitted
by applicable law. The principal amount of the Executive Notes and all interest
accrued thereon mature on December 17, 2002. The Executive Notes may be prepaid
in whole or in part at any time.
PROFESSIONAL SERVICES AGREEMENT
The Company had a Professional Services Agreement with Golder, Thoma,
Cressey, Rauner, Inc. pursuant to which Golder, Thoma, Cressey, Rauner, Inc.
provided financial and management consulting services. Under this agreement,
Golder, Thoma, Cressey, Rauner, Inc. received an annual management fee of
$200,000 and a fee of 1.25% of the amount of debt and equity investments, for
their assistance in obtaining such investments. During 1996 and through
September 30, 1997, PHC and the Company had paid or accrued an aggregate of $1.4
million and $149,590, respectively, in fees under the agreement. The
Professional Services Agreement was terminated effective as of February 17,
1998, pursuant to a Termination Agreement, dated March 26, 1998.
STOCKHOLDERS AGREEMENT AND SENIOR MANAGEMENT AGREEMENTS
In connection with the Recapitalization, and in addition to becoming
parties to the Stockholders Agreement, dated December 17, 1996, Messrs. Rash and
Gore entered into Senior Management Agreements with the Company, GTCR Fund IV
and Leeway & Co. (as amended, the "Executive Agreements"). The Executive
Agreements provide that a portion of the Common Stock purchased by each of
Messrs. Rash and Gore is subject to vesting (the "Vesting Shares"). Upon
completion of the Company's initial public offering in February 1998, 50% of the
Vesting Shares became vested, and the
19
<PAGE> 23
remaining Vesting Shares will become vested in equal installments on the first
three anniversaries of the completion of the offering. Unvested shares are
subject to repurchase by the Company (or, if the Company does not elect to
repurchase such shares, by GTCR Fund IV) at their original cost upon termination
of executive's employment with the Company for any reason. For purposes of
determining earnings per share, 100% of the Common Stock purchased by Messrs.
Rash and Gore is considered outstanding. The Executive Agreements entitle the
Company and GTCR Fund IV to repurchase from each of Messrs. Rash and Gore upon
the termination of his employment: (i) Junior Preferred Stock and vested Common
Stock at a price equal to fair market value; and (ii) unvested Common Stock at a
price equal to original cost. The Stockholders Agreement entitles the Company
and GTCR Fund IV to repurchase shares of the Common Stock and Junior Preferred
Stock from an employee stockholder upon the termination of such employee's
employment by the Company at a price equal to fair market value. The
Stockholders Agreement and the Executive Agreements also contain restrictions on
the transfer of the Company's securities. Pursuant to the Stockholders
Agreement, the stockholders agree to consent to and participate in any sale of
the Company approved by the Board and by the holders of a majority of the Common
Stock. The Stockholders Agreement and the portions of the Executive Agreements
which restrict the transfer of the Company's securities were terminated in
February 1998 in connection with the Company's initial public offering.
REGISTRATION AGREEMENT
In connection with the Recapitalization, the stockholders of Brim at
such time (the "Original Stockholders") entered into a Registration Agreement
with Brim (the "Registration Agreement"). The Registration Agreement provides
for certain demand registration rights to the Original Stockholders, and to
subsequent holders of the Common Stock acquired by the Original Stockholders in
connection with the Recapitalization. The demand registration rights commence
from and after the 180th day after the closing of the Company's initial public
offering of its securities. The holders of a majority of the registrable
securities held by the Original Stockholders (and their permitted transferees)
other than Leeway & Co. are entitled to request two long-form registrations in
which the Company pays all registration expenses and an unlimited number of
short-form registrations in which the Company pays all registration expenses.
Such holders are also entitled to request an unlimited number of long-form
registrations in which holders of registrable securities pay their pro-rata
share of registration expenses. The holders of a majority of the registrable
securities held by Leeway & Co. (and their permitted transferees) are entitled
to request one long-form registration in which the Company pays all registration
expenses and an unlimited number of long-form registrations in which the holders
of registrable securities pay their share of registration expenses. The Company
is entitled to postpone a demand registration for up to one year under certain
circumstances, and is not required to effect a demand registration within one
year of a previous registration in which holders of registrable securities
participated without reduction of the number of their included shares.
The Registration Agreement also provides that, subject to certain
limitations, the Original Stockholders (and their permitted transferees) may
request inclusion of their shares in a registration of securities by the Company
(other than pursuant to the initial public offering of Common Stock or a demand
registration). Expenses incurred in connection with the exercise of such
piggyback registration rights are borne by the Company.
20
<PAGE> 24
GENERAL INFORMATION
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2000 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices at 105 Westwood Place, Suite 400, Brentwood, Tennessee 37027
no later than December 18, 1999, in order to be included in the proxy statement
and form of proxy for that meeting.
The deadline for delivering to the Company notice of shareholder
proposals, other than proposals to be included in the proxy statement, for the
2000 Annual Meeting of Shareholders will be March 2, 2000, pursuant to Rule
14a-4 under the Securities Exchange Act of 1934. The persons named as proxies in
the proxy statement may exercise discretionary voting authority with respect to
any matter that is not submitted to the Company by such date.
COUNTING OF VOTES
All matters specified in this Proxy Statement that are to be voted on
at the Annual Meeting will be by written ballot. Inspectors of election will be
appointed to, among other things, determine the number of shares outstanding,
the shares represented at the Annual Meeting, the existence of a quorum and the
authenticity, validity and effect of proxies, to receive votes of ballots, to
hear and determine all challenges and questions in any way arising in connection
with the right to vote, to count and tabulate all votes and to determine the
result. Each item presented herein to be voted on at the Annual Meeting must be
approved by the affirmative vote of the holders of the number of shares
described under each such item. The inspectors of election will treat shares
represented by proxies that reflect abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of "votes cast."
Inspectors of election will treat shares referred to as "broker
non-votes" as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. However, for purposes of determining the
outcome of any matter as to which the broker has physically indicated on the
proxy that it does not have discretionary authority to vote, those shares will
be treated as not present and not entitled to vote with respect to that matter
(even though those shares are considered entitled to vote for quorum purposes
and may be entitled to vote on other matters).
MISCELLANEOUS
The Company will bear the cost of printing, mailing and other expenses
in connection with this solicitation of proxies and will also reimburse brokers
and other persons holding shares in their names or in the names of nominees for
their expenses in forwarding this proxy material to the beneficial owners of
such shares. Certain of the directors, officers and employees of the Company
may, without any additional compensation, solicit proxies in person or by
telephone.
Management of the Company is not aware of any matters other than those
described above which may be presented for action at the meeting. If any other
matters properly come before the Annual Meeting, it is intended that the proxies
will be voted with respect thereto in accordance with the judgment of the person
or persons voting such proxies subject to the direction of the Board of
Directors.
A copy of the Company's 1998 Annual Report to Shareholders is being
mailed along with this Proxy Statement.
21
<PAGE> 25
FOR INFORMATION CONCERNING THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SEC, AVAILABLE TO
SHAREHOLDERS FREE OF CHARGE, PLEASE WRITE: HOWARD T. WALL III, ESQ., SECRETARY
AND GENERAL COUNSEL, PROVINCE HEALTHCARE COMPANY, 105 WESTWOOD PLACE, SUITE 400,
BRENTWOOD, TENNESSEE 37027.
By order of the Board of Directors,
Howard T. Wall III, Esq.
Secretary
April 16, 1999
22
<PAGE> 26
APPENDIX A
SECOND AMENDMENT TO THE
PROVINCE HEALTHCARE COMPANY
1997 LONG-TERM EQUITY INCENTIVE PLAN
THIS AMENDMENT (the "Amendment") to the Province Healthcare Company
1997 Long-Term Equity Incentive Plan (the "Plan") is made by Province Healthcare
Company (the "Company"), to be effective on March 31, 1999.
RECITALS:
WHEREAS, the Company originally established the Plan effective March 3,
1997, and amended the Plan, effective March 24, 1998, to establish the number of
shares of common stock that are available to be awarded under the Plan as
affected by the reorganization of the Company;
WHEREAS, the Company has granted options hereunder to certain
individuals to purchase shares of Common Stock and, having expanded its business
operations substantially, deems it necessary, appropriate and desirable to
increase the number of shares of Common Stock available under the Plan by
1,400,000 shares to enable the Company to continue to provide meaningful
performance incentives to its employees; and
WHEREAS, the Company intends to seek shareholder approval of this
amendment to the Plan at the next annual meeting of shareholders;
NOW, THEREFORE, pursuant to action of the board of directors of the
Company taken on March 31, 1999, the Plan is amended as follows:
1. The first paragraph of Section 4 of the Plan is restated as follows:
An aggregate of 2,609,016 shares of Common Stock (the
"Shares") may be issued pursuant to the Plan. Such Shares may be in
whole or in part authorized and unissued, or shares which are held by
the Company as treasury shares. If any grant under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited as to any
Shares, such unpurchased or forfeited Shares shall thereafter be
available for further grants under the Plan. In any one calendar year,
the Committee shall not grant to any one participant, options to
purchase a number of shares of Common Stock in excess of 114,754. The
number of shares of Common Stock referenced in this paragraph are
subject to adjustment as provided in Section 15.
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this Amendment to the Plan pursuant to authorization from the Company on this
31st day of March, 1999, but to be effective as provided herein.
PROVINCE HEALTHCARE COMPANY
By: _______________________________
Its: _______________________________
<PAGE> 27
Appendix B
PROXY CARD
PROVINCE HEALTHCARE COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Martin S. Rash and Richard D. Gore, and
either of them, as proxies, with full power of substitution and resubstitution,
to vote all of the shares of Common Stock which the undersigned is entitled to
vote at the 1999 Annual Meeting of Shareholders of Province Healthcare Company,
to be held on Thursday, May 20, 1999, at 9:00 a.m. (Central Daylight Time) at
The Holiday Inn, 760 Old Hickory Boulevard, Brentwood, Tennessee 37027, and at
any adjournment thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED
AS SPECIFIED. IF NOT OTHERWISE SPECIFIED, THE ABOVE NAMED PROXIES WILL VOTE (A)
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED BELOW, (B) FOR APPROVAL OF
THE AMENDMENT TO THE PROVINCE HEALTHCARE COMPANY 1997 LONG-TERM EQUITY INCENTIVE
PLAN, (C) FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS, AND (D) IN ACCORDANCE WITH THE RECOMMENDATIONS
OF THE BOARD OF DIRECTORS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(Continued on reverse side)
<PAGE> 28
1. Election of Directors, Nominees: Martin S. Rash, Bruce V. Rauner, Joseph P.
Nolan, A. E. Brim, Michael T. Willis and David L. Steffy.
[ ] FOR nominees listed [ ] WITHHOLD AUTHORITY to
(except withheld to the vote for any nominee(s).
contrary) Write name of nominee(s) below:
-------------------------------------------------------------------
2. Proposal to amend the Province
Healthcare Company 1997 Long-Term
Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the
appointment of Ernst & Young LLP
as the Company's independent
auditors for the fiscal year
ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: , 1999
----------------------
-----------------------------------
Signature
-----------------------------------
Signature, if held jointly
IMPORTANT: Please sign exactly as
your name or names appear on this
proxy and mail promptly in the
enclosed envelope. If you sign as
agent or in any other capacity,
please state the capacity in which
you sign.
[ ] I EXPECT TO ATTEND THE ANNUAL MEETING.
[ ] I DO NOT EXPECT TO ATTEND THE ANNUAL MEETING.
