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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 Section240.14a-11(c) or
Section240.14a-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):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
----------------------------------------------------------------------
/ / Fee Paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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</TABLE>
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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, OCTOBER 1, 1997
August 26, 1997
To our Shareholders:
The Annual Meeting of Shareholders of Tenet Healthcare Corporation (the
"Company") will be held on Wednesday, October 1, 1997, at 10:00 a.m., Pacific
Daylight Time, in the Le Grand Trianon Room, Regent Beverly Wilshire Hotel, 9500
Wilshire Boulevard, Beverly Hills, California, 90212, for the following
purposes:
1. To elect two directors for terms of three years each;
2. To approve the First Amendment to the 1994 Directors Stock Option Plan;
3. To approve the 1997 Annual Incentive Plan;
4. To approve the First Amendment to the 1995 Employee Stock Purchase Plan;
5. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
for the fiscal year ending May 31, 1998; and
6. To transact such other business as properly may come before the meeting.
Only shareholders of record at the close of business on August 11, 1997 (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
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
AUGUST 26, 1997
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, October 1, 1997, 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 28, 1997.
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 11, 1997, are
entitled to receive notice of and to vote at the Annual Meeting. On August 11,
1997, Tenet had outstanding 304,366,327 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: 53
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 this year's 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: 54
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 the 1999 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: 59
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. From 1995 through
September 1996, Ms. Bratter lectured and served as a consultant in the fields of
not-for-profit corporations and healthcare. Since October 1, 1996, Ms. Bratter
has served as the President of the Los Angeles Women's Foundation, a
not-for-profit organization dedicated to reshaping the status of women and girls
of all ages in southern California. Ms. Bratter has been a director of Tenet
since 1990. Her current term as a director of Tenet expires at the 1999 Annual
Meeting.
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<PAGE>
Maurice J. DeWald
Director
Member of Executive Committee,
Compensation and Stock Option Committee
and Chairman of the Audit Committee
Age: 57
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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Edward Egbert, M.D.
Director
Member of Nominating Committee, Pension Committee
and Ethics and Quality Assurance Committee
Age: 72
Dr. Egbert retired from the active practice of medicine on January 1, 1994.
Since that time, Dr. Egbert regularly has been providing pro bono medical
services in his community. 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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Raymond A. Hay
Director
Member of Audit Committee,
Ethics and Quality Assurance Committee
and Chairman of Nominating Committee
Age: 69
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: 61
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 the 1999 Annual Meeting.
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Richard S. Schweiker
Director
Member of Audit Committee and
Chairman of Ethics and Quality Assurance Committee
Age: 71
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 the United States
Department of Health and Human Services. His current term as a director of Tenet
expires at this year's Annual Meeting.
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DIRECTORS BY CLASS
Class 3 (term expires at the 1997 Annual Meeting of Shareholders)
Jeffrey C. Barbakow
Richard S. Schweiker
Class 1 (term expires at the 1998 Annual Meeting of Shareholders)
Maurice J. DeWald
Edward Egbert, M.D.
Raymond A. Hay
Class 2 (term expires at the 1999 Annual Meeting of Shareholders)
Bernice B. Bratter
Michael H. Focht, Sr.
Lester B. Korn
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NOMINEES AND VOTING
On January 30, 1997, the Company acquired OrNda HealthCorp ("OrNda"). The
acquisition was accomplished when a wholly-owned subsidiary of the Company
merged into OrNda (the "Merger"), leaving OrNda as a wholly-owned subsidiary of
the Company. In connection with the Merger, the size of the Board was increased
from 11 to 13 directors, and the Board elected Messrs. Peter A. Joseph and Paul
S. Levy to the Board.
On March 26, 1997, Mr. Thomas J. Pritzker resigned from the Board in order
to pursue outside interests. On April 9, 1997, Messrs. Joseph and Levy also
resigned from the Board in order to pursue outside interests. On May 21, 1997,
the size of the Board was reduced from 13 to 10 directors. On July 23, 1997, Mr.
James P. Livingston retired from the Board. On July 30, 1997, the size of the
Board was reduced from 10 to 9 directors.
On July 29, 1997, the Nominating Committee met and recommended that the
Board nominate each of Mr. Barbakow and Mr. Schweiker to serve a three-year term
as a director until the 2000 Annual Meeting. Mr. Peter de Wetter, whose term
also expires at this year's annual meeting, was not recommended for nomination
because he has reached the Company's mandatory retirement age for directors.
After considering the Nominating Committee's actions, the Board met on July 30,
1997, and nominated the directors recommended by the Nominating Committee and
approved reducing the size of the Board from 9 directors to 8 effective as of
the conclusion of this year's Annual Meeting.
Directors are divided into three classes and serve for three-year
overlapping terms. Following the election of the two Class 3 directors at this
year's Annual Meeting, there will be three Class 1 directors, three Class 2
directors and two Class 3 directors. The terms of the Class 1 and Class 2
directors do not expire until 1998 and 1999, respectively. 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. Barbakow and Schweiker. The Board
believes each of its nominees will be able and willing to serve if elected. If
either named nominee becomes unavailable, the Board's proxies will be voted for
the remaining nominee and for such other person 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. A vote to withhold
authority for a nominee will count as a no vote. 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 15, 1997, ownership of common stock by all directors, all
nominees, each of the named executive officers (as defined herein on page 11)
and all executive officers and directors as a group (12 persons) was as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------------
OPTIONS
EXERCISABLE
SHARES OF PRIOR TO
COMMON OCTOBER 31, PERCENT OF
NAME STOCK 1997 CLASS(2)
- ------------------------------------------------------------------------------ ----------- ----------- -------------
<S> <C> <C> <C>
Jeffrey C. Barbakow(3)........................................................ 22,450 2,431,333
Bernice B. Bratter............................................................ 11,000 15,000
Scott M. Brown................................................................ 4,794 32,267
Maurice J. DeWald............................................................. 10,800 15,000
Peter de Wetter............................................................... 13,400 25,460
Edward Egbert, M.D............................................................ 38,772 15,460
Trevor Fetter................................................................. 23,078 159,199
Michael H. Focht, Sr.......................................................... 10,000 725,976
Raymond A. Hay................................................................ 11,200 35,920
Lester B. Korn................................................................ 22,700 15,000
Raymond L. Mathiasen.......................................................... 38,546 189,433
Richard S. Schweiker.......................................................... 21,860 56,840
Executive officers and directors as a group (12 persons)...................... 228,600 3,716,888 1.3%
--
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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, 1997, 1% or more of the
outstanding shares of common stock of the Company.
(3) The total shares of common stock includes 3,350 shares held by Mr.
Barbakow's minor sons.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board acted eight times during the fiscal year ended May 31, 1997.
Except for directors Joseph, Levy and Pritzker, 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 1997, 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 acted four
times during fiscal 1997, may exercise, when the Board is not in 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 1997, the Company's Audit Committee consisted of
non-employee directors DeWald (Chairman), Schweiker, Hay and Livingston. 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
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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 1997.
During fiscal year 1997, 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 11 times in fiscal 1997.
During fiscal year 1997, 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 1997.
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 April 28,
1998.
The Company's Ethics and Quality Assurance Committee (the "Ethics
Committee") consisted during fiscal 1997 of non-employee directors Schweiker
(Chairman), Egbert, Hay and Livingston and employee-director Focht. The purpose
of the Ethics 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 activities in accordance with ethical standards and in delivering
quality medical care. In addition, the Ethics Committee also provides oversight
for the Company's corporate compliance and ethics program. The Ethics Committee
met three times in fiscal year 1997.
During fiscal year 1997, the Pension Committee consisted of non-employee
directors Korn (Chairman), 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 Company's 401(k) Retirement Savings Plan (the "401(k)
Plan"), approving major changes to the 401(k) Plan, approving any new qualified
investment or savings plans (other than stock plans) proposed by the Company and
the monitoring of such plans. The Pension Committee acted three times in fiscal
year 1997.
REMUNERATION OF DIRECTORS
During the fiscal year ended May 31, 1997, directors Bratter, DeWald, de
Wetter, Egbert, Hay, Korn, Livingston, and Schweiker, Tenet's non-employee
directors during fiscal 1997, each received 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. Effective March 26, 1997, the annual Board retainer fee was
increased from $40,000 per year to $50,000 per year. Director Pritzker received
a pro-rata portion of the retainer fee from June 1, 1996 through March 26, 1997,
when he resigned from the Board, and directors Joseph and Levy received a
pro-rata portion of the retainer fee from January 27, 1997, when they were
elected to the Board, through April 9,
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1997, when they resigned from the Board. Mr. de Wetter also received $1,000 per
month for serving as an advisor to the Compensation Committee pursuant to a
consulting agreement, which was extended through September, 1997. In addition,
Mr. Hay was permitted to use the Company aircraft for personal use. The
incremental cost to the Company of such personal use was $24,336.
Each committee Chair 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 1997, the
following non-employee directors participated in the Directors Retirement Plan:
Bratter, DeWald, de Wetter, Egbert, Hay, Korn, Livingston and Schweiker.
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 Directors Retirement Plan was amended in fiscal
year 1998 to permit participants to elect to receive the retirement benefits in
the form of a joint and survivor annuity and to permit the participant and
his/her surviving spouse to designate a beneficiary as the recipient of the
joint and survivor annuity in the event both should die before all payments have
been made. The present value of the joint and survivor annuity will be
actuarially equivalent to the present value of the payments that would be made
over the 10-year period referred to above. The annual retirement benefit is
equal to the lesser of (i) the Directors' 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 Directors' 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 Directors' service on the Board.
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, eligible children under the age of 21 or the designated beneficiary
discussed above. 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") is or
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.
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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 14.
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 a split dollar life
insurance agreement with an owner designated by a director providing for the
purchase of a joint life, second to die, life insurance policy 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 of
$1,000,000 to beneficiaries 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.
The Program is administered by the Compensation Committee, members of which
may be participants under the Program. As of July 31, 1997, life insurance
policies had been purchased by the owners on the lives of directors Bratter,
DeWald, de Wetter, Egbert, Focht, Hay, Korn and Livingston and their respective
designated other person. Directors Barbakow and Schweiker do not participate in
the Program.
1994 DIRECTORS STOCK OPTION PLAN
The Company believes that its 1994 Directors Stock Option Plan (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 Amended and Restated 1995 Stock Incentive Plan,
which plans are for employees. Currently, 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 initial election to the Board, such director will be
granted options to acquire 5,000 shares of common stock. As discussed more fully
on page 27, shareholders are being asked to approve an amendment to the DSOP to
increase from 5,000 to 7,500 the number of options to be granted under the DSOP
upon a director becoming a director and on the last Thursday of January of each
year. 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.
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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 or such election 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 earlier
with the consent of the Compensation Committee, then the option will expire five
years after the date of retirement, 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 upon the sale of all or substantially all of the assets of the
Company, unless provisions are made in connection with such transaction for the
continuance of the DSOP with adjustments appropriate to the circumstances.
In addition, upon the occurrence of a "Change of Control" of the Company or
in the event that any Person makes a filing with respect to the Company under
Sections 13(d) or 14(d) of the Exchange Act, all options then outstanding under
the DSOP will be fully vested and the restrictions upon exercise will
immediately cease.
For purposes of the DSOP the following terms have the following meanings:
(A) A "Change in Control" of the Company shall have occurred when a
Person, alone or together with its Affiliates and Associates, becomes the
beneficial owner of 20% or more of the general voting power of the Company.
(B) "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.
(C) "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.
(D) "Voting Stock" shall mean shares of the Company'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.
10
<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 1997, 1996 and 1995 to the person acting as Chief Executive Officer
at May 31, 1997, and the four other most highly compensated executive officers
(the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
- ------------------------------- --------- ---------- ------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Barbakow ...................... 1997 $ 992,250 $ 1,262,947 $ 64,950(3) 900,000 $ 66,557
CEO and Chairman 1996 945,000 1,165,707 61,933(3) -- 58,747
1995 900,000 574,560 125,813(3) 500,000 43,554
Focht ......................... 1997 634,200 753,957 164,041(4) 450,000 39,795
President and COO 1996 604,000 696,849 101,188(4) -- 69,643
1995 575,100 314,695 120,112(4) 300,000 20,143
Fetter (5) .................... 1997 426,667 463,519 80,447(6) 120,000 24,498
EVP and CFO 1996 222,115 475,636(7) 656,398(8) 247,600 4,914
1995 -- -- -- -- --
Mathiasen ..................... 1997 368,000 355,812 73,058(9) 60,000 23,761
SVP and CAO 1996 357,000 331,449 (10) 52,800 20,990
1995 340,000 221,000 (10) 80,000 19,884
Brown ......................... 1997 337,000 328,747 84,754(11) 60,000 21,933
General Counsel, 1996 315,000 304,464 (10) 52,800 52,261
SVP and Secretary 1995 300,000 195,000 (10) 80,000 16,549
</TABLE>
- ------------------------
(1) Includes compensation deferred at the election of an executive or in
accordance with an incentive plan.
(2) The aggregate amounts set forth in "All Other Compensation" for 1997
include the following, the amounts for each of which are set forth in the
table below: (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's
401(k) 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 BROWN
----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Tenet Retirement Savings Plan..................... $ 4,800 $ 4,800 $ 4,750 $ 4,750 $ 4,800
Deferred Compensation Plan........................ 55,182 29,785 15,987 15,039 13,566
Life and Disability Insurance Under SERP.......... 6,055 4,540 3,241 3,452 3,047
Directors Life Insurance Program.................. -0- 150 -0- -0- -0-
Personal Catastrophic Insurance................... 520 520 520 520 520
</TABLE>
11
<PAGE>
(3) Total for 1997 includes $57,982 and total for 1996 includes $55,710 of
corporate-sponsored automobile use. Total for 1995 includes $36,535 of
travel-related benefits.
(4) Total for 1997 includes $95,479, total for 1996 includes $66,706 and total
for 1995 includes $78,718 of travel-related benefits.
(5) Mr. Fetter joined the Company on October 23, 1995. Consequently, he
received no compensation from the Company during fiscal 1995 or fiscal 1996
before October 23, 1995.
(6) Total for 1997 includes $27,659 of membership fees, organizational dues and
related expenses reimbursed to Mr. Fetter during the year.
(7) A portion of this amount relates to a bonus paid to Mr. Fetter to induce
him to join the Company.
(8) 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.
(9) Total for 1997 includes $27,004 of relocation-related expenses reimbursed
to Mr. Mathiasen by the Company pursuant to a relocation program made
available to all corporate officers who relocated to the Company's new
corporate headquarters.
(10) 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.
(11) Total for 1997 includes $30,289 of relocation-related expenses reimbursed
to Mr. Brown by the Company pursuant to a relocation program made available
to all corporate officers who relocated to the Company's new corporate
headquarters.
12
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to the
named executive officers in fiscal year 1997.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE GRANT DATE
UNDERLYING EMPLOYEES PRICE PRESENT
NAME OPTIONS GRANTED(#) IN FY97 ($/SHARE) EXPIRATION DATE VALUE(3)
- -------------------------- ------------------ ------------------- ----------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Barbakow.................. 900,000(1) 14.2% $ 21.625 May 31, 2006 $ 12,015,000
Focht..................... 450,000(1) 7.1% 21.625 May 31, 2006 6,007,500
Fetter.................... 120,000(2) 1.9% 24.75 January 27, 2007 1,651,200
Mathiasen................. 60,000(2) 0.9% 24.75 January 27, 2007 825,600
Brown..................... 60,000(2) 0.9% 24.75 January 27, 2007 825,600
</TABLE>
- ------------------------
(1) The options have 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 10 years. The first two-thirds of the
options vest on the second anniversary of the grant date, and the remaining
one-third of the options vest on the third anniversary of the grant date. As
discussed more fully on page 24, in connection with these grants, Messrs.
Barbakow and Focht each sent a Memorandum of Understanding to the Company in
which each confirmed his intent to continue in his current position with the
Company for a period of not less than two years. In addition, each
acknowledged that the Company does not intend to grant any additional
options to him during fiscal 1997 or fiscal 1998.
(2) 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 10 years from the date of
grant.
(3) These values were established using standard Black-Scholes stock option
valuation models. The assumptions used to calculate the Grant Date Present
Value of the options granted to the named executive officers during fiscal
year 1997 were as follows:
<TABLE>
<CAPTION>
GRANT DATE/EXPIRATION DATE GRANT DATE/EXPIRATION DATE
6-1-96/5-31-06 1-28-97/1-27-07
--------------------------- -----------------------------
<S> <C> <C>
Expected Volatility.................... 40.7% 32.2%
Risk Free Rate of Return............... 6.83% 6.6%
Dividend Yield......................... 0% 0%
Time of Exercise (Years From Date of
Grant)............................... 9 9
</TABLE>
The Expected Volatility is derived using quarterly data drawn from the five
years preceding the date of grant. The Risk Free Rate of Return is the
approximate yield on a 10-year United States Treasury Bond on the date of grant.
The Dividend Yield is equal to zero. The Time of Exercise is an estimate of the
number of years the option will be held before it is exercised. 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 options granted to its executive officers. 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.
13
<PAGE>
OPTION EXERCISES
The following table sets forth information concerning options exercised by
each of the named executive officers in fiscal year 1997 and unexercised options
held by each of them as of May 31, 1997.
OPTION EXERCISES IN FISCAL YEAR 1997 AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT 5/31/97 MONEY OPTIONS AT 5/31/97(1)
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE(#)(2) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- ----------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barbakow................... 0 0 2,431,333 1,066,667 $ 42,097,412 $ 7,558,338
Focht...................... 0 0 725,976 550,000 9,167,061 4,006,250
Fetter..................... 0 0 82,532 285,068 795,939 1,921,911
Mathiasen.................. 1,046(2) 19,058 234,933 121,867 2,935,018 761,538
Brown...................... 44,000 577,000 39,767 121,867 442,125 761,538
</TABLE>
- ------------------------
(1) The closing price of the Company's common stock on May 30, 1997 (the last
business day of fiscal 1997) was $27.50.
(2) Mr. Mathiasen exercised options for 1,046 shares, but did not sell 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 10 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.
For participants who were not actively at work as regular, full-time
employees on or after February 1, 1997, "Earnings" is defined in the SERP as the
participant's base salary excluding bonuses and other cash and non-cash
compensation. In fiscal year 1997, the SERP was amended to provide that for all
participants who are actively at work as regular, full-time employees on or
after February 1, 1997, "Earnings" means the participant's base salary and
annual cash bonus excluding automobile and other allowances and other cash and
non-cash compensation.
The SERP also was amended in fiscal 1997 to provide that for all
participants who are actively at work as regular, full-time employees on or
after February 1, 1997: (i) the reduction for early retirement (retirement
before age 65) for benefits received prior to age 62 was reduced from 5.04% to
3.0% per year and the maximum yearly reduction was reduced from 35.28% to 21%;
(ii) the reduction of 5.04% per year for receiving benefits prior to age 62 was
reduced to 3.0% per year; (iii) the offset factor for the projected benefits
from other Company benefit plans will be applied only to the salary component of
Earnings and (iv) the annual 8% cap on increases in Earnings that had been in
effect was eliminated.
14
<PAGE>
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 voluntarily terminates his employment following the occurrence of certain
events discussed below, or is terminated without cause, 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 would be waived. The occurrence of any of the
following events within two years of a Change of Control causes the additional
payments discussed above to become payable if a participant voluntarily
terminates his or her employment following: (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
award 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. Finally, the SERP provides that in no event shall (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.
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. In fiscal 1997, an additional 1,500,000 shares of
the Company's common stock were contributed to the SERP Trust. The SERP Trust
will make payments required to be made to SERP participants and their
beneficiaries under the SERP in the event 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.
15
<PAGE>
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
401(K) 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
2,900,000................. 391,500 783,000 1,174,500 1,566,000 1,566,000
</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, 1997, the estimated credited years of service for the
individuals named in the Summary Compensation Table were as follows: Mr.
Barbakow, 4.00 years; Mr. Focht, 19.17 years; Mr. Fetter, 1.60 years; Mr.
Mathiasen, 11.65 years, and Mr. Brown, 15.72 years. In fiscal year 1997, the
Company determined that Mr. Barbakow's credited years of service under the SERP
would be enhanced commencing in June 1998 so that he will receive credit for two
years of service for each year as Chief Executive Officer of the Company up to a
maximum of six additional years of service.
The Company purchased insurance policies on the life of certain current and
past participants in the SERP, the purpose of which was 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. Both of these
benefits are fully insured.
16
<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.
As the need arises, the Compensation Committee has retained
nationally-recognized compensation consulting firms that assist 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 1997, over 89% 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 the performance of an individual or the Company 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 1997, 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 because
the Company believes that it is with those companies that the Company must
compete for qualified and experienced executives. For fiscal year 1997, the
Compensation Committee established a base salary and target annual incentive
structure generally designed to position total cash compensation opportunities
for the executives, including the chief executive officer, 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.
17
<PAGE>
In determining an individual executive's actual base salary, including that
of Mr. Barbakow, 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 additional responsibilities arising from the growth of
the Company, 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 based on the extent to which (a) the Company meets
its pre-established financial goal, the measure of which in fiscal year 1997 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 and-care goals (measured in fiscal year 1997 by patient
satisfaction at the Company's hospitals, by patient outcomes at the Company's
rehabilitation facilities and by quality management audits at the Company's
psychiatric facilities), (c) the executive meets pre-established corporate or
individual performance goals, and (d) the Company achieves growth in operating
income. The component of each executive's AIP award based on 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 such 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 below the prime rate. Each executive's
individual performance goals are set jointly by the executive and the
executive's supervisor. Individual performance goals related to the AIP, 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 1997 was based on return on equity) set in
advance by the Compensation Committee. The Compensation Committee 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 for the portion
of the AIP not based on growth in operating income. 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 for the portion of the AIP not based on
growth in operating income are paid at less-than-targeted levels. The portion of
each executive's AIP award based on growth in operating income will depend upon
the extent by which the Company's operating income for a given fiscal year is
greater than its operating income for the previous fiscal year.
Following the close of fiscal year 1997, the Compensation Committee met to
review information on the achievement of each of the above goals, determined
that the threshold had been met and determined awards based on the extent that
goals had been met. As a result of the Company's above-target financial
performance and the growth in the Company's operating income in fiscal year
1997, the total cash
18
<PAGE>
compensation paid to the Company's executives for fiscal year 1997 was in the
upper third of total cash compensation paid to executives of the Company's peer
companies and of other similarly-sized companies generally.
In light of his performance in fiscal year 1996, and taking into account the
challenges facing the Company in fiscal year 1997, the Compensation Committee
set Mr. Barbakow's salary for fiscal year 1997 at $992,250. The Compensation
Committee also established a fiscal year 1997 target award for the portion of
Mr. Barbakow's AIP award not based on growth in operating income and the
percentage multiplier for the portion of the AIP award based on growth in
operating income. The target award for the portion of the AIP award not based on
growth in operating income, 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), and a
quality-of-service goal (measured in fiscal year 1997 by patient satisfaction at
the Company's hospitals, by patient outcomes at the Company's rehabilitation
facilities and by quality management audits at the Company's psychiatric
facilities). As described above, the portion of Mr. Barbakow's AIP award based
on growth in the Company's operating income over the previous fiscal year's
operating income was based on the amount of such growth multiplied by a
percentage established for Mr. Barbakow in advance by the Compensation
Committee. In July 1997, 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 1997
award under the AIP was $1,262,947 based on the extent to which the AIP targets
had been met or exceeded and on the extent to which operating income for fiscal
year 1997 exceeded operating income for fiscal year 1996. As a result of the
Company's above-target financial performance in fiscal year 1997, the total cash
compensation paid to Mr. Barbakow for fiscal year 1997 was in the upper third 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 1997 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 upper third of such opportunities available at those other companies.
In fiscal year 1997, the Compensation Committee implemented its long-term
compensation policy by granting awards under the Company's 1991 and the 1995
Stock Incentive Plans (collectively, the "SIP"), which provide longer-term
compensation 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. During fiscal year 1997, the Company's named executive
officers as a group were granted non-qualified options for 1,590,000 shares of
Tenet common stock.
19
<PAGE>
In weighing the type and amount of SIP award that is appropriate for a given
executive, including awards to Mr. Barbakow, 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, shareholder value is enhanced, and 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.
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 no sooner than 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.
In recognition of the exceptional performance of the Company as measured by
shareholder returns during Mr. Barbakow's tenure as Chief Executive Officer of
the Company and the belief that the continued success of the Company will be
significantly enhanced by retaining Mr. Barbakow as Chief Executive Officer, Mr.
Barbakow received a grant of non-qualified options for 900,000 shares of Tenet
common stock under the SIP on June 1, 1996. As discussed more fully on page 24,
in connection with this grant, Mr. Barbakow sent a Memorandum of Understanding
to the Company in which he confirmed his intent to continue in his current
position with the Company for a period of not less than two years. In addition,
Mr. Barbakow acknowledged that Tenet does not intend to grant any additional
options to him during fiscal 1997 or fiscal 1998. Each of the 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 10 years. Although options under the SIP typically vest in equal
portions over three years from the date of grant, the first two-thirds of these
options vest on the second anniversary of the grant date, with the remaining
one-third vesting on the third anniversary of the grant date. The compensation
opportunity of this award to Mr. Barbakow was in the upper third of awards made
to chief executive officers of the Company's peer companies and of other
similarly-sized companies generally.
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 1994, the Company adopted the AIP, and in fiscal
year 1995, the Company adopted the 1995 Stock Incentive Plan (the "1995 SIP") in
order to ensure that future awards will continue to be deductible in light of
Section 162(m) of the Code.
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.
20
<PAGE>
It is the Compensation Committee's policy to administer executive
compensation such that compensation is a deductible expense as defined above,
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-92 $100.00 $100.00 $100.00
May-93 $68.99 $111.61 $86.99
May-94 $120.16 $115.36 $85.78
May-95 $121.98 $138.65 $116.55
May-96 $157.75 $178.08 $166.21
May-97 $201.90 $230.59 $227.87
</TABLE>
22
<PAGE>
The following graph shows the cumulative, four-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 four-year
period beginning on June 1, 1993, when the Company's new senior management began
managing the Company.
COMPARISON OF FOUR 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
May-97 $292.65 $206.60 $261.95
</TABLE>
Performance data assumes that $100.00 was invested on June 1, 1992 (or June
1, 1993 for the Four-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, Long Term
Incentive Plan (which no longer is in effect), 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. 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, the first 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.
Mr. Barbakow and Mr. Focht each acknowledged 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). Mr. Barbakow and Mr. Focht each
further acknowledged in his Memorandum of Understanding that Tenet does not
intend to grant any additional options to him during fiscal year 1997 or fiscal
year 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 by the
Board prior to such transaction or series of transactions taking place.
24
<PAGE>
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"), in which each of the named executive officers is a
Participant (as defined below). 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 sum of the Participant's
then-current base salary plus the Participant's target award 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 including 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 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.
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
25
<PAGE>
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 award 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.
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 fiscal year 1996 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, he will not be eligible for the 24 months of
salary and benefits continuation discussed under item (i) above to the extent
that he receives 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 them voluntarily terminates his employment with
Tenet within 24 months of his relocation, any amount paid to him as relocation
benefits 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,
26
<PAGE>
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.
SHARES OWNED BY CERTAIN SHAREHOLDERS
As shown in the table below, as of June 30, 1997, Oppenheimer Capital was
the beneficial owner of 10.6% of the Company's common stock, and FMR Corp. was
the beneficial owner of 11.2% 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 PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP CLASS
- ----------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
Oppenheimer Capital ..................... 32,111,388 shares held directly 10.6%
200 Liberty Street
New York, NY 10281
FMR Corp. ............................... 34,111,460 shares held directly 11.2%
82 Devonshire Street
Boston, MA 02109
</TABLE>
2. AMENDMENT TO THE 1994 DIRECTORS STOCK OPTION PLAN
On March 26, 1997, the Board approved the First Amendment (the "Amendment")
to the DSOP increasing (i) the initial grant of options, and (ii) the annual
grant of options under the DSOP from 5,000 options to 7,500 options. If approved
by the shareholders, the Amendment will become effective. The Company believes
the Amendment is necessary in order to continue to promote 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
primary features of the DSOP as amended by the Amendment (the "Amended DSOP")
are summarized below. The summary is qualified by, and subject to the provisions
of the Amended DSOP, a copy of which is attached as EXHIBIT A and should be
referred to for a complete statement of the terms of the Amended DSOP.
ADMINISTRATION
The Amended DSOP is administered by the Compensation Committee, which is
composed of non-employee directors who are eligible to participate in the
Amended DSOP. The Compensation Committee shall have the power to interpret the
Amended DSOP, and subject to its provisions, to prescribe, amend and rescind
rules and to make all other determinations necessary for the DSOP's
administration. All action taken by the Compensation Committee in the
administration and interpretation of the Amended DSOP shall be final and binding
upon all parties. No member of the Compensation Committee will be liable for any
action or determination made in good faith by the Compensation Committee with
respect to the Amended DSOP or any option. The Board will have the power, in its
discretion, to amend, suspend, or terminate the Amended DSOP at any time,
subject to the approval of the shareholders if and to the extent necessary for
the continued applicability of Rule 16b-3 under the Exchange Act. The Board may
not, however, amend the eligibility requirements or the granting schedule more
than once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act ("ERISA") or the rules thereunder.
Furthermore, no amendment, suspension or termination of the Amended DSOP may
alter, terminate, impair or adversely affect any rights or obligations under any
option previously granted without the consent of the holder.
27
<PAGE>
ELIGIBILITY AND GRANTS
Only non-employee directors of the Company are eligible to participate in
the Amended DSOP. Such non-employee directors are not eligible to receive new
awards in the SIP. Following the Annual Meeting, eight non-employee directors
will be participants in the Amended DSOP. Participants will be granted options
to acquire 7,500 shares of common stock of the Company on the last Thursday of
January of each year. In addition, upon initial election to the Board, a
non-employee director will be granted options to acquire 7,500 shares of common
stock on the last Thursday of the month of such directors' election to the
Board. Subject to certain adjustment provisions described in the Amended DSOP,
the aggregate number of shares of common stock that may be acquired upon the
exercise of options under the Amended DSOP is 500,000. The closing price of the
Company's common stock on August 25, 1997 was $28.375.
OPTION TERMS AND CONDITIONS
The maximum term of an option is 10 years from the date of grant. The option
will be exercisable one year from the date of grant. The exercise price will be
the fair market value of a share of common stock on the date of grant. The
exercise price may be paid (i) in cash, or, (ii) with the consent of the
Compensation Committee in its sole discretion, and if otherwise legally
permitted, by delivering to the Company shares of common stock owned by the
holder of the option for at least six months, with a fair market value on the
relevant exercise date equal to the exercise price, (iii) with the consent of
the Compensation Committee in its sole discretion, by a promissory note secured
by such number of shares of common stock determined by the Compensation
Committee bearing interest at a rate determined by the Compensation Committee,
or (iv) by a combination of any of the above.
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 after the date of death
or permanent and total disability. If the non-employee Director retires at the
Company's normal retirement age (59 1/2) or earlier with the consent of the
Compensation Committee, then the option will expire five years after the date of
retirement, 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.
No option or right under the Amended DSOP will be assignable or subject to
any encumbrance, pledge or charge of any nature except (i) with the written
consent of the Compensation Committee, (ii) transfer or assignment in favor of
the Company, and (iii) under such rules as the Compensation Committee may
establish pursuant to the terms of the Amended DSOP. Furthermore, no option or
right under the Amended DSOP is transferable by a holder other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of ERISA or the rules
thereunder. The designation by a holder of a beneficiary is not a transfer,
assignment, encumbrance, pledge or change of any nature.
DURATION
Unless the Amended DSOP is previously terminated, the Amended DSOP will
terminate on January 26, 2004, except with respect to options then outstanding.
28
<PAGE>
ADJUSTMENT
If the outstanding shares of common stock of the Company are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of common stock or other
securities, through merger, consolidation, spin-off, the sale of all or
substantially all the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of common stock, or other securities,
then an appropriate and proportionate adjustment may be made in (i) the maximum
number and kind of shares covered by the Amended DSOP and (ii) the number and
kind of shares of other securities subject to, and the exercise price of, then
outstanding options. Notwithstanding the above, upon dissolution, liquidation,
reorganization, merger or consolidation involving the Company as a result of
which the Company is not the surviving corporation, or upon the sale of all or
substantially all of the assets of the Company, all options then outstanding
under the Amended DSOP will be deemed fully vested unless provisions are made in
connection with such transactions for the continuance of the Amended DSOP or the
assumption or substitution of such options with new options of the surviving
corporation.
In addition, upon the occurrence of a "Change of Control" of the Company or
in the event that any Person makes a filing with respect to the Company under
Sections 13(d) or 14(d) of the Exchange Act, all options then outstanding under
the Amended DSOP will be fully vested and the restrictions upon exercise will
immediately cease.
For purposes of the Amended DSOP the following terms have the following
meanings:
(A) A "Change in Control" of the Company shall have occurred when a Person,
alone or together with its Affiliates and Associates, becomes the beneficial
owner of 20% or more of the general voting power of the Company.
(B) "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.
(C) "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.
(D) "Voting Stock" shall mean shares of the Company'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.
FEDERAL TAX CONSEQUENCES
A non-employee director who receives an option under the Amended DSOP will
not recognize any income, nor will the Company be entitled to any tax deduction,
in the year of the grant. At the time that an option is exercised, the
non-employee director will recognize ordinary income in an amount equal to the
excess of (a) the fair market value of the shares purchased over (b) the
exercise price paid for such shares. The Company will be entitled to a deduction
in an amount equal to the amount includable in the income of the non-employee
director, in the taxable year in which the non-employee director is required to
recognize the income.
29
<PAGE>
NEW PLAN BENEFITS
No New Plan Benefits Table is provided herein with respect to the Amended
DSOP because, as described on page 28, the only people eligible to receive
grants under the plan are the non-employee directors of the Company (each of
whom is eligible to receive 7,500 options each year).
Approval of the Amended DSOP requires the affirmative vote of a majority of
the Company's shares present, or represented, and entitled to vote. Shares voted
for the proposal and shares represented by returned proxies that do not contain
instructions to vote against the proposal or to abstain from voting will be
counted as shares cast for the proposal. Shares will be counted as cast against
the proposal if the shares are voted either against the proposal or to abstain
from voting. Broker non-votes will not change the number of votes cast for or
against the proposal and will not be counted as present at the Annual Meeting.
If the shareholders do not approve the Amended DSOP, the former DSOP will remain
in effect.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1994 DIRECTORS STOCK OPTION PLAN
3. 1997 ANNUAL INCENTIVE PLAN
The Board of Directors approved the 1997 Annual Incentive Plan (the "1997
AIP") on July 30, 1997, upon the recommendation of the Compensation Committee.
If approved by the shareholders, the 1997 AIP will replace the 1994 Annual
Incentive Plan (the "1994 AIP"). The purpose of the 1997 AIP is to enhance
shareholder value and promote the attainment of significant business objectives
of the Company by basing a portion of an employee's compensation on the
performance of such employee, his or her business unit and/or the Company.
The primary difference between the 1997 AIP and the 1994 AIP is that the
1997 AIP specifically authorizes awards based on the principles of Economic
Value Added ("EVA"). EVA is a registered trademark of Stern Stewart & Co. The
purpose of awards based on EVA is to provide key employees a financial reward
directly related to an increase in the value of the Company to its shareholders.
In general terms, EVA is the difference between the return on total capital
invested in a business or project and the cost of such capital invested.
Effective for compensation otherwise deductible in taxable years beginning
after December 31, 1993, Section 162(m) of the Code, enacted as part of the
Omnibus Budget Reconciliation Act of 1993, generally precludes a publicly held
corporation from taking a federal income tax deduction for compensation in
excess of $1 million paid to Covered Employees (as defined in the 1997 AIP).
Exceptions are made for, among other things, qualified performance-based
compensation. It is the intent of the Company that the 1997 AIP and Code Section
162(m) Awards (as defined in the 1997 AIP) thereunder satisfy, in the case of
participants who are or may be Covered Employees, the applicable requirements of
Code Section 162(m). A participant who is or may be a Covered Employee
nevertheless may receive an award under the 1997 AIP that is not a Code Section
162(m) Award, which award may result in compensation that is not deductible by
the Company for federal income tax purposes. The Company believes that the 1997
AIP will permit the Company to pay Code Section 162(m) Awards to Covered
Employees and still deduct the compensation in excess of $1,000,000 from its
federal income taxes in accordance with Section 162(m) of the Code.
The primary features of the 1997 AIP are summarized below. The summary is
qualified by, and subject to, the provisions of the 1997 AIP, a copy of which is
attached as EXHIBIT B and should be referred to for a complete statement of the
terms of the 1997 AIP.
ADMINISTRATION
The 1997 AIP is administered by the Compensation Committee, which is
composed of non-employee directors who are not eligible to participate in the
1997 AIP.
30
<PAGE>
ELIGIBILITY
Any key employee of the Company who the Compensation Committee determines,
in its discretion, is responsible for producing profits for the Company or
otherwise has a significant effect on the operations of the Company is eligible
to participate in the 1997 AIP. The Compensation Committee determines who is to
be treated as a Covered Employee. Approximately 785 employees currently are
eligible to participate in the 1997 AIP. Two of those employees currently are
Covered Employees.
DETERMINATION OF AWARDS
Each year the Compensation Committee will establish one or more criteria to
measure performance (a "Performance Criteria" or the "Performance Criteria"),
set the annual performance objectives ("Performance Goals") with respect to such
Performance Criteria for the Company, a business unit(s) or an individual, the
weightings to be given to the Performance Criteria and Performance Goals,
designate whether an award will be a Code Section 162(m) Award, set the Target
Awards and in the case of Growth Awards (as defined below), determine the Growth
Award Percentage(s) (as defined below).
In the case of a Code Section 162(m) Award, the Performance Criteria will be
limited to one or more of the following performance measures, each of which may
be adjusted by the Compensation Committee to exclude the before-tax or after-tax
effects of any significant acquisitions or dispositions not included in the
calculations made in connection with setting the Performance Criteria for the
relevant award agreement:
a. Income, either before or after income taxes, including or excluding
interest, depreciation and amortization, minority interests, extraordinary items
and other material non-recurring items, discontinued operations, the cumulative
effect of changes in accounting policies and the effects of any tax law changes.
b. Return on average equity, which shall be income calculated in
accordance with clause a. above, divided by average shareholders' equity
calculated on a monthly basis.
c. Basic or diluted earnings per share of common stock, which shall be
income calculated in accordance with clause a. above, divided by (i) in the case
of basic earnings per share, the weighted average number of shares, and (ii) in
the case of diluted earnings per share, the weighted average number of shares
and share equivalents of common stock.
d. Net cash provided by operating activities based upon income
calculated in accordance with clause a. above.
e. Quality of service and/or patient care, measured by the extent to
which pre-set quality objectives are achieved by the Company.
f. Operating Income.
g. Operating Income Growth.
h. EVA Growth.
i. EVA.
Awards that are not Code Section 162(m) Awards may be based not only on the
foregoing Performance Criteria, but also on any other criteria related to
performance selected by the Compensation Committee.
For purposes of the 1997 AIP, the following terms have the following
meanings:
"EVA" means economic value added. EVA is calculated as (i) Operating
Income adjusted by one or more of the following: (a) goodwill amortization, (b)
the interest component of operating lease expense, (c) investment earnings and
equity in earnings of unconsolidated affiliates, and (d) the imputed income tax
31
<PAGE>
effect, minus (ii) the product of (a) capital, calculated as the total of one or
more of the following: (1) net working capital related to operations, (2) net
property and equipment related to operations, (3) the capitalized value of
operating leases, and (4) other operating assets, and (b) the Company's weighted
average cost of capital; provided, however, that both (i) and (ii) above may be
adjusted to exclude the before-tax or after-tax effects of all acquisitions and
dispositions of, investments in and construction of health care facilities and
other assets with a value of over $3 million (after taking into account any
assumed debt or other obligations) for the Year or other measurement period in
which such facility or asset is acquired or disposed of, such investment is made
or such construction is completed and to exclude the effects of all material
non-recurring items; provided, further, that for awards other than Code Section
162(m) Awards, the Committee from time to time may make certain adjustments to
either or both of (i) and (ii) above.
"EVA Growth" means the increase or decrease in EVA from one measurement
period to another.
"Growth Award" means an award based on Operating Income Growth, EVA Growth
or growth in any other Performance Criterion listed above.
"Growth Award Percentage" means the percentage established for a participant
for each Year or measurement period for which such participant is eligible for a
Growth Award.
"Operating Income" means (i) operating income from continuing operations, or
(ii) net operating revenues after operating expenses, in either case based on
income calculated in accordance with clause a. above.
"Operating Income Growth" means the increase or decrease in Operating Income
from one measurement period to another.
"Target Award" means for an award other than a Growth Award to a
participant, the amount, which may be expressed as a dollar amount or as a
percentage of the participant's salary, payable to a participant when actual
performance with respect to Performance Criteria equals or falls within the
range of the performance identified by the Compensation Committee as target
performance for such Performance Criteria.
For awards other than Growth Awards, the Compensation Committee will
establish an award schedule for each award for each participant setting forth
the percentage of the Target Award for such participant payable at specified
levels of performance, based on the Performance Goal for each of the Performance
Criteria and the weighting established for such criteria.
For Growth Awards, the Compensation Committee will establish an award
schedule for each Growth Award for each participant for each measurement period.
The award schedule will state that such participant will be paid for the
relevant measurement period an amount calculated by multiplying (A) such
participant's Growth Award Percentage by (B) the applicable growth achieved by
the Company and/or business unit during the measurement period.
A participant who is or may be a Covered Employee may receive a Code Section
162(m) Award and/ or an award that is not a Code Section 162(m) Award. All of
the determinations required to be made by the Compensation Committee with
respect to an award that is intended to be a Code Section 162(m) Award will be
made in a timely manner, as required by Code Section 162(m). Each Code Section
162(m) Award shall be evidenced by an award agreement setting forth the award
schedule and such other terms and conditions applicable to the award, as
determined by the Compensation Committee, not inconsistent with the terms of the
1997 AIP. Before any Code Section 162(m) Award is paid, the Compensation
Committee shall certify that the Performance Criteria and any other material
terms of such award have been satisfied.
32
<PAGE>
For Fiscal Year 1998, the Compensation Committee has determined that the
Performance Criteria for Code Section 162(m) Awards will be diluted earnings per
share from continuing operations, patient satisfaction (measured by patient
satisfaction at the Company's hospitals, by patient outcomes at the Company's
rehabilitation facilities and by quality management audits at the Company's
psychiatric facilities), Operating Income Growth and EVA and that payment of
awards will be subject to satisfying a return on average equity threshold.
All determinations regarding the achievement of Performance Goals and the
determination of actual Code Section 162(m) Awards will be made by the
Compensation Committee. With respect to a Code Section 162(m) Award, the
Compensation Committee may in its sole discretion decrease, but not increase,
the amount of the award that otherwise would be payable.
AMOUNT AVAILABLE AND MAXIMUM INDIVIDUAL AWARDS
The amount available for payment of awards in any year or any other
measurement period shall be determined by the Compensation Committee. The
aggregate maximum amount that may be paid to a Covered Employee during a year
with respect to all awards under the 1997 AIP is $2,000,000. Under the 1994 AIP,
the aggregate maximum that may be paid to a Covered Employee during any year is
$1,500,000.
FORM AND PAYMENT OF AWARDS
Except for Growth Awards or for other awards if a different payment schedule
is determined by the Compensation Committee at the time the award is made (in
which case the Compensation Committee shall specify at the time the award is
made the payment schedule for such award), awards under the 1997 AIP for a
particular year shall be paid in cash as soon as practicable after the end of
that year. Growth Awards under the 1997 AIP for a particular year or other
measurement period shall be paid according to a payment schedule determined by
the Compensation Committee. The payment schedule determined by the Compensation
Committee for a Growth Award may require that all or a portion of the amount
that otherwise would be paid shall be held in an account and paid in the future,
if at all, according to terms and conditions, including future financial
performance or growth, and according to a timetable, determined by the
Compensation Committee. Amounts so held may be credited with interest at a rate
determined by the Compensation Committee from time to time.
TERMINATION OF EMPLOYMENT
Unless the Compensation Committee determines otherwise, an employee must be
actively employed by the Company on the date the amount payable with respect to
his or her award agreement is determined by the Compensation Committee in order
to be entitled to payment of any award for the year or other measurement period,
including any amount from prior years held for payment in that year or future
years. An employee may receive a partial award as determined by the Compensation
Committee.
AMENDMENT OR TERMINATION OF THE 1997 AIP
The Board may at any time amend, suspend or discontinue the 1997 AIP, in
whole or in part. The Committee may at any time alter or amend any or all award
agreements under the 1997 AIP to the extent permitted by law. No such action
may, however, without approval of the shareholders of the Company, be effective
with respect to any Code Section 162(m) Award to any Covered Employee if such
approval is required by Code Section 162(m)(4)(C).
NEW PLAN BENEFITS
It is not possible to determine at this time the awards that will be payable
under the 1997 AIP for fiscal year 1998 performance. The table below sets forth
the Target Awards payable for fiscal year 1998 performance to the named
executive officers, all current executive officers as a group (the "Executive
33
<PAGE>
Group"), all current directors who are not executive officers as a group (the
"Non-Executive Director Group") and all employees, including all current
officers who are not executive officers, as a group (the "Employee Group") under
the 1997 AIP. Actual awards payable may be higher or lower depending on the
performance of the Company.
ANNUAL INCENTIVE PLAN
<TABLE>
<CAPTION>
NAME DOLLAR VALUE
- -------------------------------------------------------------------------------- ------------
<S> <C>
Barbakow........................................................................ $ 1,164,941
Focht........................................................................... $ 720,524
Fetter.......................................................................... (1)
Mathiasen....................................................................... (1)
Brown........................................................................... (1)
Executive Group................................................................. (1)
Non-Executive Director Group (2)................................................ 0
Employee Group.................................................................. (1)
</TABLE>
- ------------------------
(1) Amounts are not determinable because the award criteria and related targets
for fiscal year 1998 performance have not been determined for any executive
officer other than Covered Employees. For information purposes, the amounts
received under the 1994 AIP for the named executive officers for fiscal year
1997 are included in the Summary Compensation Table on page 11. The amounts
received under the 1994 AIP by the Executive Group and the Employee Group
for fiscal year 1997 were $3,164,982 and $37,826,547, respectively.
(2) Non-employee directors were not eligible to participate in the 1994 AIP and
will not be eligible to participate in the 1997 AIP.
Approval of the 1997 AIP requires the affirmative vote of a majority of the
Company's shares present, or represented, and entitled to vote. Shares voted for
the proposal and shares represented by returned proxies that do not contain
instructions to vote against the proposal or to abstain from voting will be
counted as shares cast for the proposal. Shares will be counted as cast against
the proposal if the shares are voted either against the proposal or to abstain
from voting. Broker non-votes will not change the number of votes cast for or
against the proposal and will not be counted as present at the Annual Meeting.
If the shareholders do not approve the 1997 AIP, the 1994 AIP will remain in
effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE 1997 ANNUAL INCENTIVE PLAN.
4. AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN
The 1995 Employee Stock Purchase Plan (the "Purchase Plan") provides
employees of the Company the opportunity to purchase the Company's stock at a
discount. The Purchase Plan was approved by the Board on August 11, 1995, and by
the Company's shareholders on September 27, 1995.
The Purchase Plan originally had 2,000,000 shares available for purchase by
employees. Of the 2,000,000 shares originally available for purchase under the
Purchase Plan, approximately 1,200,000 shares remain. As a result of the
acquisition of OrNda, the number of the Company's employees increased from
approximately 65,000 to approximately 105,000. Consequently, the Company desires
to enter into the First Amendment (the "Amendment") to the Purchase Plan to
increase the number of shares available for purchase by employees under the
Purchase Plan by 3,000,000 shares. Without the Amendment, depending on the
degree of employee participation, the Company will have to suspend or terminate
the Purchase Plan in the next year or shortly thereafter.
34
<PAGE>
The Board approved the Amendment on July 30, 1997, subject to the approval
of the Company's shareholders. If the Amendment is approved by the Company's
shareholders, there will be approximately 4,200,000 shares of Tenet stock
remaining available for purchase by employees under the amended Purchase Plan
(the "Amended Purchase Plan").
The purpose of the Amended Purchase Plan is to enhance shareholder value and
promote the attainment of significant business objectives of the Company by
allowing employees to purchase the Company's stock at a discount, thereby giving
the employees an interest in common with that of the shareholders.
The primary features of the Amended Purchase Plan are summarized below. The
summary is qualified by, and subject to, the provisions of the Amended Purchase
Plan, a copy of which is attached as EXHIBIT C and should be referred to for a
complete statement of the terms of the Amended Purchase Plan.
ADMINISTRATION
The Amended Purchase Plan is administered by the Compensation Committee,
which is composed of non-employee directors who are not eligible to participate
in the Amended Purchase Plan.
ELIGIBILITY
Any employee of the Company or any subsidiary designated by the Committee
who customarily works at least 20 hours per week and six months per year is
eligible to participate in the Amended Purchase Plan after having worked for the
Company for six months. Approximately 80,000 employees currently are eligible to
participate in the Amended Purchase Plan. Non-employee directors of the Company
are not eligible to participate in the Amended Purchase Plan.
OPERATION OF THE PURCHASE PLAN
Each employee eligible to participate in the Amended Purchase Plan will be
granted an option to contribute between one and 10 percent of the employee's
compensation towards the purchase of the Company's common stock at a purchase
price for each three-month purchase period (a "Purchase Period") equal to the
lower of (x) 85% of the fair market value of a share of the Company's common
stock on the first day of the Purchase Period, and (y) 85% of the fair market
value of a share of the Company's common stock on the last day of the Purchase
Period. Fair market value is defined in the Amended Purchase Plan as the closing
price of the Company's common stock on the relevant date. The amount to be
contributed by a participant will be deducted from each paycheck, held for the
participant during a Purchase Period and applied towards the purchase of the
Company's common stock on the last day of the Purchase Period. Unless otherwise
determined by the Compensation Committee, amounts held for a participant during
a Purchase Period will not bear interest. A participant may change the
percentage of his or her compensation to be contributed for any given purchase
period prior to the beginning of that period and may elect not to participate
with respect to one or more plan periods, but then must wait until the next
calendar year before participating again. In addition, participants who are
reporting persons under Section 16 of the Securities Exchange Act of 1934 and
who choose to withdraw from participation in the Amended Purchase Plan must wait
at least six months after withdrawing before electing to participate again in
the Amended Purchase Plan. The Company will bear the costs of administration of
the Amended Purchase Plan, including any fees, costs and expenses relating to
the purchase of shares. The employee will be responsible for all fees, costs and
expenses due upon the sale of any shares purchased under the Amended Purchase
Plan. No fractional shares will be purchased under the Amended Purchase Plan.
Amounts that otherwise would have been applied to the purchase of fractional
shares will continue to be held for the participant and be applied towards the
purchase of shares on the last day of the next Purchase Period.
35
<PAGE>
RESTRICTIONS ON PURCHASE
No employee will have the right to purchase stock under the Amended Purchase
Plan if (a) immediately after acquiring the right to purchase stock the employee
would own five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or any subsidiary (taking into account
all stock the ownership of which would be attributable to the employee under
applicable provisions of the Code), (b) such right would permit the employee's
right to purchase stock under the Amended Purchase Plan and any other stock
purchase plans of the Company and its subsidiaries in effect from time to time
to exceed $25,000 of fair market value of such stock (determined as of the first
day of each Purchase Period) for each calendar year, or (c) such right which
would permit the employee to purchase more than 4,000 shares (or such other
number of shares as may be determined in advance for any Purchase Period by the
Compensation Committee) of common stock in any Purchase Period.
NUMBER OF SHARES AVAILABLE
The number of shares remaining available for purchase under the Purchase
Plan is approximately 1,200,000 and under the Amended Purchase Plan is
approximately 4,200,000. Such shares may be treasury shares, shares purchased on
the open market, newly issued shares reserved for issuance under the Purchase
Plan or any combination thereof. Shares purchased for a participant will be held
for the participant unless a participant requests that a certificate be issued
for such shares. The participant will have the right to vote shares held for the
participant's account. Any cash dividends paid with respect to shares of stock
held for the account of a participant will be, as determined by the Compensation
Committee on a uniform basis for all participants, either (i) distributed to the
participant, or (ii) credited to the participant's account and used to purchase
additional shares of stock under the Amended Purchase Plan at the end of the
next Purchase Period. The closing price of the Company's common stock on August
25, 1997 was $28.375 per share.
TERMINATION OF EMPLOYMENT
Upon a participant's termination of employment, all contributions to the
participant's account will cease and the participant will receive the cash
balance remaining in the participant's account and may request a certificate or
certificates evidencing the stock purchased by the participant. If a participant
shall retire, become permanently disabled or die, contributions to the
participant's account will cease and the participant or the participant's
representative may elect to withdraw the remaining cash balance or to have the
remaining cash balance applied to the purchase of stock on the last day of the
Purchase Period.
BASIC FEDERAL TAX CONSEQUENCES
No federal income tax will be recognized by the participant upon the grant
of the option to purchase stock or upon the purchase of the stock under the
Amended Purchase Plan. If a participant disposes of stock purchased under the
Amended Purchase Plan within two years from the first day of the Purchase Period
during which such stock was purchased, at the time of disposition the
participant will recognize (a) ordinary income equal to the fair market value of
the stock on the day it was purchased less the amount paid for the shares, and
(b) a capital gain or loss equal to the difference between the participant's
basis in the stock (the amount paid for the stock plus the amount taxed as
ordinary income under subparagraph (a) above) and the amount realized upon the
disposition of the stock. If the participant holds the stock for more than 18
months, the capital gain or loss will be a long-term capital gain or loss. The
Company generally will be entitled to a deduction in the amount of the ordinary
income on which the participant is taxed under subparagraph (a) above. A
participant must notify the Company if the participant disposes of any stock
purchased under the Purchase Plan within two years from the first day of the
Purchase Period during which such stock was purchased.
36
<PAGE>
If a participant disposes of stock purchased under the Amended Purchase Plan
more than two years from the first day of the Purchase Period during which such
stock was purchased, at the time of the disposition the participant will
recognize ordinary income equal to the lesser of (x) the excess of the fair
market value of the stock on the date of disposition over the amount paid for
such stock, and (y) 15% of the fair market value of such stock at the beginning
of the Purchase Period in which the stock was purchased. In addition, the
participant will recognize a long-term capital gain or loss equal to the
difference between the participant's basis in the stock (the amount paid for the
stock plus the amount taxed as ordinary income under subparagraph (x) above) and
the amount realized upon the disposition of the stock. The Company will not be
entitled to any deduction.
AMENDMENT OR TERMINATION OF THE PURCHASE PLAN
The Board at any time may amend, suspend or discontinue the Amended Purchase
Plan, in whole or in part.
NEW PLAN BENEFITS
It is not possible at this time to determine the dollar value of benefits
available under the Amended Purchase Plan for fiscal year 1998 because neither
the participation level for the employees nor the Company's stock price is known
at this time. For informational purposes, the table below sets forth the
aggregate of the dollar values of the excess of the fair market values of the
stock on the last day of each Purchase Period over the purchase price of stock
that actually was paid during fiscal 1997 by the named executive officers, all
current executive officers as a group (the "Executive Group"), all current
directors who are not executive officers as a group (the "Non-Executive Director
Group") and all employees, including all current officers who are not executive
officers, as a group (the "Employee Group") under the Purchase Plan.
1995 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NAME DOLLAR VALUE
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Barbakow..................................................................... (1)
Focht........................................................................ (1)
Fetter....................................................................... $ 6,867.62
Mathiasen.................................................................... (1)
Brown........................................................................ $ 4,915.24
Executive Group.............................................................. $ 11,782.86
Non-Executive Director Group (2)............................................. $ 0
Employee Group............................................................... $ 2,202,098.24
</TABLE>
- ------------------------
(1) Did not participate in the Purchase Plan during fiscal 1997.
(2) Non-employee directors are not eligible to participate in the Purchase Plan
and will not be eligible to participate in the Amended Purchase Plan.
Approval of the Amendment requires the affirmative vote of a majority of the
Company's shares present, or represented, and entitled to vote. Shares voted for
the proposal and shares represented by returned proxies that do not contain
instructions to vote against the proposal or to abstain from voting will be
counted as shares cast for the proposal. Shares will be counted as cast against
the proposal if the shares are voted either against the proposal or to abstain
from voting. Broker non-votes will not change the number of votes cast for or
against the proposal and will not be counted as present at the Annual Meeting.
If the shareholders do not approve the Amendment, the Purchase Plan will remain
in effect.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
AMENDMENT.
37
<PAGE>
5. 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, 1998. 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. Abstentions will count as no votes. 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 April 28, 1998.
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 1997, 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 the acquisition of shares by the minor sons of
Mr. Barbakow was not filed on a timely basis. The transaction was, however,
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, 1997, as filed with the Securities and Exchange Commission, excluding
certain exhibits thereto, may be obtained without charge, by writing Paul J.
Russell, Vice President-Investor Relations, Tenet Healthcare Corporation, 3820
State Street, Santa Barbara, California, 93105, or by telephoning Tenet Investor
Relations at (805) 563-6868.
By Order of the Board of Directors
Scott M. Brown
SECRETARY
SANTA BARBARA, CALIFORNIA
AUGUST 26, 1997
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EXHIBIT A
TENET HEALTHCARE CORPORATION
FIRST AMENDED AND RESTATED
1994 DIRECTORS STOCK OPTION PLAN
1. PURPOSE OF PLAN.
The purpose of the First Amended and Restated 1994 Directors Stock Option
Plan of Tenet Healthcare Corporation is to promote 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 to encourage the
highest level of Directors' performance by providing Directors with a
proprietary interest in the Company's financial success and growth.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Compensation and Stock Option Committee of the
Board as shall be appointed by the Board from time to time. The Committee shall
consist of two or more members of the Board none of whom shall be Employees of
the Company.
(c) "Common Stock" means the $.075 par value Common Stock of the Company.
(d) "Company" means Tenet Healthcare Corporation, a Nevada corporation.
(e) "Director" means a member of the Board who is not an Employee.
(f) "Employee" means any full-time employee of the Company, or of any of its
present or future parent or subsidiary corporations.
(g) "Fair Market Value" means the closing price of a share of Common Stock
on the Composite Tape on the date as of which fair market value is to be
determined or the actual sale price of the shares acquired upon exercise if the
shares are sold in a same day sale, or if no sales were made on such date, the
closing price of such shares on the Composite Tape on the next preceding date on
which there were such sales.
(h) "Participant" means each Director.
(i) "Option" means a stock option that does not satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended.
(j) "Plan" means the 1994 Directors Stock Option Plan as set forth herein,
as amended from time to time.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 7, the aggregate number of shares of
Common Stock that may be issued or transferred pursuant to exercise of Options
under the Plan is 500,000 shares of Common Stock. Such shares may be either
authorized but unissued shares or shares issued and thereafter acquired by the
Company.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee, which shall have the
power to interpret the Plan and, subject to its provisions, to prescribe, amend
and rescind rules and to make all other determinations necessary for the Plan's
administration.
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(b) All action taken by the Committee in the administration and
interpretation of the Plan shall be final and binding upon all parties. No
member of the Committee will be liable for any action or determination made in
good faith by the Committee with respect to the Plan or any Option.
5. ELIGIBILITY.
Only Directors shall be eligible to participate in the Plan. Prior to the
termination of the Plan, each Director who is serving in such capacity on the
Date of Grant (as hereinafter defined) automatically shall be granted, on the
last Thursday of January of each year, an Option to acquire 7,500 shares of
Common Stock. Each Director upon initial election to the Board automatically
shall be granted an Option to acquire 7,500 shares of Common Stock on the last
Thursday of the month of such Director's election to the Board. Initial election
to the Board shall mean election to the Board by the Board or by the
Shareholders of the Company, whichever first occurs. The date on which an Option
is granted shall be the "Date of Grant" with respect to such Option. Each Option
will be evidenced by a written instrument including terms and conditions
consistent with the Plan, as the Committee may determine.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The purchase price of Common Stock under each Option will be the Fair
Market Value of the Common Stock on the Date of Grant. Notwithstanding any other
provision to the contrary contained in the Plan, including without limitation,
Sections 6(c)(i), (ii) and (iii), each Option will expire not later than ten
years from the Date of Grant.
(b) An option granted under the Plan may not be exercised for a period of
one year after the Date of Grant. After such period, an Option may be exercised
with respect to all shares of Common Stock covered thereby during its term as
provided hereunder.
(c) Subject to the provisions of Section 6(a), each Option will expire at
the time the Participant ceases to be a Director, except as follows:
(i) If the service of the Director is terminated by the Company other
than for cause, for which the Company will be the sole judge, or if the
Director is nominated but is not reelected by the shareholders of the
Company, then the Option will expire one year after the date of termination.
(ii) If the Director retires at the Company's normal retirement age as
defined in its Retirement Savings Plan or retires with the consent of the
Committee, the Option will expire five years after the date of termination.
(iii) If the Director dies or becomes permanently and totally disabled
while serving in such capacity, the Option will expire five years after the
date of death or permanent and total disability. If the Director dies or
becomes permanently and totally disabled within the one-year period referred
to in subparagraph (i) above, the Option will expire one year after the date
of death or permanent and total disability. If the Director dies or becomes
permanently and totally disabled within the five-year period referred to in
subparagraph (ii) above, the Option will expire upon the later of five years
after retirement or one year after the date of death or permanent and
totally disability.
(d) Upon the exercise of an Option, the exercise price will be payable in
full (i) in cash; or, (ii) with the consent of the Committee in its sole
discretion, (A) by the assignment and delivery to the Company of shares of
Common Stock, owned by the holder of the Option for at least six months, with a
Fair Market Value on the relevant exercise date equal to the exercise price, (B)
by execution and delivery of a promissory note, secured by such number of shares
of Common Stock determined by the Committee, bearing interest at a rate
determined by the Committee, or (C) by a combination of any of the above. No
payment by an assignment of shares or by a promissory note or by any combination
thereof will be allowed unless such payments are allowed under applicable
requirements of federal and state tax, securities and other laws, rules and
regulations and by any regulatory authority having jurisdiction.
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7. ADJUSTMENT PROVISIONS.
(a) Subject to Section 7(b), if the outstanding shares of Common Stock of
the Company are increased, decreased, or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, spin-off, sale of all
or substantially all the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment may be made in (i)
the maximum number and kind of shares provided in Section 3 and Section 5 and
(ii) the number and kind of shares or other securities subject to, and the
purchase price in, then-outstanding Options.
(b) Despite the provisions of Section 7(a), upon dissolution, or liquidation
of the Company or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon the sale of all or substantially all the assets
of the Company, all Options then outstanding under the Plan will be fully vested
and the restrictions upon exercise in Section 6(b) will immediately cease,
unless provisions are made in connection with such transaction for the
continuance of the Plan, the assumption or the substitution for such Options of
new options covering the stock of a successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.
(c) Adjustments under Section 7(a) and 7(b) will be made by the Committee,
whose determination as to what adjustments will be made and the extent thereof
will be final, binding, and conclusive. No fractional interest will be issued
under the Plan on account of any such adjustments.
(d) Upon the occurrence of a "Change of Control" of the Company or in the
event that any Person makes a filing with respect to the Company under Sections
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), all Options then outstanding under the Plan will be fully vested and the
restrictions upon exercise in Section 6(b) will immediately cease.
For purposes of this Section 7(d) the following definitions shall apply:
(i) A "Change in Control" of the Company shall have occurred when a
Person, alone or together with its Affiliates and Associates, becomes the
beneficial owner of 20% or more of the general voting power of the Company.
(ii) "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.
(iii) "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.
(iv) "Voting Stock" shall mean shares of the Company'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.
8. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue as a Director or affect
the right of the Company to terminate the services of any Participant in
accordance with the By-Laws.
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(b) No shares of Common Stock will be issued or transferred pursuant to an
Option unless and until all then-applicable requirements imposed by federal and
state securities and other laws, rules and regulations and by any regulatory
agencies having jurisdiction, and by any stock exchanges upon which the Common
Stock may be listed, have been fully met. As a condition precedent to the
issuance of shares pursuant to the exercise of an Option, the Company may
require the Participant to take any reasonable action to meet such requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) No Option and no right under the Plan, contingent or otherwise, will be
transferrable or assignable or subject to any encumbrance, pledge or charge of
any nature except (i) with the written consent of the Committee, (ii) a transfer
or assignment in favor of the Company, and (iii) under such rules and
regulations as the Committee may establish pursuant to the terms of the Plan.
(e) No Option and no right under the Plan, contingent or otherwise, will be
transferable by a Participant other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended (the "Code") or Title I of the
Employee Retirement Income Security Act ("ERISA"), or the rules thereunder. The
designation of a beneficiary by a Participant does not constitute a transfer.
9. AMENDMENT AND TERMINATION.
(a) The Board will have the power, in its discretion, to amend, suspend or
terminate the Plan at any time, subject to approval of the shareholders of the
Company if and to the extent necessary for the continued applicability of Rule
16b-3 under the Exchange Act.
(b) No amendment, suspension or termination of the Plan will, without the
consent of the holder, alter, terminate, impair or adversely affect any right or
obligation under any Option previously granted under the Plan.
(c) Notwithstanding the provisions of Section 9(a), the Board may not amend
the provisions of Section 5 or the definition of Director in Section 2 more than
once every six months, other than to comport with changes in the Code, ERISA or
the rules thereunder.
10. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
This amended Plan shall become effective upon adoption by the Board, subject
to approval by the holders of a majority of the shares of Common Stock which are
represented in person or by proxy and entitled to vote on the subject at the
1997 Annual Meeting of Shareholders of the Company. Unless the Plan is
previously terminated, the Plan will terminate on January 26, 2004, except with
respect to Options then outstanding.
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EXHIBIT B
1997 ANNUAL INCENTIVE PLAN
OF
TENET HEALTHCARE CORPORATION
1. PURPOSE. The purpose of this 1997 Annual Incentive Plan (the "Plan") of
Tenet Healthcare Corporation and its subsidiaries (the "Company") is to provide
an incentive to enhance shareholder value and promote the attainment of
significant business objectives of the Company by basing a portion of selected
employees' compensation on the performance of such employee, the Company, and/or
the employee's Business Unit (as defined below).
2. DEFINITIONS
a. "Award Agreement" means the document setting forth the terms and
conditions under which an award may be paid to a participant.
b. "Award Schedule" means the Award Schedule established pursuant to
Article 5.
c. "Board" means the Board of Directors of the Company.
d. "Business Unit" means any division, group, subsidiary or other unit
within the Company which is designated by the Committee to constitute a Business
Unit.
e. "Committee" means the Compensation and Stock Option Committee of the
Board.
f. "Code" means the Internal Revenue Code of 1986, and any successor
statute, and the regulations promulgated thereunder, as it or they may be
amended from time to time.
g. "Code Section 162(m) Award" means an award intended to satisfy the
requirements of Code Section 162(m) and designated as such in an Award
Agreement.
h. "Covered Employee" means a Covered Employee within the meaning of Code
Section 162(m)(3) or is designated as a Covered Employee by the Committee.
i. "EVA(1)" means economic value added. EVA is calculated as (i) Operating
Income adjusted by one or more of the following: (a) goodwill amortization, (b)
the interest component of operating lease expense, (c) investment earnings, (d)
equity in earnings of unconsolidated affiliates, and (e) the imputed income tax
effect, minus (ii) the product of (a) capital, calculated as the total of one or
more of the following: (1) net working capital related to operations, (2) net
property and equipment related to operations, (3) the capitalized value of
operating leases, and (4) other operating assets, and (b) the Company's weighted
average cost of capital; provided, however, that both (i) and (ii) above may be
adjusted to exclude the before-tax or after-tax effects of all acquisitions and
dispositions of, investments in, and construction of health care facilities and
other assets with a value of over $3 million (after taking into account any
assumed debt or other obligations) for the Year or other measurement period in
which such facility or asset is acquired or disposed of, such investment is made
or such construction is completed and to exclude the effects of all material
non-recurring items; provided, further, that for awards other than Code Section
162(m) Awards, the Committee from time to time may make certain adjustments to
either or both of (i) and (ii) above.
j. "EVA Growth" means the increase or decrease in EVA from one measurement
period to another.
k. "EVA Growth Award" means an award based on EVA Growth.
- ------------------------
(1) EVA is a registered trademark of Stern Stewart & Co.
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l. "Growth Award" means an award based on Operating Income Growth, EVA
Growth or growth in any other Performance Criterion listed in Article 2.q.1.
m. "Growth Award Percentage" means the percentage established for a
participant for each Year or measurement period for which such participant is
eligible for a Growth Award.
n. "Operating Income" means (i) operating income from continuing
operations, or (ii) net operating revenues after operating expenses, in either
cased based on income calculated in accordance with Article 2.q.1.A.
o. "Operating Income Growth" means the increase or decrease in Operating
Income from one measurement period to another.
p. "Operating Income Growth Award" means an award based on Operating Income
Growth.
q. "Performance Criterion" and "Performance Criteria" means any of the
following performance measures, each of which may be adjusted by the Committee
to exclude the before-tax or after-tax effects of any significant acquisitions
or dispositions not included in the calculations made in connection with setting
the Performance Criteria for the relevant Award Agreement:
1. A. Income, either before or after income taxes, including or
excluding interest, depreciation and amortization, minority interests,
extraordinary items and other material non-recurring items, discontinued
operations, the cumulative effect of changes in accounting policies and the
effects of any tax law changes;
B. Return on average equity, which shall be income calculated in
accordance with Article 2.q.1.A. above, divided by average shareholders'
equity calculated on a monthly basis;
C. Basic or diluted earnings per share of common stock, which shall
be income calculated in accordance with Article 2.q.1.A. above, divided
by (i) in the case of basic earnings per share, the weighted average
number of shares, and (ii) in the case of diluted earnings per share, the
weighted average number of shares and share equivalents of common stock;
D. Net cash provided by operating activities based upon income
calculated in accordance with Article 2.q.1.A. above;
E. Quality of service and/or patient care, measured by the extent to
which pre-set quality objectives are achieved by the Company;
F. Operating Income;
G. Operating Income Growth;
H. EVA Growth; or
I. EVA.
2. Any other criteria related to performance, including the performance
of one or more of the Business Units, individual performance or any other
category of performance selected by the Committee.
r. "Performance Goals" are the performance objectives with respect to
Performance Criteria established by the Committee for the Company, a Business
Unit or an individual for the purpose of determining whether, and the extent to
which, payments will be made for that Year or other measurement period with
respect to Award Agreements under the Plan.
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s. "Target Award" means for an award other than a Growth Award to a
participant, the amount, which may be expressed as a dollar amount or as a
percentage of the participant's salary, payable to a participant when actual
performance with respect to Performance Criteria equals or falls within the
range of the performance identified by the Committee as target performance for
such Performance Criteria.
t. "Year" means the Company's fiscal year.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
The Committee's determinations under the Plan need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
Award Agreements or payments of awards under the Plan, whether or not any Award
Agreements are the same or such persons are similarly situated. Without limiting
the generality of the foregoing, the Committee will be entitled, among other
things, to make non-uniform and selective determinations and to establish
non-uniform and selective Performance Criteria, Performance Goals, the
weightings thereof, Growth Award Percentages and Target Awards. Whenever the
Plan refers to a determination being made by the Committee, it shall be deemed
to mean a determination by the Committee in its sole discretion.
It is the intent of the Company that this Plan and Code Section 162(m)
Awards hereunder satisfy, and be interpreted in a manner that satisfy, in the
case of participants who are or may be Covered Employees, the applicable
requirements of Code Section 162(m), including the administration requirement of
Code Section 162(m)(4)(C), so that the Company's tax deduction for remuneration
in respect of such an award for services performed by such Covered Employees is
not disallowed in whole or in part by the operation of such Code section. If any
provision of this Plan would otherwise frustrate or conflict with the intent
expressed in this Article, that provision, to the extent possible, shall be
interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, such provision shall be
deemed void as applicable to Covered Employees with respect to whom such
conflict exists. Nothing herein shall be interpreted so as to preclude a
participant who is or may be a Covered Employee from receiving an award that is
not a Code Section 162(m) Award.
The Committee shall have the discretion, subject to the limitations
described herein, including in Article 4 below relating to Code 162(m) Awards,
to, among other actions, (a) determine the Plan participants; (b) determine who
will be treated as a Covered Employee and designate whether an award will be a
Code Section 162(m) Award; (c) determine the measurement period and establish a
payment schedule for awards payable under each Award Agreement; (d) determine
Performance Criteria, Performance Goals and Target Awards for each Year or other
measurement period; (e) in the case of Growth Awards, determine the Growth Award
Percentage or Growth Award Percentages for each participant for each such Year
or other measurement period; (f) in the case of awards that are based on EVA,
determine each of the elements of the definition of EVA, including, without
limitation, (i) the interest component of operating lease expense referred to in
Article 2.i.(i)(b), (ii) the imputed income tax effect referred to in Article
2.i.(i)(e), (iii) how capital will be calculated, as referred to in Article
2.i.(ii)(a), (iv) the average weighted cost of capital referred to in Article
2.i.(ii)(b) and (v) whether to exclude the effects of acquisitions,
divestitures, investments and construction projects with a value of over $3
million (after taking into account any assumed debt or other obligations) for
the Year or other measurement period in which such acquisition, divestiture or
investment occurs or such construction is completed and/or to exclude the
effects of all material non-recurring items; (g) determine how Income and
Operating Income will be calculated; (h) establish an Award Schedule; (i)
determine whether the Performance Criteria will be adjusted for the before-tax
or after-tax effects of any significant acquisitions or dispositions not
included in the calculations made in connection with setting the Performance
Criteria for the relevant Award Agreement; (j) establish performance thresholds
for the payment of any awards; (k) determine whether and to what extent the
Performance Goals have been met or exceeded; (l) make discretionary payments of
awards as may be appropriate in order to assure the proper motivation and
retention of personnel and
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attainment of business goals; (m) make adjustments to Performance Criteria,
Performance Goals, thresholds and Growth Award Percentages; and (n) determine
the total amount of funds available for distribution as payments of awards with
respect to each Year or other measurement period. Subject to the provisions of
the Plan, the Committee shall be authorized to interpret the Plan, to make,
amend and rescind such rules as it deems necessary for the proper administration
of the Plan, to make all other determinations necessary or advisable for the
administration of the Plan and to correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems desirable to carry the Plan into effect. Any action taken or
determination made by the Committee shall be conclusive on all parties. In the
event of any conflict between an Award Agreement and the Plan, the terms of the
Plan shall govern.
4. CODE SECTION 162(M) AWARDS. A participant who is or may be a Covered
Employee may receive a Code Section 162(m) Award and/or an award that is not a
Code Section 162(m) Award. Notwithstanding anything elsewhere in the Plan to the
contrary, as and to the extent required by Section 162(m), the grant of an award
to a participant must state, in terms of an objective formula or standard, the
method of computing the amount of compensation payable to each Covered Employee
and must preclude discretion to increase the amount of compensation payable that
would otherwise be due upon attainment of such goals. All determinations made by
the Committee pursuant to Article 3 above related to a Code Section 162(m) Award
will be made in a timely manner, as required by Code Section 162(m). An Award
Agreement for a Covered Person shall set forth for each Code Section 162(m)
Award the Award Schedule and such other terms and conditions applicable to the
award, as determined by the Committee, not inconsistent with the terms of the
Plan, and shall specify that such award is a Code Section 162(m) Award. Before
any Code Section 162(m) Award is paid, the Committee shall certify that the
Performance Criteria and any other material terms of such award has been
satisfied. Notwithstanding the foregoing, the Performance Criteria with respect
to Code Section 162(m) Awards shall be limited to the Performance Criteria set
forth in Article 2.q.1.
5. AWARDS.
a. AWARDS OTHER THAN GROWTH AWARDS. Performance Criteria and Performance
Goals will be established by the Committee for each Year or other measurement
period. The Committee also will determine the extent to which the Performance
Criteria shall be weighted in determining awards. The Committee will establish
an Award Schedule for each participant setting forth the percentage of the
Target Award for such participant payable at specified levels of performance,
based on the Performance Goal for each Performance Criterion and the weighting
established for such criterion. The Committee may vary the Performance Criteria,
Performance Goals and weightings from participant to participant, award to
award, Year to Year and measurement period to measurement period.
b. GROWTH AWARDS. Performance Criteria and Performance Goals will be
established by the Committee for each Year or other measurement period. The
Committee will establish an Award Schedule for each Growth Award for each
participant who is eligible for a Growth Award for each measurement period. Each
participant's Award Schedule for each Growth Award shall set forth that such
participant will be paid for such measurement period:
i. with respect to an EVA Growth Award, an amount calculated by
multiplying (A) such participant's EVA Growth Award Percentage determined by
the Committee for such participant by (B) the EVA Growth for such
measurement period for a business unit and/or the Company;
ii. with respect to an Operating Income Growth Award, an amount
calculated by multiplying (A) such participant's Operating Income Growth
Award Percentage determined by the Committee for such participant by (B) the
Operating Income Growth for such measurement period for a business unit
and/or the Company; and
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iii. with respect to any other Growth Award, an amount calculated by
multiplying (A) such participant's Growth Award Percentage determined by the
Committee for such participant for such measurement period by (B) the growth
of such other measure as shall be determined by the Committee for such
measurement period for a business unit and/or the Company.
6. ELIGIBLE PERSONS. Any key employee of the Company who the Committee
determines, in its discretion, is responsible for producing profits for the
Company or otherwise has a significant effect on the operations of the Company
shall be eligible to participate in the Plan. Committee members are not eligible
to participate in the Plan. No employee shall have a right (a) to be selected
under the Plan, or (b) having once been selected, to (i) be selected again or
(ii) continue as an employee.
7. AMOUNT AVAILABLE FOR AWARDS. The amount available for payment of awards
in any Year or any other measurement period shall be determined by the
Committee. Notwithstanding anything else in this Plan to the contrary, the
aggregate maximum amount that may be paid to a Covered Employee during a Year
with respect to all awards under the Plan shall be $2,000,000.
8. DETERMINATION OF AWARDS. The Committee shall select the participants
and determine which participants, if any, are to be treated as Covered Employees
and which awards, if any, are to be Code Section 162(m) Awards. Except in the
case of Code Section 162(m) Awards, the Committee shall determine the actual
award to each participant for each Year or other measurement period, taking into
consideration, as it deems appropriate, the performance of the Company and/or a
Business Unit, as the case may be, for the Year or other measurement period in
relation to the Performance Goals (or, in the case of Growth Awards, EVA Growth,
Operating Income Growth or other growth) theretofore established by the
Committee, and the performance of the respective participants during the Year or
other measurement period. The fact that an employee is selected as a participant
for any Year or other measurement period shall not mean that such employee
necessarily will receive an award for that Year or other measurement period.
Notwithstanding any other provisions of the Plan to the contrary, the Committee
may make discretionary awards as it sees fit under the Plan, except in the case
of Code Section 162(m) Awards, which may be adjusted only downward.
A Code Section 162(m) Award that is not a Growth Award may range from zero
(0) to one hundred and fifty (150) percent of the Covered Employee's Target
Award, depending upon whether, or the extent to which, the Performance Goals
with respect to such Code Section 162(m) Award that is not Growth Award have
been achieved. Code Section 162(m) Awards that are not Growth Awards shall be
determined according to the Award Schedule based on the level of performance
achieved and the participant's Target Award. Notwithstanding the foregoing, a
Code Section 162(m) Award that is a Growth Award payable to a Covered Employee
shall be determined according to the Award Schedule with respect to such award.
All such determinations regarding the achievement of Performance Goals and the
determination of actual Code Section 162(m) Awards will be made by the
Committee; provided, however, that with respect to a Code Section 162(m) Award,
the Committee may, in its sole discretion, decrease, but not increase, the
amount of the Code Section 162(m) Award that otherwise would be payable.
9. DISTRIBUTION OF AWARDS. Except for Growth Awards or for other awards if
a different payment schedule is determined by the Committee at the time the
award is made (in which case the Committee shall specify at the time the award
is made the payment schedule for such award), awards under the Plan for a
particular Year shall be paid in cash as soon as practicable after the end of
that Year. Growth Awards under the Plan for a particular Year or other
measurement period shall be paid according to a payment schedule determined by
the Committee. The payment schedule determined by the Committee for a Growth
Award may require that all or a portion of the amount that otherwise would be
paid shall be held in an account and paid in the future, if at all, according to
terms and conditions, including future financial performance or growth, and
according to a timetable, determined by the Committee. Amounts so held may be
credited with interest at a rate determined by the Committee from time to time.
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To the extent that the Company's tax deduction for remuneration in respect
of the payment of an award to a Covered Employee would be disallowed under Code
Section 162(m) by reason of the fact that such Covered Employee's applicable
employee remuneration, as defined in Code Section 162(m)(4), either exceeds or,
if such award were paid, would exceed the $1,000,000 limitation in Code Section
162(m)(1), the Committee may, in its sole discretion, defer the payment of such
award, but only to the extent that, and for so long as, the Company's tax
deduction in respect of the payment thereof would be so disallowed; provided
that the Committee may, nevertheless, accelerate the payment of previously
deferred awards if it determines that the amount of the tax deduction that would
be disallowed is not significant. Deferred awards will be deemed credited with
interest at a rate determined by the Committee from time to time.
10. TERMINATION OF EMPLOYMENT. A participant must be actively employed by
the Company on the date the amount payable with respect to his or her Award
Agreement is determined by the Committee (the "Payment Date") in order to be
entitled to payment of any award for that Year or other measurement period. In
the event active employment of a participant shall be terminated before the
Payment Date for any reason other than discharge for cause or voluntary
resignation, such participant may receive such portion of his or her award for
the Year or other measurement period as may be determined by the Committee. A
participant discharged for cause shall not be entitled to receive any award for
the Year or other measurement period. A participant who voluntarily resigns
prior to the Payment Date shall not be entitled to receive payment of any award
for the Year or for any past or future measurement period, including any amount
with respect to the portion of any award remaining to be paid over more than one
Year or other measurement period, unless otherwise determined by the Committee.
11. MISCELLANEOUS.
a. NONASSIGNABILITY. No award will be assignable or transferable without
the written consent of the Committee in its sole discretion, except by will or
by the laws of descent and distribution.
b. WITHHOLDING TAXES. Whenever payments under the Plan are to be made, the
Company will withhold therefrom an amount sufficient to satisfy any applicable
governmental withholding tax requirements related thereto.
c. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend,
suspend or discontinue the Plan, in whole or in part. The Committee may at any
time alter or amend any or all Award Agreements under the Plan to the extent
permitted by law. No such action may, however, without approval of the
shareholders of the Company, be effective with respect to any Code Section
162(m) Award to any Covered Employee if such approval is required by Code
Section 162(m)(4)(C).
d. OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan will be deemed
in any way to limit or restrict the Company from making any award or payment to
any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.
e. PAYMENTS TO OTHER PERSONS. If payments are legally required to be made
to any person other than the person to whom any amount is available under the
Plan, payments will be made accordingly. Any such payment will be a complete
discharge of the liability of the Company.
f. LIMITS OF LIABILITY.
1. Any liability of the Company to any participant with respect to an award
shall be based solely upon contractual obligations created by the Plan and the
Award Agreement.
2. Neither the Company, nor any member of its Board or of the Committee,
nor any other person participating in any determination of any question under
the Plan, or in the interpretation, administration or application of the Plan,
shall have any liability to any party for any action taken or not taken in good
faith under the Plan.
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g. RIGHTS OF EMPLOYEES.
1. Status as an employee eligible to receive an award under the Plan shall
not be construed as a commitment that any award will be made under this Plan to
such employee or to other such employees generally.
2. Nothing contained in this Plan or in any Award Agreement (or in any
other documents related to this Plan or to any award or Award Agreement) shall
confer upon any employee or participant any right to continue in the employ or
other service of the Company or constitute any contract or limit in any way the
right of the Company to change such person's compensation or other benefits or
to terminate the employment or other service of such person with or without
cause.
h. SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and in the event of any conflict, the text of the
Plan, rather than the section headings, will control.
i. INVALIDITY. If any term or provision contained herein will to any
extent be invalid or unenforceable, such term or provision will be reformed so
that it is valid, and such invalidity or unenforceability will not affect any
other provision or part hereof.
j. APPLICABLE LAW. The Plan, the Award Agreements and all actions taken
hereunder or thereunder shall be governed by, and construed in accordance with,
the laws of the state of California without regard to the conflict of law
principles thereof.
k. EFFECTIVE DATE. The Plan shall be effective as of June 1, 1997.
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EXHIBIT C
TENET HEALTHCARE CORPORATION
FIRST AMENDED AND RESTATED
1995 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND COMMENCEMENT
1.01 PURPOSE. The purpose of the Plan is to provide the employees of the
Company and its Subsidiaries with added incentive to continue in their
employment and to encourage increased efforts to promote the best interests of
the Company by permitting eligible employees to purchase shares of Common Stock
of the Company at prices less than the current market price thereof. The Plan is
intended to qualify as an employee stock purchase plan under Section 423 of the
Code and shall be interpreted and construed in accordance with such purpose.
1.02 COMMENCEMENT. The Plan shall become effective on such date as may be
specified by the Board of Directors, which, absent a resolution of the Board of
Directors to the contrary, shall be as set forth in Section 2.01(p) hereof;
PROVIDED, HOWEVER, that in no event shall the Plan become effective unless
within twelve months of the date of its adoption by the Board of Directors it
has been approved by the affirmative vote of a majority of the issued and
outstanding shares of Common Stock at a duly called meeting of the shareholders
of the Company.
ARTICLE II
DEFINITIONS
2.01 DEFINITIONS. As used in the Plan, the following terms and phrases
shall have the following meanings:
(a) "Board of Directors" shall mean the Board of Directors of the Company.
(b) "Closing Market Price" shall mean (i) if the Common Stock is traded on a
national securities exchange, the Closing Market Price shall be the closing
price reported by the applicable composite transactions report on the date of
any determination or, if the Common Stock is not traded on such date, the
closing price so reported on the next following date on which the Common Stock
is traded on such exchange, or (ii) if the foregoing provision is inapplicable,
the Closing Market Price shall be determined by the Committee in good faith on
such basis as it deems appropriate.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Commencement Date" shall mean the first day of a Plan Quarter.
(e) "Committee" shall mean the Compensation and Stock Option Committee of
the Board of Directors, or such other committee of the Board of Directors
designated by the Board of Directors for purposes of administering the Plan.
(f) "Common Stock" means the common stock of the Company, par value $0.075
per share.
(g) "Company" shall mean Tenet Healthcare Corporation, a Nevada corporation.
(h) "Contribution Account" shall mean the account established on behalf of a
Participant pursuant to Article IV hereof to which shall be credited his or her
Participant Contributions.
(i) "Contribution Rate" shall be a percentage of a Participant's Covered
Compensation during each payroll period designated by each Participant to be
contributed by regular payroll deductions to his or her Contribution Account as
set forth in Section 3.03 hereof.
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(j) "Covered Compensation" shall mean:
(i) The entire amount paid to an Employee by a Sponsoring Employer for
the performance of duties including salaries, wages paid on an hourly or
other time basis, commissions and cash bonuses, but shall not include
Christmas gifts, insurance premiums and other imputed income, pensions,
retirement benefits, stock bonuses, stock options, stock appreciation
rights, prizes or awards (such terms to include, but not be limited to,
amounts redeemed by an Employee from rideshare points, either in cash or in
merchandise purchased by the Employee with such points) or, in the case of
an Employee working outside of the United States, amounts in excess of the
Employee's base pay intended to reimburse the Employee for the higher cost
of living outside of the United States, such as foreign service premiums or
hardship allowances;
(ii) The entire amount paid to an Employee by a Sponsoring Employer on
account of a period of time during which no duties are performed, including
salaries, wages paid on an hourly or other time basis, commissions, cash
bonuses and salary or wage continuation paid during vacation, holiday,
illness, layoff, jury duty, military duty or leave of absence, but shall not
include (A) any payments made or due under a plan maintained solely for the
purpose of complying with workmen's compensation or unemployment
compensation or disability insurance laws, (B) any payment which solely
reimburses the Employee for expenses incurred by the Employee, (C) any
payments made to the Employee as severance pay, or (D) imputed income; and
(iii) For purposes of Subparagraphs (i) and (ii) above, "Covered
Compensation" for any Plan Quarter shall also include amounts described in
Subparagraph (i) and (ii) which are deferred by a Participant under the
Tenet Healthcare Corporation Retirement Savings Plan, as amended, in
accordance with Section 401(k) of the Code or under a "cafeteria plan"
maintained by the Company or a subsidiary in accordance with Section 125 of
the Code.
(k) "Employee" shall mean each employee of a Sponsoring Employer whose
customary employment is at least twenty (20) hours a week and more than six
months in a calendar year. For purposes of the Plan, "employment" shall be
determined in accordance with the provisions of Section 1.421-7(h) of the
Treasury Regulations (or any successor regulations).
(l) "Participant" shall mean any Employee of a Sponsoring Employer who has
met the conditions and provisions for becoming a Participant set forth in
Article III hereof.
(m) "Participant Contributions" shall be the aggregate dollars actually
contributed by each Participant to his or her Contribution Account.
(n) "Permanent Disability" shall mean an illness, injury or other physical
or mental condition continuing for at least 180 consecutive days which results
in an Employee's inability to provide in all material respects the duties
theretofore performed in his or her capacity as an Employee of a Sponsoring
Employer.
(o) "Plan" shall mean the First Amended and Restated 1995 Employee Stock
Purchase Plan as set forth herein, as it may be amended from time to time.
(p) "Plan Quarter" shall mean each calendar quarter. The first Plan Quarter
shall be the Plan Quarter commencing on January 1, 1996, and ending on March 31,
1996, or such later Plan Quarter as may be determined by the Committee.
(q) "Purchase Date" shall mean the last business day of a Plan Quarter on
which the Common Stock publicly trades.
(r) "Purchase Price" shall mean the purchase price for a share of Common
Stock to be paid by a Participant on a Purchase Date, as determined under
Section 4.02 hereof.
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(s) "Request for Participation" shall mean such form as shall be approved by
the Committee for distribution to Employees in connection with participation in
the Plan.
(t) "Sponsoring Employers" shall mean the Company and each Subsidiary that
has been designated by the Committee as a Sponsoring Employer under the Plan.
(u) "Subsidiary" shall mean a subsidiary of the Company which is treated as
a subsidiary corporation under Section 424(f) of the Code.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY. Each Employee shall become eligible to be a Participant
of the Plan and may participate therein as of the Commencement Date of a Plan
Quarter if such Employee has been an Employee for at least six months prior to
such Commencement Date.
3.02 LIMITATIONS. Notwithstanding anything to the contrary contained in
the Plan, no right to purchase Common Stock shall accrue under the Plan in favor
of any person who is not an Employee eligible to participate in the Plan under
Section 3.01 hereof, and no Employee shall acquire the right to purchase shares
of Common Stock (i) if immediately after receiving such right to purchase Common
Stock, such Employee would own 5% or more of the total combined voting power or
value of all classes of stock of the Company or any Subsidiary, taking into
account in determining stock ownership any stock attributable to such Employee
under Section 424(d) of the Code, (ii) which would permit such Employee's right
to purchase stock under all employee stock purchase plans (to which Section 423
of the Code applies) of the Company and its Subsidiaries, as those plans are in
effect from time to time, to accrue at a rate which exceeds $25,000 of fair
market value of such stock (as determined as each Commencement Date) for each
calendar year, all as specified in the manner provided by Section 423(b)(8) of
the Code, or (iii) which would permit such Employee the right to purchase more
than 4,000 shares (or such other number as may be determined in advance for any
Purchase Period by the Committee) of Common Stock in any Purchase Period.
3.03 PARTICIPATION.
(a) Each Employee eligible to be a Participant and participate in the Plan
shall be furnished a summary of the Plan and a Request for Participation by such
Employee's Sponsoring Employer. If an Employee elects to participate hereunder,
such Employee shall complete such form and file it with his or her Sponsoring
Employer not later than 15 days prior to a Commencement Date of a Plan Quarter.
The completed Request for Participation shall indicate the Participant
Contribution Rate authorized by the Participant. If any Employee does not elect
to participate in the Plan during any given Plan Quarter, such Employee may
elect to participate on any future Commencement Date so long as he or she
continues to be an eligible Employee.
(b) On his or her Request for Participation, an Employee must authorize his
or her Sponsoring Employer to deduct through a payroll deduction the amount of
such Employee's Participant Contribution. The payroll deduction specified in a
Request for Participation for each payroll period shall be at a Participant
Contribution Rate no less than 1% and no more than 10% of such Employee's
Covered Compensation during such payroll period paid to him or her by his or her
Sponsoring Employer. Such deductions shall begin as of the first pay period
ending after the Commencement Date of a Plan Quarter. Participant Contributions
will not be permitted to begin at any time other than immediately after the
Commencement Date of a Plan Quarter. No interest shall accrue to Participants on
any amounts withheld under the Plan, unless and until the Committee shall
approve such accrual of interest on terms that it shall specify and apply on a
uniform basis as to all Participants.
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(c) The Participant's Contribution Rate, once established, shall remain in
effect for all Plan Quarters unless changed by the Participant in writing
delivered to such Participant's Sponsoring Employer and filed with such
Sponsoring Employer at least 15 days prior to the Commencement Date of the next
Plan Quarter. A Participant's Contribution Rate for a Plan Quarter may not be
increased, decreased or otherwise modified at any time during the 15-day period
prior to the Commencement Date of such Plan Quarter.
(d) A Participant may notify his or her Sponsoring Employer of such
Participant's desire to discontinue his or her Participant Contributions by
delivering to his or her Sponsoring Employer written notice on such forms as may
be provided by the Company or such Participant's Sponsoring Employer at least 15
days prior to the Purchase Date of the relevant Plan Quarter. Upon such request,
there shall be refunded to such Participant as soon as practicable the entire
cash balance in his or her Contribution Account. If a Participant determines to
discontinue his or her Participant Contributions pursuant to this Section
3.05(d), (i) such Participant shall be terminated from the Plan effective upon
the date of receipt of such Participant's notice to his or her Sponsoring
Employer and (ii) such Participant shall not be permitted to be a Participant in
the Plan for the remainder of the calendar year in which such notice is
received; provided, however, that, in addition to the foregoing, if such
Participant is a person subject to the reporting requirements of Section 16 of
the Securities Exchange Act of 1934, as amended, such Participant must wait at
least six months before being permitted once again to participate in the Plan.
In the event a Participant's payroll deductions are prevented by legal process,
the Participant will be deemed to have terminated from the Plan.
(e) By enrolling in the Plan, each Participant will be deemed to have
authorized the establishment of a brokerage account in his or her name at a
securities brokerage firm or other financial institution, if approved by the
Committee in its discretion.
3.04 TERMINATION OF EMPLOYMENT. Any Participant (i) whose employment by a
Sponsoring Employer is terminated for any reason (except death, retirement or
Permanent Disability) or (ii) who shall cease to be an Employee under the Plan,
in either case during a Plan Quarter, shall cease being a Participant as of the
date of such termination of employment. Upon such termination of employment,
there shall be refunded to such Participant as soon as practicable the entire
cash balance in such Participant's Contribution Account.
3.05 DEATH, RETIREMENT OR PERMANENT DISABILITY.
(a) If a Participant shall die during a Plan Quarter, no further Participant
Contributions on behalf of the deceased Participant shall be made. The executor
or administrator of the deceased Participant's estate may elect to withdraw the
balance in said Participant's Contribution Account by notifying the deceased
Participant's Sponsoring Employer in writing at least 15 days prior to the
Purchase Date in respect of such Plan Quarter. In the event no election to
withdraw has been made, the balance accumulated in the deceased Participant's
Contribution Account shall be used to purchase shares of Common Stock in
accordance with Article IV hereof.
(b) If, during a Plan Quarter, a Participant shall (i) retire or (ii) incur
a Permanent Disability, no further contributions on behalf of the retired or
disabled Participant shall be made. A retired or disabled Participant may elect
to withdraw the balance in his or her Contribution Account by notifying the
Sponsoring Employer in writing at least 15 days prior to the last day of the
Plan Quarter. In the event no election to withdraw has been made, the balance
accumulated in the retired or disabled Participant's Contribution Account shall
be used to purchase shares of Common Stock in accordance with Article IV hereof.
In the event a retired or disabled Participant shall die during the Plan Quarter
of such Participant's retirement or disability and such Participant shall not
have notified his or her Sponsoring Employer of his or her desire to withdraw
his or her Contribution Account, the executor or administrator of such
Participant's estate shall have all the rights provided pursuant to Section
3.05(a) hereof.
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ARTICLE IV
PURCHASE OF COMMON STOCK
4.01 PURCHASE OF COMMON STOCK.
(a) On each Purchase Date, each Participant's Contribution Account shall be
used to purchase the maximum number of whole shares of Common Stock determined
by dividing (i) the Participant's Contribution Account as of such Purchase Date
by (ii) the Purchase Price in respect of such Plan Quarter. Any amounts
remaining in a Participant's Contribution Account after such Participant's
purchase of Common Stock in respect of a Plan Quarter (representing amounts
which would purchase only fractional shares) will remain in such Participant's
Contribution Account to be used in the next Plan Quarter along with new
Participant Contributions in such succeeding Plan Quarter.
(b) If, in any Plan Quarter, the total number of shares of Common Stock to
be purchased pursuant to the Plan by all Participants exceeds the number of
shares authorized under the Plan, then each Participant shall purchase his or
her pro rata portion of the shares of Common Stock remaining available under the
Plan based on the balances in each Participant's Contribution Account as of the
Purchase Date in respect of such Plan Quarter; PROVIDED, HOWEVER, that, in no
event, shall any fractional shares of Common Stock be issued pursuant to the
Plan or this Section 4.01(b) hereof.
(c) Any cash dividends paid with respect to shares of Common Stock held for
the account of a Participant shall be, as determined by the Committee on a
uniform basis as to all Participants, either (i) distributed to the Participant
or (ii) credited to the Participant's Contribution Account and used, in the same
manner as payroll deductions, to purchase additional shares of Common Stock
under the Plan on the next Purchase Date (subject to the limitations of Section
3.02 hereof).
4.02 PURCHASE PRICE. For each Plan Quarter, the Purchase Price per share
of Common Stock purchased pursuant to the Plan shall be the lesser of (a) 85% of
the Closing Market Price on the Commencement Date of such Plan Quarter, and (b)
85% of the Closing Market Price on the Purchase Date of such Plan Quarter.
4.03 NOTICE OF PURCHASE, STOCK CERTIFICATES, VOTING RIGHTS.
(a) After the Purchase Date in respect of each Plan Quarter, a report will
be made by the Company to each Participant stating the entries made to his or
her Contribution Account, the number of shares of Common Stock purchased and the
applicable Purchase Price.
(b) Evidence of shares of Common Stock purchased under the Plan shall be
maintained under the Plan for the account of each Participant and registered in
the manner determined by the Committee. Certificates for the number of whole
shares credited to a Participant's account under the Plan will be issued to a
Participant at any time promptly upon written request to the Company; PROVIDED,
HOWEVER, that the Company may, at its election, issue such certificates at such
time or times as the Committee deems appropriate, including, without limitation,
following an Employee's termination of employment with a Sponsoring Employer.
(c) Shares of Common Stock held under the Plan for the account of each
Participant shall be voted by the holder of record of such shares in accordance
with the Participant's instructions.
4.04 NOTIFICATION OF DISPOSITION OF STOCK. If a Participant or former
Participant disposes of a share of Common Stock purchased under the Plan prior
to two (2) years after the Commencement Date of the Plan Quarter during which
such share was purchased, then such Participant or former Participant shall
notify his or her Sponsoring Employer immediately of such disposition in
writing.
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ARTICLE V
MISCELLANEOUS PROVISIONS
5.01 SHARES SUBJECT TO PLAN; ADJUSTMENTS.
(a) The maximum number of shares of Common Stock which may be purchased
under the Plan is 5,000,000, subject, however, to adjustment as hereinafter set
forth. The shares of Common Stock to be purchased under the Plan will be made
available, at the discretion of the Board of Directors or the Committee, either
from authorized but unissued shares of Common Stock or from previously issued
shares of Common Stock reacquired by the Company, including shares purchased on
the open market.
(b) If the outstanding shares of Common Stock of the Company are increased,
decreased, or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, spin off, sale of all or
substantially all the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment may be made in the maximum number
and kind of shares provided in Section 5.01(a) hereof, subject in the case of
certain corporate reorganizations to the requirements of Section 424(a) of the
Code.
5.02 ADMINISTRATION OF THE PLAN.
(a) Pursuant to the direction of the Board of Directors, the Committee shall
be responsible for the administration of the Plan. The Committee shall have the
discretionary authority to interpret the Plan and determine all questions
arising in the administration, application and operation of the Plan, including
all questions of fact and all questions of interpretation of the provisions of
the Plan. All such determinations by the Committee shall be conclusive and
binding on all persons. The Committee, from time to time, may adopt, amend and
rescind rules and regulations not inconsistent with the Plan for carrying out
the Plan, and may approve the forms of any documents or writings provided for in
the Plan. The Committee shall have full discretionary authority to delegate
ministerial functions of the Plan to employees of the Company. No member of the
Board of Directors or the Committee shall be liable for any action,
determination or omission taken or made in good faith with respect to the Plan
or any right granted hereunder.
(b) The Committee may in its discretion engage a bank trust department,
securities brokerage firm or other financial institution as agent to perform
custodial and record-keeping functions for the Plan, such as holding record
title to the Participants' stock certificates, maintaining an individual
investment account for each Participant and providing periodic account status
reports to Participants.
(c) The Committee shall have the authority to adopt and enforce such special
rules and restrictions under the Plan to be applicable to Participants who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended, as the
Committee shall deem are necessary or appropriate to exempt certain Plan
transactions from the requirements of such Section 16.
(d) The Company shall bear the cost of administering the Plan, including any
fees, costs and expenses relating to the purchase of shares of Common Stock
under the Plan. Notwithstanding the foregoing, Participants will be responsible
for all fees, costs and expenses incurred in connection with the disposition of
shares of Common Stock purchased under the Plan.
5.03 TERMINATION AND AMENDMENT OF THE PLAN.
(a) The Company may, by action of the Board of Directors, terminate the Plan
at any time and for any reason. The Plan shall automatically terminate upon the
purchase by Participants of all shares of Common Stock subject to the Plan under
Section 5.01 hereof, unless such number of shares shall be
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increased by the Board of Directors and such increase shall be approved by the
shareholders of the Company. Upon termination of the Plan, as soon as
practicable there shall be refunded to each Participant the entire cash balance
in his or her Contribution Account, and there shall be forwarded to the
Participants certificates for all shares of Common Stock held under the Plan for
the account of Participants.
(b) The Board of Directors reserves the right to modify, alter or amend the
Plan at any time and from time to time to any extent that it may deem advisable,
including, without limiting the generality of the foregoing, any amendment
deemed necessary to ensure compliance of the Plan with Section 423 of the Code.
Notwithstanding the foregoing, no amendment of the Plan shall operate to reduce
any amounts previously allocated to a Participant's Contribution Account nor to
reduce a Participant's rights with respect to shares of Common Stock previously
purchased and held on his or behalf under the Plan. The Board of Directors may
suspend operation of the Plan for any period as it may deem advisable.
5.04 GOVERNING LAW; COMPLIANCE WITH LAW. The Plan shall be construed in
accordance with the laws of the State of Nevada. The Company's obligation to
sell and deliver shares of Common Stock hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any regulatory or governmental agency as may, in the opinion of counsel for
the Company, be required. The Company may make such provisions as it may deem
appropriate for the withholding of any taxes or payment of any taxes which it
determines it may be required to withhold or pay in connection with a
Participant's participation in the Plan.
5.05 NO ASSIGNMENT. The purchase rights granted hereunder are not
assignable or transferable by the Participants, other than by will or the laws
of descent and distribution, and are exercisable during the Participant's
lifetime only by the Participant. Any attempted assignment, transfer or
alienation not in compliance with the terms of the Plan shall be null and void
for all purposes and respects.
5.06 NO CONTRACT OF EMPLOYMENT. The Plan will not be deemed to constitute
a contract between a Sponsoring Employer and any Participant or to be a
consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in the Plan shall be deemed to give any Participant
or Employee the right to be retained in the service of a Sponsoring Employer or
to interfere with the right of a Sponsoring Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him or her as a Participant of the Plan.
5.07 NO RIGHTS AS STOCKHOLDER. No eligible Employee or Participant shall
by reason of participation in the Plan have any rights of a stockholder of the
Company until he or she acquires shares of Common Stock as herein provided.
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(FRONT)
TENET HEALTHCARE CORPORATION
PROXY - SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael H. Focht, Sr., 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 October 1, 1997, 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" ITEMS
2, 3, 4 AND 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1 AND
"FOR" ITEMS 2, 3, 4 AND 5.
(Please sign on reverse side and return promptly.)
TENET HEALTHCARE CORPORATION
P.O. BOX 11336
NEW YORK, N.Y. 10203-0336
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(BACK)
1. Election of the following
nominees as Directors:
FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below [ ] for all nominees listed below. [ ] [ ]
Nominees: Jeffrey C. Barbakow and Richard S. Schweiker
(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
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2. Proposal to amend the 1994 Directors Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve the 1997 Annual Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to amend the 1995 Employee Stock Purchase Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Proposal to ratify the selection of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending May 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
CHANGE OF ADDRESS AND/OR
COMMENTS MARK HERE [ ]
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 in full corporate name,
by duly authorized officer. If shares are held
jointly, each shareholder named should sign.
Date: _____________________________________, 1997
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Signature
_________________________________________________
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [ ]
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
