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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TENET HEALTHCARE CORPORATION
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(Name of Registrant as Specified In Its Charter)
SCOTT M. BROWN
TENET HEALTHCARE CORPORATION
3820 STATE STREET
SANTA BARBARA, CALIFORNIA 93105
(805) 563-7000
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
------------------------------------------------------------------------
*Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / 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:
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TENET HEALTHCARE CORPORATION
MAILING ADDRESS:
P.O. BOX 31907
3820 STATE STREET SANTA BARBARA, CALIFORNIA 93130
SANTA BARBARA, CALIFORNIA 93105 (805) 563-7000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, SEPTEMBER 25, 1996
August 26, 1996
To our Shareholders:
The Annual Meeting of Shareholders of Tenet Healthcare Corporation (the
"Company") will be held on Wednesday, September 25, 1996, at 10:00 a.m., Pacific
Daylight Time, in the Arcadia Ballroom, Loews Santa Monica Beach Hotel, 1700
Ocean Avenue, Santa Monica, California, 90401, for the following purposes:
1. To elect three directors for terms of three years each;
2 To ratify the selection of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending May 31, 1997; and
3. To transact such other business as properly may come before the
meeting.
Only shareholders of record at the close of business on August 12, 1996 (the
record date) will be entitled to vote at the meeting and any adjournments
thereof.
PLEASE PROMPTLY VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. This will
ensure that your shares are voted in accordance with your wishes and that a
quorum will be present. You are cordially invited to attend the meeting, and you
may vote in person even though you have returned your proxy card.
SCOTT M. BROWN
SECRETARY
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PROXY STATEMENT
GENERAL INFORMATION
August 26, 1996
Your proxy is solicited by the Board of Directors (the "Board") of Tenet
Healthcare Corporation ("Tenet" or the "Company") for use at the Annual Meeting
of Shareholders ("Annual Meeting") to be held on Wednesday, September 25, 1996,
and any adjournments thereof, for the purposes set forth in the foregoing Notice
of Annual Meeting of Shareholders. This Proxy Statement and the accompanying
proxy are being mailed on or about August 27, 1996.
If the proxy is properly executed and returned, the shares it represents will be
voted at the meeting in accordance with the instructions noted thereon. If no
direction is indicated, the proxy will be voted in accordance with the Board's
recommendations as set forth herein. Any shareholder executing a proxy has the
power to revoke it at any time before it is voted. Any proxy may be revoked at
any time prior to its exercise by filing with the Secretary of the Company a
written notice of revocation, by delivering a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person. The Board
knows of no unspecified matters to be voted upon at the Annual Meeting.
Only shareholders of record at the close of business on August 12, 1996, are
entitled to receive notice of and to vote at the Annual Meeting. On August 12,
1996, Tenet had outstanding 216,285,437 shares of common stock, each of which is
entitled to one vote. The presence, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on such date is necessary to
constitute a quorum at the Annual Meeting. Abstentions (including instructions
to withhold authority to vote for one or more nominees) and broker non-votes
will be counted for purposes of determining the presence or absence of a quorum,
but will not be counted as votes cast except as otherwise provided herein.
The cost of solicitation of proxies by the Board will be borne by the Company.
The Company has engaged Kissel-Blake Inc. ("Kissel-Blake") to assist in the
solicitation of proxies for the meeting. The Company will pay Kissel-Blake
$13,000 in fees for its services and will reimburse it for its reasonable out-
of-pocket expenses. In addition to solicitation by mail and by Kissel-Blake,
proxies may be solicited by directors, executive officers and employees of the
Company personally or by telephone or telegram. Forms of proxy material also may
be distributed through brokers, custodians and other like parties to the
beneficial owners of the Company's common stock, and the Company may reimburse
such parties for their reasonable out-of-pocket and clerical expenses incurred
in connection therewith.
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1. DIRECTORS AND NOMINEES
Jeffrey C. Barbakow
Chairman and Chief Executive Officer
Chairman of Executive Committee and
Member of Nominating Committee
Age: 52
Mr. Barbakow was elected by the Board to serve as Chief Executive Officer and
President of Tenet effective June 1, 1993. Effective July 28, 1993, Mr. Barbakow
was elected Chairman of the Board, at which time he relinquished the office of
President. Prior to June 1, 1993, Mr. Barbakow served as a Managing Director of
Donaldson, Lufkin & Jenrette Securities Corporation, a position he held from
September, 1991 through May 31, 1993. From 1988 until 1991, Mr. Barbakow served
as Chairman, President and Chief Executive Officer of MGM/UA Communications,
Inc. Prior to October 1988, Mr. Barbakow served as a Managing Director of
Merrill Lynch Capital Markets and an executive officer of several Merrill Lynch
affiliates. In addition, Mr. Barbakow served as a director of MGM Grand, Inc.
from November, 1988 through May, 1993. Mr. Barbakow has been a director since
1990. His current term as a director of Tenet expires at the 1997 Annual
Meeting.
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Michael H. Focht, Sr.
President and Chief Operating Officer
Member of Executive Committee and
Ethics and Quality Assurance Committee
Age: 53
Mr. Focht was elected by the Board to serve as Chief Operating Officer of Tenet
effective April 8, 1993, and to serve in the additional position of President
effective July 28, 1993. Mr. Focht served as Senior Executive Vice President,
Operations, of Tenet from 1991, and President and Chief Executive Officer of
Tenet's General Hospital Division from 1986. Mr. Focht joined Tenet in 1978 and
has served as a director of the Company since 1990. His current term as a
director of Tenet expires at this year's Annual Meeting.
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Bernice B. Bratter
Director
Member of Executive Committee,
Nominating Committee and Chair of
Compensation and Stock Option Committee
Age: 58
Ms. Bratter served as Executive Director of Senior Health and Peer Counseling, a
non-profit healthcare organization located in Santa Monica, California from 1980
through her retirement from that position on March 14, 1995. Ms. Bratter
currently is lecturing and serving as a consultant in the fields of
not-for-profit corporations and healthcare. Ms. Bratter has been a director of
Tenet since 1990. Her current term as a director of Tenet expires at this year's
Annual Meeting.
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Maurice J. DeWald
Director
Member of Executive Committee,
Compensation and Stock Option Committee
and Chairman of the Audit Committee
Age: 56
Mr. DeWald is Chairman and Chief Executive Officer of Verity Financial Group,
Inc., a private firm that he founded in 1993 that is involved in investment and
development projects, and President of DeWald Enterprises, a private investment
firm that he founded in 1991. From 1986 until 1990, Mr. DeWald served as
Managing Partner of the Los Angeles office of KPMG Peat Marwick LLP. Mr. DeWald
also is a director of Dai-Ichi Kangyo Bank of California and ARV Assisted
Living, Inc. Mr. DeWald has been a director since 1991. His current term as a
director of Tenet expires at the 1998 Annual Meeting.
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Peter de Wetter
Director
Member of Executive Committee
and Pension Committee
Age: 76
Mr. de Wetter served as Executive Vice President of Tenet from October, 1979
until his retirement in May, 1989. Mr. de Wetter has been a director of Tenet
since 1977. His current term as a director of Tenet expires at the 1997 Annual
Meeting.
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Edward Egbert, M.D.
Director
Member of Nominating Committee, Pension Committee
and Ethics and Quality Assurance Committee
Age: 71
Dr. Egbert retired as a physician in private practice on January 1, 1994. From
1975 to 1982, Dr. Egbert served on the Governing Board of Sierra Medical Center,
a general hospital owned and operated by one of Tenet's subsidiaries. Dr. Egbert
has been a director of Tenet since 1975. His current term as a director of Tenet
expires at the 1998 Annual Meeting.
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3
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Raymond A. Hay
Director
Member of Audit Committee,
Ethics and Quality Assurance Committee
and Chairman of Nominating Committee
Age: 68
Mr. Hay has been Chairman and Chief Executive Officer of Aberdeen Associates, a
private investment firm, since 1992. Mr. Hay held the same position with
Hay-Faulstich & Associates from 1991 through January, 1992, when its operations
were assumed by Aberdeen Associates. From 1983 until June 1991, Mr. Hay served
as Chairman and Chief Executive Officer of The LTV Corporation, which filed a
voluntary petition under Chapter 11 of the Federal Bankruptcy Code in 1986. The
petition received final approval in June, 1993. Mr. Hay has been a director of
Tenet since 1985. His current term as a director of Tenet expires at the 1998
Annual Meeting.
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Lester B. Korn
Director
Member of Executive Committee and
Compensation and Stock Option Committee
and Chairman of Pension Committee
Age: 60
Mr. Korn is Chairman and Chief Executive Officer of Korn Tuttle Capital Group, a
diversified holding company based in Los Angeles, California. Mr. Korn served as
the Chairman of Korn/Ferry International, an executive search firm which he
founded, from 1969 until May 1991, when he retired and became Chairman Emeritus.
During 1987-1988, he served as United States Ambassador to the United Nations
Economic and Social Council. Mr. Korn also serves as a director of ConAm
Properties, Ltd. Mr. Korn has been a director of Tenet since 1993. His current
term as a director of Tenet expires at this year's Annual Meeting.
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James P. Livingston
Director
Member of Audit Committee,
Ethics and Quality Assurance Committee
and Nominating Committee
Age: 70
Mr. Livingston served as an Executive Vice President of Tenet from 1977 until
his retirement in June, 1986. From 1984 until his retirement, Mr. Livingston
also served as President and Chief Executive Officer of Tenet's former Health
Products and Services Group. Mr. Livingston has been a director of Tenet since
1975. His current term as a director of Tenet expires at the 1997 Annual
Meeting.
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Thomas J. Pritzker
Director
Age: 46
Since 1980, Mr. Pritzker has been the president and a director of the
corporation that is the general partner of a limited partnership that is a
general partner of the sole general partner of GKH Investments, L.P. (the
"Partnership"). The sole general partner of the Partnership, GKH Partners, L.P.,
acted as a financial advisor to Tenet HealthSystem Holdings, Inc. (formerly
known as American Medical Holdings, Inc., "THH") in connection with the
acquisition of THH by the Company. Mr. Pritzker also has served as the Chairman
of Healthcare COMPARE Corp., a firm involved in providing medical review and
cost management services to various types of healthcare payor groups, since
1990, and President of Hyatt Corporation, a diversified company primarily
engaged in real estate and hotel management activities, since 1979. Mr. Pritzker
was elected a Director by the Board on March 29, 1995. Mr. Pritzker's current
term as a director of the Company expires at the 1998 Annual Meeting of
Shareholders.
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Richard S. Schweiker
Director
Member of Audit Committee and
Chairman of Ethics and Quality Assurance Committee
Age: 70
Mr. Schweiker served as president of the American Council of Life Insurance from
1983 until his retirement on December 31, 1994. Mr. Schweiker also serves as a
director of LabOne, Inc. Mr. Schweiker has been a director of Tenet since 1984.
From 1981 to 1983, Mr. Schweiker served as Secretary of Health and Human
Services. His current term as a director of Tenet expires at the 1997 Annual
Meeting.
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DIRECTORS BY CLASS
Class 2 (term expires at the 1996 Annual Meeting of Shareholders)
Bernice B. Bratter
Michael H. Focht, Sr.
Lester B. Korn
Class 3 (term expires at the 1997 Annual Meeting of Shareholders)
Jeffrey C. Barbakow
Peter de Wetter
James P. Livingston
Richard S. Schweiker
Class 1 (term expires at the 1998 Annual Meeting of Shareholders)
Maurice J. DeWald
Edward Egbert, M.D.
Raymond A. Hay
Thomas J. Pritzker
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NOMINEES AND VOTING
On May 22, 1996, John T. Casey and Robert W. O'Leary, who are currently
principals at other healthcare companies, resigned from the Board to avoid any
appearance of a potential conflict of business interest and to be able to devote
more time to their new ventures. On July 31, 1996, the size of the Board was
reduced from 13 to 11 directors. On July 31, 1996, the Nominating Committee met
and recommended for nomination by the Board each of Messrs. Focht and Korn and
Ms. Bratter to serve a three-year term as a director until the 1999 Annual
Meeting. After considering the Nominating Committee's actions, the Board met on
July 31, 1996, and nominated the directors recommended by the Nominating
Committee.
Directors are divided into three classes and serve for three-year
overlapping terms. Following the election of the three Class 2 directors at this
year's Annual Meeting, there will be four Class 1 directors, three Class 2
directors and four Class 3 directors. The terms of the other directors do not
expire until 1997 or 1998. Directors are to be elected by a majority of the
votes cast. Votes may not be cumulated.
The shares represented by proxies solicited by the Board will be voted,
unless otherwise directed, for Messrs. Focht and Korn and Ms. Bratter. The Board
believes each of its nominees will be able and willing to serve if elected. If
any named nominee becomes unavailable, the Board's proxies will be voted for the
remaining nominees and for such other person or persons as the Board may
recommend.
SHAREHOLDER APPROVAL
Election of the nominees by the shareholders requires the affirmative vote
of a majority of the votes cast by holders of shares entitled to vote in the
election at the Annual Meeting, provided a quorum is present. Unless marked to
the contrary, proxies will be voted "FOR" the election of the nominees at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ITS NOMINEES
FOR DIRECTORS.
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STOCK OWNERSHIP
As of August 12, 1996, ownership of common stock by all directors, all
nominees, each of the named executive officers (as defined herein on page 12)
and all executive officers and directors as a group (15 persons) was as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
----------------------------------------
OPTIONS
EXERCISABLE
SHARES OF PRIOR TO
COMMON OCTOBER 31, PERCENT OF
NAME STOCK 1996 CLASS(2)
- - ------ ----------------------------------------
<S> <C> <C> <C>
Maris Andersons (3).......................................................... 425 161,999
Jeffrey C. Barbakow (4)...................................................... 19,400 2,264,666 1.0%
Bernice B. Bratter........................................................... 11,000 10,000
Scott M. Brown............................................................... 1,790 25,500
Maurice J. DeWald............................................................ 10,800 10,000
Peter de Wetter.............................................................. 13,400 20,460
Edward Egbert, M.D........................................................... 37,952 15,460
Trevor Fetter................................................................ 21,300 76,666
Michael H. Focht, Sr......................................................... 10,000 625,976
Raymond A. Hay............................................................... 11,200 30,920
Lester B. Korn............................................................... 22,700 10,000
James P. Livingston.......................................................... 101,228 41,380
Raymond L. Mathiasen......................................................... 49,500 175,045
Thomas J. Pritzker (5)....................................................... 252,255 5,000
Richard S. Schweiker......................................................... 21,860 62,300
Executive officers and directors as a group (15 persons)..................... 584,810 3,535,372 1.9%
--
----------- ------------
</TABLE>
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(1) Except as otherwise indicated, each individual named has sole control as
to the investment and voting power with respect to the securities owned.
(2) Except as indicated, no executive officer or director beneficially owned,
including options exercisable prior to October 31, 1996, 1% or more of the
outstanding shares of common stock of the Company.
(3) Mr. Andersons is included because he was an executive officer of the
Company until March 20, 1996.
(4) The total shares of common stock includes 300 shares held by Mr.
Barbakow's minor son.
(5) Mr. Pritzker may be deemed to be a controlling stockholder of, or to have
investment control over, two corporations, and is a co-trustee of certain
trusts, which hold an aggregate of 888,277 shares of common stock. Mr.
Pritzker expressly disclaims beneficial ownership of all such shares of
common stock.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board acted 10 times during the fiscal year ended May 31, 1996. Except
for director Casey, each director participated in at least 75% of the aggregate
of meetings of the Board and the committees on which he/she served, during the
period he/she served as a director.
During fiscal year 1996, the Company's Executive Committee consisted of
employee directors Barbakow (Chairman) and Focht, and non-employee directors
Bratter, DeWald, de Wetter and Korn. The Executive Committee, which met three
times during fiscal 1996, may exercise, when the Board is not in
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session, all of the powers of the Board in the management of the business and
affairs of the Company, but may not fill vacancies on the Board, change the
membership of, or fill vacancies in, any committee of the Board, adopt, amend or
repeal the By-Laws or declare dividends.
During fiscal year 1996, the Company's Audit Committee consisted of
non-employee directors Schweiker, DeWald, Egbert (until October 24, 1995), Hay,
Casey (from until October 24, 1995 to May 22, 1996) and Livingston. On October
24, 1995, Mr. DeWald replaced Mr. Schweiker as Chairman of the Audit Committee.
The Audit Committee selects, engages on behalf of the Company (subject to the
consent of the shareholders) and fixes the compensation of, a firm of
independent certified public accountants whose duty it is to audit the books and
accounts of the Company and its subsidiaries for the fiscal year in which they
are appointed. The Audit Committee confers with the auditors and determines the
scope of the auditing of the books and accounts of the Company and its
subsidiaries. The Audit Committee also is responsible for determining that the
business practices and conduct of employees and other representatives of the
Company and its subsidiaries comply with the policies and procedures of the
Company. None of the members of the Audit Committee may be officers or employees
of the Company. The Audit Committee met five times during fiscal 1996.
During fiscal year 1996, the Company's Compensation and Stock Option
Committee (the "Compensation Committee") consisted of non-employee directors
Bratter (Chair), DeWald and Korn. Except as noted below, the Compensation
Committee has the authority to establish a general compensation policy for the
Company and has responsibility for the approval of changes in directors' fees
and compensation paid to senior officers. The Compensation Committee has all of
the powers of administration under all of the Company's employee benefit plans
(except those discussed below for which the Pension Committee is responsible),
including stock option plans, long-term incentive plans, bonus plans, deferred
compensation plans, non-qualified retirement plans, stock purchase plans and
medical, dental and insurance plans. In connection therewith, the Compensation
Committee determines (subject to the provisions of the Company's plans) the
directors, officers and employees of the Company eligible to participate in any
of the plans, the extent of such participation and the terms and conditions
under which benefits may be vested, received or exercised. None of the members
of the Compensation Committee may be officers or employees of the Company. The
Compensation Committee met 17 times in fiscal 1996.
During fiscal year 1996, the Company's Performance Investment Plan Committee
consisted of non-employee directors DeWald (Chairman) and Egbert. The committee,
which was responsible for administering the Company's Performance Investment
Plan (the "PIP"), did not meet in fiscal 1996. The PIP expired by its terms on
April 3, 1996, and the PIP Committee was dissolved at that time.
During fiscal year 1996, the Company's Nominating Committee consisted of
non-employee directors Hay (Chairman), Bratter, Egbert and Livingston and
employee director Barbakow. The Nominating Committee, which is responsible for
making recommendations to the Board regarding the qualifications of candidates
for the Board, nominees to fill vacancies on the Board and Board committees, the
director selection process, the tenure of Board members and the size,
composition and committee structure of the Board, met two times in fiscal 1996.
Nominations by shareholders will be considered by the Board if written
information concerning the proposed nominee, including the proposed nominee's
name, biographical information and a signed consent to be nominated and to serve
if elected, is submitted to the Secretary of the Company on or before May 2,
1997.
The Company's Ethics and Quality Assurance Committee consisted during fiscal
1996 of non-employee directors Schweiker (Chairman), Egbert, Hay, O'Leary (until
to May 22, 1996) and Livingston and employee director Focht. The purpose of the
committee is to present to the Board such measures and recommend such actions as
may be necessary or desirable to assist the Company in conducting its
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activities in accordance with ethical standards and in delivering quality
medical care. In addition, the
Committee also provides oversight for the Company's corporate compliance and
ethics program. The committee met three times in fiscal year 1996.
During fiscal year 1996, the Company formed a Pension Committee to have
general oversight responsibility for the Company's pension plans, 401(k)
Retirement Savings Plan (the "401(k) Plan") and other similar plans that may be
adopted in the future. During fiscal year 1996, the Pension Committee consisted
of non-employee directors Korn (Chairman), Casey (until May 22, 1996), de Wetter
and Egbert. The Pension Committee is responsible for approving investment
policies and investment managers for the Company's qualified pension plans,
reviewing actuarial information concerning the plans, monitoring the 401(k)
Plan, approving major changes to the 401(k) Plan, and approving any new
qualified investment or savings plans (other than stock plans) proposed by the
Company and the monitoring of such plans.
REMUNERATION OF DIRECTORS
During the fiscal year ended May 31, 1996, directors Bratter, DeWald, de
Wetter, Egbert, Hay, Korn, Livingston, O'Leary, Schweiker and Pritzker, Tenet's
non-employee directors during fiscal 1996, each received $40,000 as a retainer
fee for serving on the Board, as well as an attendance fee of $1,000 for
attending each Board meeting and $1,200 for attending each meeting of the
respective committees on which he or she was a member. Director Casey also
received a pro rata portion of the $40,000 retainer fee and attendance fees for
attending committee meetings from August 11, 1995 (when Mr. Casey resigned as an
employee of the Company and became a non-employee director of the Company)
through his resignation on May 22, 1996. In addition, Mr. de Wetter received
$1,000 per month for serving as an advisor to the Compensation Committee
pursuant to a consulting agreement, which was extended through September, 1996.
Each committee Chairperson also received $4,000 during the fiscal year for
each committee chaired by him or her. Directors also are reimbursed for travel
expenses and other out-of-pocket costs incurred in attending meetings.
DIRECTORS RETIREMENT PLAN
Tenet has a Board of Directors Retirement Plan (the "Directors Retirement
Plan") for non-employee directors. The Company believes that the Directors
Retirement Plan enables Tenet to attract and retain non-employee directors who
render necessary and important services to the Company. During fiscal 1996, the
following non-employee directors participated in the Directors Retirement Plan:
Bratter, DeWald, de Wetter, Egbert, Hay, Korn, Livingston and Schweiker.
Director Pritzker currently is not enrolled in the Directors Retirement Plan.
Under the Directors Retirement Plan, the Company is obligated to pay to the
non-employee director an annual normal retirement benefit for a maximum period
of 10 years upon the director's retirement. The retirement benefit is based on
years of service to the Company as a non-employee director. The director's
interest in the retirement benefit becomes partially vested after five years of
service as a non-employee director and fully vested after 10 years of service as
a non-employee director. The annual retirement benefit is equal to the lesser of
(i) the director's Final Annual Board Retainer (as defined below), and (ii)
$25,000, increased by a compounded rate of six percent per year from 1985 to the
director's termination of service. The retirement benefits are paid monthly.
"Final Annual Board Retainer" is defined under the Directors Retirement Plan as
the annual retainer paid to the director for service on Tenet's Board (excluding
fees paid for individual Board or committee meetings or for serving as a
committee chair) at the time of the termination of the director's service on the
Board.
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Normal retirement benefits, with certain adjustments, are paid to
participants whose services are terminated for any reason other than death prior
to normal retirement, so long as the participant has completed at least five
years of service. In the event of the death of any participant, before or after
retirement, the normal retirement benefit will be paid to his/her surviving
spouse or eligible children under the age of 21. In the event of a "Change of
Control" (as defined below) of Tenet followed by a participant's termination as
a director of Tenet or a participant's failure to be re-elected as a director
upon the expiration of his/her term in office, participants under the Directors
Retirement Plan will be deemed fully vested without regard to years of service
and shall be entitled to receive full normal retirement benefits.
A "Change of Control" is deemed to have occurred under the Directors
Retirement Plan if (a) any person (as defined in Sections 13(c) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended, the "Exchange Act") becomes the
beneficial owner directly or indirectly of 30% or more of the combined voting
power of the Company's then outstanding securities, or (ii) during any two-year
period, individuals who at the beginning of such period constitute the Company's
Board cease for any reason other than death or disability to constitute at least
a majority of the Board.
The Directors Retirement Plan was amended in fiscal year 1994 to permit
participation by former employees who are directors, with years of service
measured from the date on which the director's employment with the Company
terminates. Non-employee directors Livingston and de Wetter previously were
employed by the Company and also are eligible to receive benefits under the
Company's Supplemental Executive Retirement Plan (the "SERP"), which is
described on page 15.
DIRECTORS LIFE INSURANCE PROGRAM
The Company provides a Directors Life Insurance Program (the "Program") for
all directors who elect to participate in the Program. The Company believes that
the Program enables it to retain the services of its existing directors and to
attract highly qualified directors.
Under the Program, the Company is willing to enter into split dollar life
insurance agreements with an owner designated by a director providing for the
purchase of joint life, second to die, life insurance policies insuring the
lives of the director and another person designated by the director. The amount
of insurance to be purchased will be sufficient to provide a death benefit up to
$1,000,000 to beneficiaries to be designated by the owner and to allow the
Company to recover the premiums it has paid to keep the policies in force until
the deaths of both the director and the designated other person. The owner will
pay the cost of pure term insurance and the Company will pay the balance of the
premiums, which will be paid over seven years if its original assumptions as to
interest rates, mortality rates, tax rates and certain other factors are
accurate. Pursuant to the tax laws, the directors are imputed with income equal
to the premiums paid by the Company under the Program. The Company reimburses
each director for the tax paid by the director on such imputed income.
The Program is administered by the Compensation Committee, members of which
may be participants under the Program. As of July 31, 1996, life insurance
policies had been purchased by the owners on the lives of directors Bratter, de
Wetter, Egbert, Focht, Hay, Korn and Livingston and their respective designated
other person. Directors Barbakow, DeWald, Pritzker and Schweiker do not
participate in the Program.
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1994 DIRECTORS STOCK OPTION PLAN
In 1994, the shareholders approved the 1994 Directors Stock Option Plan (the
"DSOP"). The DSOP replaced the Director Restricted Share Plan (the "Restricted
Plan"). Although the Restricted Plan was terminated upon the effectiveness of
the DSOP, restricted shares previously granted under the Restricted Plan remain
in effect.
The Company believes the DSOP promotes the interests of the Company and its
shareholders by strengthening the Company's ability to attract, motivate and
retain Directors of training, experience and ability, and by encouraging the
highest level of Directors' performance by providing Directors with a
proprietary interest in the Company's financial success and growth.
The DSOP is administered by the Compensation Committee, which is composed of
non-employee directors who are eligible to participate in the DSOP. Only
non-employee directors of the Company are eligible to participate in the DSOP.
Such non-employee directors are not eligible to receive new awards under the
1991 Stock Incentive Plan or the 1995 Stock Incentive Plan, which plans are for
employees. Participants are granted options to acquire 5,000 shares of common
stock of the Company on the last Thursday of January of each year. In addition,
on the last Thursday of the month of a non-employee director's election to the
Board, such director will be granted options to acquire 5,000 shares of common
stock. Subject to certain adjustment provisions described in the DSOP, the
aggregate number of shares of common stock that may be acquired upon the
exercise of options under the DSOP is 500,000. Unless previously terminated, the
DSOP will terminate on January 26, 2004, except with respect to options then
outstanding.
Each option is exercisable one year from the date of grant. The exercise
price is the fair market value of a share of common stock on the date of grant.
Each option will expire at the time a non-employee director ceases to be a
non-employee director, except as described below. If a non-employee director is
terminated other than for cause (as determined solely by the Company), or if a
director is nominated but not reelected by the shareholders, then the option
will expire one-year after the date of termination unless during such one-year
period the non-employee director dies or becomes permanently and totally
disabled, in which case the option will expire one year from the date of death
or permanent and total disability. If the non-employee director retires at the
Company's normal retirement age of 59 1/2 or with the consent of the
Compensation Committee, then the option will expire five years after the date of
termination, unless during such five-year period the non-employee director dies
or becomes permanently and totally disabled, in which case the option will
expire upon the later of five years after retirement or one year after the date
of death or permanent and total disability. If the non-employee director dies or
becomes permanently and totally disabled while serving as a non-employee
director, then the option will expire five years after the date of death or
permanent and total disability. Notwithstanding anything above to the contrary,
the maximum term of an option is 10 years from the date of grant.
In the event of any future change in the capitalization of the Company, such
as a stock dividend or stock split, the Compensation Committee may make an
appropriate and proportionate adjustment to the numbers of shares subject to
then-outstanding awards as well as to the maximum number of shares available for
future awards.
The DSOP also provides for all awards then outstanding under the plan to
fully vest without restrictions in the event of certain conditions, including a
dissolution or liquidation of the Company, a reorganization, merger or
consolidation of the Company as a result of which Tenet is not the surviving
corporation or a takeover bid or tender offer, not approved by the Company's
Board, pursuant to which 20% or more of the outstanding securities of the
Company is acquired.
11
<PAGE>
MANAGEMENT AND CERTAIN SECURITY HOLDERS
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by the Company for
fiscal years 1996, 1995 and 1994 to the person acting as Chief Executive Officer
at May 31, 1996, and the five other most highly compensated executive officers
(the "named executive officers"). Mr. Andersons is included because he was an
executive officer of the Company through March 20, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- - -------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION AWARDS(2) OPTIONS PAYOUTS(3) COMPENSATION(4)
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barbakow 1996 $ 945,000 $1,165,707 $ 61,933(5) -- -- -- $ 58,747
CEO and 1995 900,000 574,560 125,813(5) -- 500,000 -- 43,554
Chairman 1994 850,000 892,500 110,000(5) -- 2,098,000 -- 3,647
Focht 1996 604,000 696,849 101,188(6) -- -- -- 69,643
President and 1995 575,100 314,695 120,112(6) -- 300,000 -- 20,143
COO 1994 535,000 483,750 105,060(6) $1,443,750(7) 259,000 $ 12,180 29,320
Fetter (8) 1996 222,115 475,636(9) 656,398(10) -- 247,600 -- 4,914
EVP and CFO 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
Mathiasen 1996 357,000 331,449 (11) -- 52,800 -- 20,990
SVP and CAO 1995 340,000 221,000 (11) -- 80,000 -- 19,884
1994 299,408 224,556 (11) -- 73,000 -- 14,159
Andersons 1996 329,200 304,315 (11) -- 52,800 -- 19,632
SVP 1995 313,500 203,775 (11) -- 80,000 -- 18,189
1994 279,917 194,200 (11) -- 72,000 -- 14,040
Brown 1996 315,000 304,464 (11) -- 52,800 -- 52,261
General Counsel, 1995 300,000 195,000 (11) -- 80,000 -- 16,549
SVP and Sec. 1994 269,583 215,625 (11) -- 64,000 -- 11,193
</TABLE>
- - ------------
(1) Includes compensation deferred at the election of an executive.
(2) As of May 31, 1996, none of the named executive officers held any
restricted stock or restricted units except Mr. Focht. As of May 31, 1996,
Mr. Focht held 150,000 restricted units that were valued at $1,443,750 (see
Note 7 below). Dividend equivalents will be paid on the restricted units
held by Mr. Focht if dividends are paid on the Company's common stock
(3) No awards were paid under the Company's Long Term Incentive Plan (the
"LTIP") for the three-year period ended May 31, 1996 because the LTIP was
suspended beginning in 1993. The Company did not meet its pre-established
return on equity threshold for the three-year periods ended May 31, 1994
and 1995 and consequently no awards were paid, except, as described below,
to executive officers who had responsibility for an operating division
during a portion of the
12
<PAGE>
three-year period. The Hospital Division met its threshold of aggregate
pre-tax income for each such three-year period and consequently those
executive officers who had responsibility for the Hospital Division during
some portion of such three-year period received a pro-rata portion of the
50% of their awards earned based on the pre-established formula for the
Hospital Division.
(4) The aggregate amounts set forth in "All Other Compensation" for 1996
include the following: (i) matching Company contributions to Tenet's 401(k)
Retirement Savings Plan, (ii) matching Company contributions to the
Deferred Compensation Plan, which exists, in part, because the Internal
Revenue Service limits the amount that may be deferred under the Tenet
Retirement Savings Plan, (iii) certain amounts in respect of life insurance
and disability insurance policies available under the SERP, (iv) certain
amounts in respect of joint life, second to die whole life insurance
available under the Company's Directors Life Insurance Program, and (v)
certain amounts in respect of a personal catastrophic liability insurance
policy available to the named executive officers:
<TABLE>
<CAPTION>
BARBAKOW FOCHT FETTER MATHIASEN ANDERSONS BROWN
----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tenet Retirement Savings Plan............. $ 4,500 $ 4,500 $ 0 $ 4,572 $ 4,320 $ 4,676
Deferred Compensation Plan................ 47,967 25,518 4,394 12,619 11,285 11,204
Life and Disability Insurance Under
SERP..................................... 5,760 4,465 0 3,279 3,507 2,861
Directors Life Insurance Program.......... 0 140 0 0 0 0
Personal Catastrophic Insurance........... 520 520 520 520 520 520
</TABLE>
In addition, during 1996, Mr. Focht and Mr. Brown received $34,500 and
$33,000, respectively, for serving on the board of directors of a foreign
subsidiary that since has been sold.
(5) Total for 1996 includes $55,710 of corporate-sponsored automobile use.
Total for 1995 includes $36,535 and total for 1994 includes $43,700 of
travel-related benefits.
(6) Total for 1996 includes $66,706, total for 1995 includes $78,718 and total
for 1994 includes $69,355 of travel-related benefits.
(7) This amount represents the value on the date of grant of a grant of
restricted units. The restricted units vest at the end of three years. Upon
vesting, a cash amount equal to the lesser of (i) the value of the
Company's common stock on the date of grant or (ii) the value of the
Company's common stock on the last day of the vesting period, will be paid
with respect to each restricted unit held by Mr. Focht.
(8) Mr. Fetter joined the Company on October 23, 1995. Consequently, he
received no compensation from the Company during 1994 or 1995 or 1996
through October 22, 1995.
(9) A portion of this amount relates to a bonus paid to Mr. Fetter to induce
him to join the Company.
(10) Total for 1996 includes $645,110 of relocation-related expenses reimbursed
to Mr. Fetter by the Company pursuant to a relocation program made
available to all corporate officers who relocated to the Company's new
corporate headquarters.
(11) No such compensation was paid other than perquisites, which have not been
included because their aggregate value did not meet the reporting threshold
of the lesser of $50,000 or 10 percent of salary plus bonus.
13
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to the
named executive officers in fiscal year 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- - ---------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS GRANTED TO EMPLOYEES PRICE GRANT DATE
NAME (#)(1) IN FY96 ($/SHARE) EXPIRATION DATE PRESENT VALUE (2)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Barbakow............... 0 0 N/A N/A N/A
Focht.................. 0 0 N/A N/A N/A
Fetter................. 230,000 6.4 17.625 October 26, 2005 $2,091,540
17,600 .5 20.875 January 22, 2006 187,598
Mathiasen.............. 52,800 1.5 20.875 January 22, 2006 562,793
Andersons.............. 52,800 1.5 20.875 January 22, 2006 562,793
Brown.................. 52,800 1.5 20.875 January 22, 2006 562,793
</TABLE>
- - ------------
(1) The options are exercisable at a price equal to the closing price of the
Company's common stock on the date of grant, vest in equal portions over
three years from the date of grant and expire ten years from the date of
grant.
(2) These values were established using standard Black-Scholes stock option
valuation models. The assumptions used to calculate the Grant Date Present
Value of all option shares granted during fiscal year 1996 were as follows:
<TABLE>
<CAPTION>
GRANT DATE/EXPIRATION DATE GRANT DATE/EXPIRATION DATE
1-23-96/1-22-06 10-27-95/10-26-05
--------------------------------------------------------
<S> <C> <C>
Expected Volatility....................... .390 .386
Risk Free Rate of Return.................. 5.55% 5.95%
Dividend Yield............................ 0% 0%
Time of Exercise (Years From Date of
Grant)................................... 7 7
</TABLE>
The Expected Volatility is the average of quarterly data drawn from the
five years preceding the date of grant. The Risk Free Rate of Return is the
approximate yield on a 7-year bond on the date of grant. The Dividend Yield
is equal to zero. The Time of Exercise is the estimated average period of
time prior to exercise for each grant. The valuation model was not adjusted
for non-transferability, risk of forfeiture or the vesting restrictions of
the options, all of which would reduce the value if factored into the
calculation.
The Company does not believe that the Black-Scholes model or any other
valuation model is a reliable method of computing the present value of the
Company's employee options. The value ultimately realized, if any, will
depend on the amount by which the market price of the Company's common
stock on the date of exercise exceeds the exercise price.
14
<PAGE>
OPTION EXERCISES
The following table sets forth information concerning options exercised by
each of the named executive officers in fiscal year 1996 and unexercised options
held by each of them as of May 31, 1996.
OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ------------------------------------------------------------
ACQUIRED ON VALUE AT 5/31/96 AT 5/31/96 (1)
NAME EXERCISE (#)(2) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------ -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barbakow........... 0 $ 0 1,597,999 1,000,001 $ 18,238,574 $ 10,541,676
Focht (3).......... 708,212 3,744,646 559,309 266,667 3,444,634 2,316,671
Fetter............. 0 0 0 247,600 0 902,250
Mathiasen.......... 99,744 478,272 175,045 122,801 1,211,748 604,258
Andersons.......... 698,209 4,248,789 161,999 122,801 986,352 604,258
Brown.............. 263,153 883,560 25,500 120,134 240,438 577,922
</TABLE>
- - ------------
(1) The closing price of the Company's common stock on May 31, 1996, was
$21.50.
(2) Includes 698,212; 99,744; 698,209 and 199,487 shares sold by Messrs.
Focht, Mathiasen, Andersons and Brown, respectively, upon the exercise of
investment options purchased under the PIP, which options would have
expired on April 3, 1996, had they not been exercised.
(3) Mr. Focht exercised options for 708,212 shares, but did not sell 10,000 of
the shares acquired upon the exercise of the options.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The SERP provides executive officers and certain other management employees
with supplemental deferred benefits in the form of retirement payments for life.
At retirement, the monthly benefit paid to participants will be a product of
four factors: (i) the participant's highest average monthly earnings for any
consecutive 60-month period during the ten years preceding retirement; (ii) the
number of years of service to the Company to a maximum of 20 years (participants
will receive a percentage credit for years of service prior to enrollment in the
plan which increases gradually from 25 percent upon becoming a participant to
100 percent at the beginning of the sixth year following enrollment); (iii) a
vesting factor; and (iv) a percentage factor not to exceed 2.7% reduced to
reflect the projected benefit from other Company retirement plans available to a
participant and from Social Security. The monthly benefit is reduced in the
event of early retirement or termination of employment with the Company. The
first day on which unreduced retirement benefits are available is age 62. In the
event of the death of a participant, before or after retirement, one-half of the
benefit earned as of the date of death will be paid to the surviving spouse for
life (or to the participant's children until the age of 21 if the participant
dies without a spouse). The SERP was amended in fiscal year 1994 to provide for
lump sum distributions in certain circumstances and subject to certain
limitations.
15
<PAGE>
"Earnings" is defined in the SERP as the participant's base salary excluding
bonuses and other cash and non-cash compensation. For purposes of the SERP,
Earnings may not increase at a rate in excess of 8% per annum measured from the
participant's Earnings at his or her plan entry date, or, for participants who
were participants and were regular full-time employees actively at work on April
1, 1994, with the corporate office or a division or a subsidiary that has not
been declared to be a discontinued operation, the Earnings of such participant
on April 1, 1994. The provision allowing Earnings to be measured from April 1,
1994, for certain employees was added by amendment in fiscal year 1994 to
correct certain inequities that existed due to different participants becoming
eligible under the SERP on different dates.
In the event of a "Change of Control" (as defined below) of the Company,
participants will be deemed fully vested in the SERP for all years of service to
the Company without regard to actual years of service and will be entitled to
the normal retirement benefits (as defined in the SERP) without reduction on or
after age 60. In addition, if a participant is a regular full-time employee
actively at work on or after April 1, 1994, with the corporate office or a
division or a subsidiary that has not been declared to be a discontinued
operation, and who has not yet begun to receive benefit payments under the SERP
and is terminated without cause or voluntarily terminates his employment
following the occurrence of certain events discussed below within two years of a
Change of Control, then such participant will be (i) deemed fully vested in the
SERP without regard to actual years of service, (ii) credited with three
additional years of service, not to exceed a total of 20 years credited service,
and (iii) entitled to the normal retirement benefits without reduction on or
after age 60 or benefits at age 50 with reduction for each year of receipt of
benefit prior to age 60. In addition, the "Earnings" used in calculating the
benefit will include the participant's base salary and the annual cash bonus
paid to the participant, but exclude any cash bonus paid under the Company's
LTIP and other cash and non-cash compensation. Furthermore, the provision in the
SERP prohibiting benefits from being paid to a participant if the participant
becomes an employee or consultant of a competitor of the Company within three
years of leaving the Company is waived. Finally, the SERP provides that (x) the
total present value of all payments under the SERP that are payable to a
participant and are contingent upon a Change of Control in accordance with the
rules set forth in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), when added to (y) the present value of all other payments (other
than payments that are made pursuant to the SERP) that are payable to a
participant and are contingent upon a Change of Control, exceed an amount equal
to 299% of the participant's "base amount" as that term is defined in Section
280G of the Code.
A Change of Control is deemed to have occurred if (i) any person becomes the
beneficial owner, directly or indirectly, of 20% or more of the Company's common
stock, or (ii) individuals who, as of April 1, 1994, constitute the Board (the
"Incumbent Board") cease for any reason to constitute the majority of the Board;
provided that individuals nominated by a majority of the directors then
constituting the Incumbent Board and elected to the Board after April 1, 1994,
will be deemed to be included in the Incumbent Board and individuals who
initially are elected to the Board as a result of an actual or threatened
election contest or proxy solicitation (other than on behalf of the Incumbent
Board) will be deemed not to be included in the Incumbent Board. The occurrence
of any of the following events following a Change of Control causes the
additional payments discussed above to become payable: (1) a material downward
change in the participant's position, (2)(A) a reduction in the participant's
annual base salary, (B) a material reduction in the participant's annual
incentive plan bonus payment other than for financial performance as it broadly
applies to all similarly situated executives in the same plan, or (C) a material
reduction in the participant's retirement or supplemental retirement benefits
that does not broadly apply to all executives in the same plan, or (3) the
transfer of the participant's office to a location that is more than 50 miles
from his or her current principal office.
In 1994, the Company established a trust (the "SERP Trust") for the purpose
of securing the Company's obligation to make distributions under the SERP. The
SERP Trust is a "rabbi trust" and was initially funded with 1,000,000 shares of
the Company's common stock. The SERP Trust will make payments required to be
made to SERP participants and their beneficiaries under the SERP in the event
16
<PAGE>
that the Company fails to make such payments for any reason other than the
insolvency of the Company. In the event of the insolvency of the Company, the
assets of the SERP Trust will be subject to the claims of general creditors of
the Company. In the event of a Change of Control of the Company, the Company is
required to fund the SERP Trust in an amount that is sufficient, together with
all assets then held by the SERP Trust, to pay each participant and/or
beneficiary of the SERP, on a pre-tax basis, the benefits to which the
participant or the beneficiary would be entitled pursuant to the terms of the
SERP as of the date on which the Change of Control occurred.
The following table presents the estimated maximum annual retirement
benefits payable on a straight-life annuity basis to participating executives
under the SERP in the earnings and years of service classifications indicated.
The benefits listed are subject to reduction for projected benefits from the
Tenet Employees Retirement Savings Plan, the related Deferred Compensation Plan
and Social Security. The effect of these reductions is not included in the
table.
PENSION PLAN TABLE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFIT
FOR YEARS OF SERVICE INDICATED
---------------------------------------------------------------------
REMUNERATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS (1)
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 13,500 $ 27,000 $ 40,500 $ 54,000 $ 54,000
300,000 40,500 81,000 121,500 162,000 162,000
500,000 67,500 135,000 202,500 270,000 270,000
700,000 94,500 189,000 283,500 378,000 378,000
900,000 121,500 243,000 364,500 486,000 486,000
1,100,000 148,500 297,000 445,500 594,000 594,000
1,300,000 175,500 351,000 526,500 702,000 702,000
1,500,000 202,500 405,000 607,500 810,000 810,000
1,700,000 229,500 459,000 688,500 918,000 918,000
1,900,000 256,500 513,000 769,500 1,026,000 1,026,000
2,100,000 283,500 567,000 850,500 1,134,000 1,134,000
2,300,000 310,500 621,000 931,500 1,242,000 1,242,000
2,500,000 337,500 675,000 1,012,500 1,350,000 1,350,000
2,700,000 364,500 729,000 1,093,500 1,458,000 1,458,000
</TABLE>
(1) The benefit is the same for each period beyond 20 years since benefits
under the SERP are calculated based on a maximum of 20 years of service.
As of May 31, 1996, the estimated credited years of service for the
individuals named in the Summary Compensation Table were as follows: Mr.
Barbakow, 3.00 years; Mr. Focht, 18.17 years; Mr. Fetter, .60 years; Mr.
Andersons, 19.61 years, Mr. Mathiasen, 10.65 years, and Mr. Brown, 14.72 years.
The Company has purchased insurance policies on the life of current and past
participants in the SERP, the purpose of which is to reimburse the Company,
based on actuarial calculations, for amounts to be paid to the participants
under the SERP over the course of the participants' retirement (assuming that
its original estimates as to interest rates, mortality rates, tax rates and
certain other factors are accurate). SERP participants also are provided a life
insurance benefit for the designee of each participant and a disability
insurance policy for the benefit of each participant.
17
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
COMPENSATION POLICIES
The Compensation and Stock Option Committee (the "Compensation Committee") of
the Company's Board is responsible for establishing and interpreting the
Company's compensation policies and making compensation decisions. The
Compensation Committee is composed entirely of non-employee directors. The
Compensation Committee considers a director to be a non-employee director if the
director (a) has not been employed by the Company in an executive capacity
during the five years prior to appointment to the Compensation Committee, (b) is
not employed by a significant customer or supplier, (c) is not employed by a
charitable organization that receives significant contributions from the
Company, (d) is not related to any executive, (e) does not have a personal
service contract with the Company, (f) is not a member of a company that is one
of the Company's significant advisors or consultants, and (g) does not have a
business relationship required to be disclosed under "Related Party
Transactions" in the Company's Proxy Statement.
The Compensation Committee has retained a nationally-recognized compensation
consulting firm that assists the Compensation Committee in formulating its
compensation policies, applying those policies to the compensation of the
Company's executives and advising the Compensation Committee as to the form and
reasonableness of compensation paid to executives. For purposes of this Report,
the term "executives" refers to the executive officers of the Company.
The Company's compensation policies balance the need for executive
compensation to reflect the Company's current financial results with the
Company's need to attract, motivate and retain qualified executives who can
maximize long-term shareholder returns in the rapidly-changing healthcare
industry. In fiscal year 1996, over 70% of the total compensation opportunities
for the named executive officers as a group were "at risk" based on (i) the
price of the Company's common stock, (ii) the Company meeting its financial and
quality-of-service goals, (iii) the executives meeting pre-established corporate
and/or individual objectives, and (iv) growth in the Company's operating income.
The Compensation Committee recognizes that a variety of circumstances may
influence an individual's or the Company's performance at any given time.
Accordingly, the Compensation Committee is prepared to use its judgment to make
discretionary awards or adjustments to plans when it believes that doing so
would serve the long-term interests of the Company's shareholders.
BASE SALARY AND ANNUAL INCENTIVE PLAN
The Compensation Committee believes that the Company's executives should be
rewarded in the short-term for their contributions to the Company's attaining
annual financial and quality-of-service goals and their attaining annual
corporate and/or individual objectives.
When setting the appropriate level of total annual cash compensation
opportunities available to the Company's executives for fiscal year 1996, the
Compensation Committee compared such opportunities primarily with the total
annual cash compensation paid to executives, according to the then most-recently
available information, by the Company's peer companies (which are the companies
included in the S&P Health Care Composite Index referred to in the Common Stock
Performance Graph below) and by other similarly-sized companies generally,
taking into account their relative sizes (in terms of net operating revenues).
The Compensation Committee makes such comparison with those companies
18
<PAGE>
because the Company believes that it is with those companies that the Company
must compete for qualified and experienced executives. For fiscal year 1996, the
Compensation Committee established a base salary and target annual incentive
structure designed to position total cash compensation opportunities for the
executives in the broad middle range of that paid by the companies referred to
above, taking into account their relative sizes based on net operating revenues.
In determining an individual executive's actual base salary, the
Compensation Committee also considers other factors, which may include the
executive's past performance and contributions to the Company's success, the
executive's expected future contributions, how long the executive has held the
current position, the executive's vulnerability to recruitment by other
companies, the executive's expected future position, the executive's salary
relative to other executives' salaries and expected increases in base salaries
at the Company's peer companies and other similarly sized companies generally.
Under the Company's 1994 Annual Incentive Plan (the "AIP"), an executive is
rewarded with a cash award equal to a percentage of the executive's base salary,
based on the extent to which (a) the Company meets its pre-established financial
goal, the measure of which in fiscal year 1996 was the Company's fully diluted
earnings per share from continuing operations for the fiscal year (excluding the
effects of acquisitions and divestitures, not contemplated when the goal was
set), (b) the Company achieves its quality-of-service goal (measured in fiscal
year 1996 by patient satisfaction at the Company's general hospitals), (c) the
executive meets pre-established corporate or individual performance goals, and
(d) the Company achieves growth in operating income. The award for growth in
operating income is calculated by multiplying (i) the amount by which the
Company's operating income for the fiscal year exceeds the previous fiscal
year's operating income by (ii) a percentage for the executive established in
advance by the Compensation Committee. While the rest of the AIP award is paid
immediately following the end of the fiscal year in which earned, the portion
based on growth in operating income is paid two-thirds following the end of the
fiscal year in which earned, with the remainder paid following the ends of the
next two fiscal years, provided pre-established return on equity thresholds are
met. The portion of the award that is deferred will accrue interest at a
floating rate equal to one percent above the prime rate. Each executive's
individual performance goals are set jointly by the executive and the
executive's supervisor. Individual performance goals, if any, for the Chief
Executive Officer are approved by the Compensation Committee. Individual
performance goals relate to an executive's business objectives.
The weight given to each of the foregoing factors and the amount of the AIP
award, or percentage multiplier in the case of the portion of the award based on
growth in operating income, that each executive may earn are approved annually
by the Compensation Committee. The weight given to each factor may vary for each
participant based on decision-making authority and ability directly to affect
financial performance. No AIP award may be paid to an executive except at the
discretion of the Compensation Committee if the Company fails to meet the
threshold (which for fiscal year 1996 was based on return on equity) set in
advance by the Compensation Committee. The Compensation Committee also has the
authority to pay discretionary awards.
When the Company's financial performance or quality-of-service exceeds
target levels and/or an executive's individual performance goals are exceeded,
the executive is rewarded with a larger-than-targeted cash award. When the
Company's financial performance or quality-of-service is below target levels
(but above the pre-established threshold) and/or an executive's individual
performance goals are not met, annual incentive awards are paid at
less-than-targeted levels.
Following the close of fiscal year 1996, the Compensation Committee met to
review information on the achievement of each of the above goals and determined
that the threshold had been met and all goals had been exceeded.
19
<PAGE>
In light of his performance in fiscal year 1995, and taking into account the
challenges facing the Company in fiscal year 1996, the Compensation Committee
set Mr. Barbakow's salary for fiscal year 1996 at $945,000. The Compensation
Committee also established a fiscal year 1996 target award for Mr. Barbakow
under the AIP, including the percentage multiplier for the portion of the AIP
award based on growth in operating income. That target award, which was to be
payable only if the Company was to meet a threshold based on its return on
equity, was based on fully diluted earnings per share from continuing operations
(excluding the effects of acquisitions and divestitures, not contemplated when
the goals were set), quality-of-service goal (measured in fiscal year 1996 by
patient satisfaction at the Company's general hospitals) and growth in the
Company's operating income over the previous fiscal year's operating income. In
July 1996, the Compensation Committee reviewed the Company's performance in
light of the pre-established AIP targets. Since the AIP threshold had been met,
the Committee determined that Mr. Barbakow's fiscal year 1996 award under the
AIP was $1,165,707 based on the extent to which the AIP targets had been met or
exceeded. As a result of the Company's above-target financial performance in
fiscal year 1996, the total cash compensation paid to Mr. Barbakow for fiscal
year 1996 was in approximately the 75th percentile of total cash compensation
paid to chief executive officers of the Company's peer companies and of other
similarly-sized companies generally.
STOCK INCENTIVE PLAN
The Compensation Committee's long-term compensation goal is to provide the
Company's executives with an interest in common with that of the shareholders
and an incentive to enhance the Company's long-term financial performance, and
thus shareholder value. The Compensation Committee's policy with respect to
long-term compensation awards in fiscal year 1996 was to consider the practices
of its peer companies and other companies generally in setting the target award
levels because: (1) the Company must compete with other companies in all
industries in order to attract and retain qualified and motivated executives who
will work to maximize long-term shareholder value and (2) shareholders consider
investing not only in other health care companies but also other companies
generally when evaluating where best to invest their capital, requiring the
Compensation Committee to create incentives for the executives to cause the
Company's common stock to be competitive with that of other companies generally
rather than only with the stock of the peer companies. The Compensation
Committee believes that long-term compensation opportunities generally should be
in the broad middle range of such opportunities available at those other
companies.
In fiscal year 1996, the Compensation Committee implemented its long-term
compensation policy by granting awards under the Company's 1991 and 1995 Stock
Incentive Plans (collectively, the "SIP"), which provide longer-term
opportunities linked directly to the Company's common stock price. Stock-based
incentive awards are granted to executives under the SIP in order to provide
them with an interest in common with that of the shareholders and an incentive
to enhance the Company's long-term financial performance, and thus, shareholder
value.
In weighing the type and amount of SIP award that is appropriate for a given
executive, the Compensation Committee may consider such factors as that
executive's total compensation, expected future contributions to the Company,
current ownership of the Company's common stock and derivative securities,
awards previously made, the likelihood of being hired away and ability to
influence future financial performance. The Compensation Committee also may
consider the performance of the Company's common stock price and whether the
healthcare industry in general is experiencing growth or is in a less favorable
place in its business cycle. When the Company's common stock price appreciates,
so that shareholder value is enhanced, the benefits to the executives will
appreciate commensurately. When this is not true, the executives will recognize
lower gains or, in the case of certain types of awards such as options, no gains
at all.
20
<PAGE>
It is the Compensation Committee's current practice to rely primarily on the
grant of options to provide long-term incentives to the executives. The exercise
price of options granted to the executives under the SIP normally will not be
less than 100% of the fair market value of the Company's common stock on the
date such option is granted. Options normally will vest ratably over three years
and normally will not be exercisable for at least one year after being granted.
Options generally will be exercisable during a term of not more than ten years
from the date of grant.
POLICY REGARDING ONE MILLION DOLLAR TAX DEDUCTION CAP
The Internal Revenue Code generally provides that compensation in excess of
$1,000,000 paid to "covered employees" as defined in Section 162(m) of the Code
(the "Covered Employees") will not be deductible, unless such compensation is
paid according to pre-established performance criteria approved in advance by
the shareholders. Awards of options granted to date at fair market value under
the Company's SIP and the proceeds thereof have not been subject to the
$1,000,000 cap. In fiscal year 1995, the Company adopted the 1995 Stock
Incentive Plan (the "1995 SIP") in order to ensure that future awards will
continue not to be subject to the $1,000,000 cap.
The Compensation Committee believes that the AIP and the 1995 SIP permit the
Company to pay or make an award to a Covered Employee and deduct the
compensation in excess of $1,000,000 from its federal income taxes in accordance
with Section 162(m) of the Code. It is the intent of the Compensation Committee
that the AIP, the 1995 SIP and certain awards thereunder satisfy, in the case of
participants who are or may be Covered Employees, the applicable requirements of
Code Section 162(m). The amount available for awards under the AIP in any year
shall be determined by the Compensation Committee.
It is the Compensation Committee's policy to administer executive
compensation in conformance with the provisions of Section 162(m) of the Code,
except where, in its judgment, the interests of the Company and its shareholders
are better served by a different approach. A participant who is or may be a
Covered Employee may receive an award under the AIP or the 1995 SIP or other
compensation that is not a Code Section 162(m) award, but such award or other
compensation may result in compensation that is not deductible by the Company
for federal income tax purposes.
SUMMARY
The Compensation Committee is committed to attracting, motivating and
retaining executives who will help the Company meet the increasing challenges of
the healthcare industry. The Compensation Committee recognizes its
responsibility to the Company's shareholders and intends to continue to
establish and implement compensation policies that are consistent with
competitive practice, are based on the Company's and the executives' performance
and permit the Company to attract, motivate and retain executives who will lead
the Company in providing quality healthcare to its patients, competitive returns
for its shareholders and challenging employment opportunities for its employees.
This Report has been provided by the Compensation and Stock Option Committee
of the Board of Directors of the Company.
Bernice Bratter (Chair)
Maurice J. DeWald
Hon. Lester B. Korn.
21
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following graph shows the cumulative, five-year total return for Tenet's
common stock compared with the Standard & Poor's 500 Stock Index (which includes
Tenet) and the Standard & Poor's Healthcare Composite Index (a group of 29
companies, including Tenet).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
TENET HEALTHCARE CORPORATION, S&P 500 INDEX AND S&P HEALTHCARE COMPOSITE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TENET HEALTHCARE CORPORATION S&P 500 COMP LTD S&P HEALTH CARE COMPOSITE
<S> <C> <C> <C>
May-91 $ 100.00 $ 100.00 $ 100.00
May-92 $ 65.00 $ 109.93 $ 100.33
May-93 $ 44.85 $ 122.89 $ 87.28
May-94 $ 78.10 $ 126.82 $ 86.06
May-95 $ 79.29 $ 152.41 $ 116.93
May-96 $ 102.54 $ 195.76 $ 166.76
</TABLE>
22
<PAGE>
The following graph shows the cumulative, three-year total return for
Tenet's common stock compared with the Standard & Poor's 500 Stock Index and the
Standard & Poor's Healthcare Composite Index. The following graph is included
because it reflects the Company's common stock performance during the three-year
period beginning on June 1, 1993, when the Company's new senior management began
managing the Company.
COMPARISON OF THREE YEAR CUMULATIVE TOTAL RETURN
TENET HEALTHCARE CORPORATION, S&P 500 INDEX AND S&P HEALTHCARE COMPOSITE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TENET HEALTHCARE CORPORATION S&P 500 COMP LTD S&P HEALTH CARE COMPOSITE
<S> <C> <C> <C>
May-93 $ 100.00 $ 100.00 $ 100.00
May-94 $ 174.16 $ 103.36 $ 98.61
May-95 $ 176.81 $ 124.22 $ 133.98
May-96 $ 228.65 $ 159.55 $ 191.07
</TABLE>
Performance data assumes that $100.00 was invested on June 1, 1991 (or June
1, 1993 for the Three Year Graph), in Tenet common stock and the two Standard &
Poor's indices. The data assumes the reinvestment of all cash dividends, and the
cash value of other distributions. Stock price performance shown in the graph is
not necessarily indicative of future stock price performance.
23
<PAGE>
EMPLOYMENT AGREEMENTS
MR. BARBAKOW
Mr. Barbakow was elected President and Chief Executive Officer of the
Company on June 1, 1993. On July 28, 1993, Mr. Barbakow was elected Chairman of
the Board and relinquished the position of President to Michael H. Focht, Sr.,
who was elected President. Mr. Barbakow does not have a formal employment
agreement, but the terms of his initial employment are set forth in letters
dated May 26 and June 1, 1993, and a memorandum dated June 14, 1993 (the "1993
Correspondence"). The letters provide that his initial annual base salary was
$850,000 and he will be entitled to participate in the Company's AIP, LTIP,
pension and other benefit plans. In addition, he will receive the same type of
fringe benefits and perquisites that are provided to other executive officers.
Under the terms of his initial employment, Mr. Barbakow was guaranteed a
minimum annual bonus of $500,000 for fiscal year 1996 if the average closing
price of Tenet's common stock during April and May of fiscal year 1996 exceeds
$14.50. The average closing price of Tenet's common stock during those months
did exceed $14.50. As described above, Mr. Barbakow was paid a fiscal year 1996
bonus of $1,165,707 under the AIP based on a pre-established formula and thus,
although the average closing price of Tenet's stock did exceed $14.50 during
April and May of 1996, the $500,000 minimum bonus was not relevant.
On June 1, 1993, Mr. Barbakow received a grant under the 1991 Stock
Incentive Plan (the "1991 SIP") of non-qualified options for 2,000,000 shares of
Tenet common stock (the "Barbakow Options"). Each of the Barbakow Options has an
exercise price of $9.50, which was the closing price of Tenet common stock on
the grant date, and a term of ten years. One-third of the Barbakow Options
vested on June 1, 1994, one-third vested on June 1, 1995 and one-third vested on
June 1, 1996.
A special-purpose committee of the Board retained a nationally-recognized
compensation consulting firm to assist it in negotiating the terms of Mr.
Barbakow's initial employment and received an opinion from that firm stating
that the terms of his employment were fair and reasonable.
1996 MEMORANDA OF UNDERSTANDING
In connection with a proposed June 1, 1996, grant of options to them, on May
21, 1996, each of Mr. Barbakow and Mr. Focht sent a Memorandum of Understanding
(each a "Memorandum of Understanding") to the Company. Each confirms in his
Memorandum of Understanding his intent to continue in his current position with
the Company for a period of not less than two (2) years.
On June 1, 1996, Mr. Barbakow received a grant of non-qualified options for
900,000 shares and Mr. Focht received a grant of non-qualified options for
450,000 shares of Tenet common stock (collectively, the "1996 Options") under
the 1995 SIP. Each of the 1996 Options has an exercise price of $21.625, which
was the closing price of Tenet common stock on the first business day after the
grant date (which was not a business day), and a term of ten years. Although
options under the 1995 SIP typically vest in equal portions over three years
from the date of grant, two-thirds of the 1996 Options vest on the second
anniversary of the grant date, with the remaining one-third vesting on the third
anniversary of the grant date.
24
<PAGE>
Each of Mr. Barbakow and Mr. Focht acknowledges in his Memorandum of
Understanding that in the event he voluntarily terminates his employment prior
to June 1, 1998, he will not be entitled to any of the 1996 Options. Voluntary
termination does not include involuntary termination of employment without cause
at any time after a "Change of Control" (as such term is defined in the 1995
SIP, which definition is set forth below). Each of Mr. Barbakow and Mr. Focht
further acknowledges in his Memorandum of Understanding that Tenet does not
intend to grant any additional options to him during fiscal 1997 or fiscal 1998.
Under the 1995 SIP, a "change of control" of the Company shall have occurred
when a "Person" alone or together with its Affiliates and Associates (as defined
in Rule 12b-2 of the Exchange Act), becomes the beneficial owner of 20% or more
of the general voting power of the Company. "Person" shall mean an individual,
firm, corporation or other entity or any successor to such entity, but "Person"
shall not include the Company, any subsidiary of the Company, any employee
benefit plan or employee stock plan of the Company, or any Person organized,
appointed, established or holding voting stock by, for or pursuant to the terms
of such a plan or any Person who acquires 20% or more of the general voting
power of the Company in a transaction or series of transactions approved prior
to such transaction or series of transactions by the Board.
SEVERANCE PROTECTION PLAN FOR EXECUTIVE OFFICERS
In order to strengthen the Company's ability to attract, motivate and retain
employees of training, experience and ability in light of the continuing
consolidation within the healthcare industry, the Company adopted a Severance
Protection Plan (the "Plan"), of which each of the named executive officers is a
Participant (as defined below), during fiscal year 1996. Under the terms of the
Plan, upon the occurrence of a Change of Control (as defined below) of the
Company, all then unvested stock options held by each Participant (as defined
below) in the Plan will become vested as of the date of such Change of Control.
In addition, if a Participant is terminated for other than Cause (as defined
below) or the Participant terminates for Good Reason (as defined below) within
two years of the date of the occurrence of a Change of Control, the Participant
will be entitled to a lump-sum payment equal to two times the Participant's
then-current base salary plus the Participant's target bonus for the
then-current fiscal year under the Company's Annual Incentive Plan ("AIP");
provided that such payment shall be less any salary continuation amounts payable
under any other severance agreement or severance policy of the Company. The
Participant also will receive an additional pro-rated award (the "Pro-Rata
Bonus") under the AIP for the then-current fiscal year calculated by multiplying
(x) the number of months or partial months elapsed for that fiscal year divided
by 12 by (y) an amount equal to not less than the Participant's target award for
the then-current fiscal year. Furthermore, the Participant will be permitted to
continue to receive benefits under the Company's (or its successor's) health
care plan until the Participant reaches age 65 or is employed by another
employer offering health care coverage to the Participant for the same cost to
the Participant as the Participant was paying while employed by the Company
(subject to adjustment based on the consumer price index).
The total payments that are deemed to be contingent upon a Change of Control
in accordance with the rules set forth in Section 280g of the Internal Revenue
Code of 1986, as amended (the "Code"), when added to the present value of all
other payments that are payable to the Participant and are contingent upon a
Change of Control, may not exceed an amount equal to two hundred and ninety-nine
percent (299%) of the Participant's "base amount" as that term is defined in
Section 280g of the Code and applicable regulations. The Pro Rata Bonus is not
subject to this limit. Participants also are entitled to reimbursement for
reasonable legal fees, if any, necessary to enforce payment of benefits under
the Plan.
25
<PAGE>
For purposes of the Plan, the following terms have the following meanings:
(A) A "Participant" is any individual designated as a participant in the
Plan by the Compensation and Stock Option Committee of the Board of
Directors of the Company.
(B) "Cause" shall mean the willful, substantial, continued and
unjustified refusal of the Participant to perform the duties of his or her
office to the extent of his or her ability to do so; any conduct on the part
of the Participant which constitutes a breach of any statutory or common law
duty of loyalty to the Company; or any illegal or publicly immoral act by
the Participant which materially and adversely affects the business of the
Company.
(C) A "Change in Control" of the Company shall be deemed to have
occurred if: (i) any Person is or becomes the beneficial owner directly or
indirectly of securities of the Company representing 20% or more of the
combined Voting Stock of the Company or; (ii) individuals who, as of April
1, 1994, constitute the Board of Directors of the Company (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board
of Directors; provided, however, that (a) any individual who becomes a
director of the Company subsequent to April 1, 1994, whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board and (b)
no individual who was elected initially (after April 1, 1994) as a director
as a result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any other actual
or threatened solicitations of proxies or consents by or on behalf of any
person other than the Incumbent Board shall be deemed to have been a member
of the Incumbent Board.
(D) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act.
(E) "Person" shall mean an individual, firm, corporation or other entity
or any successor to such entity, together with all Affiliates and Associates
of such Person, but "Person" shall not include the Company, any subsidiary
of the Company, any employee benefit plan or employee stock plan of the
Company or any subsidiary of the Company, or any Person organized,
appointed, established or holding Voting Stock by, for or pursuant to the
terms of such a plan.
(F) "Voting Stock" with respect to a corporation shall mean shares of
that corporation's capital stock having general voting power, with "voting
power" meaning the power under ordinary circumstances (and not merely upon
the happening of a contingency) to vote in the election of directors.
(G) A voluntary termination for "Good Reason" shall mean a voluntary
termination following: (i) material downward change in the functions,
duties, or responsibilities which reduce the rank or position of the
Participant; (ii) a reduction in the Participant's annual base salary; (iii)
a material reduction in the Participant's annual incentive plan bonus
payment other than for financial performance as it broadly applies to all
similarly situated Participants in the same plan; (iv) a material reduction
in the Participant's retirement or supplemental retirement benefits that
does not broadly apply to all Participants in the same plan; or (v) transfer
of the Participant's office to a location that is more than fifty (50) miles
from the Participant's current principal office location.
26
<PAGE>
RELOCATION SEVERANCE AGREEMENTS
In order to induce them to remain with the Company and relocate in
connection with the relocation of the Company's corporate headquarters, Messrs.
Brown, Fetter and Mathiasen are entitled to certain benefits under an agreement
related to the relocation of the Company's headquarters. If any of those
employees' employment is involuntarily terminated other than for "cause" (as
defined below), (i) he will receive 24 months of salary and benefits
continuation along with re-employment assistance, (ii) any stock options that
have been granted to him and have vested prior to such termination or during any
period of salary continuation will continue to be exercisable up until ninety
(90) days after the end of the salary continuation period, unless by their terms
the options expire sooner, (iii) he may elect to have the Company move him back
to the location of his residence prior to his having relocated, and (iv) if he
elects to move back, the Company will assist with the sale of his new home. If
any of Messrs. Brown, Fetter or Mathiasen is involuntarily terminated as a
result of a Change of Control (as defined in the Severance Protection Plan
discussed above) of the Company, they will not be eligible for the 24 months of
salary and benefits continuation discussed under item (i) above to the extent
that they receive a lump-sum payment under the Severance Protection Plan
discussed above.
No termination benefits will be payable to Mr. Brown, Fetter or Mathiasen if
he voluntarily terminates his employment or his employment is terminated for
cause. Furthermore, if any of those employees voluntarily terminates his
employment with Tenet within 24 months of his relocation, any amount paid to him
as relocation benefits (which are included in the Summary Compensation Table on
page 12 under Other Annual Compensation) will be considered a loan that must be
repaid, with the loan amount to be repaid being reduced 1/24th for each month he
is employed within the initial 24-month period following the relocation.
As used in the relocation agreement, the term "cause" shall include, but
shall not be limited to, dishonesty, fraud, willful misconduct, self-dealing or
violations of the Tenet Standards of Conduct, breach of fiduciary duty (whether
or not involving personal profit), failure, neglect or refusal to perform his
duties in any material respect, violation of law (except traffic violations or
similar minor infractions), material violation of Tenet's human resources or
other policies, or any material breach of the agreement; provided, however, that
a failure to achieve or meet business objectives as defined by the Company shall
not be considered "cause" so long as the employee has devoted his best and good
faith efforts and full attention to the achievement of those business
objectives.
RELATED PARTY TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
In fiscal year 1996, the Company paid Robert de Wetter, Ph.D., a licensed
psychologist, $150,000 for his services as a psychologist to various Tenet
facilities. In addition, Dr. de Wetter was reimbursed $22,232 for expenses. Dr.
de Wetter is Peter de Wetter's son.
27
<PAGE>
SHARES OWNED BY CERTAIN SHAREHOLDERS
As shown in the table below, as of June 30, 1996, Oppenheimer Capital was
the beneficial owner of 11.5% of the Company's common stock, and FMR Corp. was
the beneficial owner of 7.5% of the Company's common stock. No other person is
known by the Company to beneficially own more than 5% of its outstanding common
stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oppenheimer Capital 24,883,728 held directly 11.5%
200 Liberty Street
New York, NY 10281
FMR Corp. 16,130,979 held directly 7.5%
82 Devonshire Street
Boston, MA 02109
</TABLE>
2. RATIFICATION OF SELECTION OF AUDITORS
SELECTION OF INDEPENDENT AUDITORS
On the recommendation of the Audit Committee, the Board has selected KPMG
Peat Marwick LLP to serve as independent auditors for the fiscal year ending May
31, 1997. KPMG Peat Marwick LLP is familiar with the operations of the Company
and together with its predecessor organizations have been the Company's auditors
since the Company's inception. The Audit Committee of the Board is satisfied
with KPMG Peat Marwick LLP's reputation in the auditing field, its personnel,
its professional qualifications and its independence.
KPMG Peat Marwick LLP expects their representatives to attend the meeting to
make a statement should they so desire and to respond to questions where
appropriate.
SHAREHOLDER APPROVAL
Ratification of the independent auditors by the shareholders requires the
affirmative vote of a majority of the votes cast by the holders of shares
entitled to vote in the election at the Annual Meeting, provided a quorum is
present. Unless marked to the contrary, proxies will be voted "FOR" the
ratification of the selection of KPMG Peat Marwick LLP as the Company's auditor.
If a favorable vote is not obtained, other auditors will be selected by the
Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Any proposals by security holders intended to be presented at the next
annual meeting must be received by the Company for inclusion in its proxy
statement and form of proxy relating to that meeting by May 2, 1997.
28
<PAGE>
MISCELLANEOUS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, officers
and persons who beneficially own more than 10% of a registered class of the
Company's equity securities (collectively, the Reporting Persons) to file
certain reports on Forms 3, 4 and/or 5 describing ownership and changes in
ownership in the Company's registered equity securities. Based solely on a
review of the Forms 3, 4 and 5 furnished to the Company during and with respect
to fiscal year 1996, and written representations from the Reporting Persons that
no Forms 3, 4 and 5 were required, the Company believes that all filings
required by Section 16(a) of the Exchange Act were made in a timely fashion
except that one Form 4, reporting a sale of shares by Maris Andersons (an
executive officer of the Company until March 20, 1996) was not filed on a timely
basis. The transaction, however, was reported on a Form 4 when the oversight was
discovered.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996, as filed with the Securities and Exchange Commission, excluding
certain exhibits thereto, may be obtained without charge, by writing Scott M.
Brown, Secretary, Tenet Healthcare Corporation, 3820 State Street, Santa
Barbara, California, 93105, by telephoning Mr. Brown at (805) 563-7000 or by
leaving a voice mail request at (805) 563-6855.
By Order of the Board of Directors
Scott M. Brown
SECRETARY
SANTA MONICA, CALIFORNIA
AUGUST 26, 1996
29
<PAGE>
TENET HEALTHCARE CORPORATION
PROXY -- SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey C. Barbakow, Trevor Fetter and Scott
M. Brown, and each of them, proxies of the undersigned, with power of
substitution, to represent the undersigned and to vote all shares of Tenet
Healthcare Corporation that the undersigned would be entitled to vote at the
Annual Meeting of Shareholders to be held on September 25, 1996, and any
adjournments thereof, on the items set forth on the reverse hereof and on such
other business as properly may come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY AUTHORIZED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEM
2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1 AND
"FOR" ITEM 2.
(PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY.)
TENET HEALTHCARE CORPORATION
P.O. BOX 11336
NEW YORK, N.Y. 10203-0336
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1. Election of the FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS / /
following listed below / / for all nominees listed
nominees as Directors: below. / /
</TABLE>
Nominees: Bernice B. Bratter, Michael H. Focht, Sr. and Lester B. Korn
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark
the "Exceptions" box above and write that (those) nominee's name(s) in the space
provided below.)
*Exceptions ____________________________________________________________________
<TABLE>
<S> <C> <C> <C> <C> <C>
2. Proposal to ratify the selection of KPMG Peat Marwick LLP FOR AGAINST ABSTAIN CHANGE OF ADDRESS AND/OR
as independent auditors for the fiscal year ending May 31, / / / / / / COMMENTS MARK HERE / /
1997.
</TABLE>
Please mark, date and sign, as
your name(s) appear(s) to the left
and return in the enclosed
envelope. If acting as an
executor, administrator, trustee,
guardian, etc., you should so
indicate when signing. If the
signer is a corporation, please
sign the full corporate name, by
duly authorized officer. If shares
are held jointly, each shareholder
named should sign.
Date: _____________________ , 1996
----------------------------------
Signature
----------------------------------
Signature
VOTES MUST BE INDICATED (X) IN
BLACK OR BLUE INK. X
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
