<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/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):
/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:
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/ / 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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<PAGE>
[LOGO]
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 7, 1998
------------------------
August 28, 1998
To our Shareholders:
The Annual Meeting of Shareholders of Tenet Healthcare Corporation (the
"Company") will be held on Wednesday, October 7, 1998, 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 three directors for terms of three years each;
2. To vote upon a shareholder proposal regarding Year 2000 disclosures;
3. To vote upon a shareholder proposal regarding declassification of the
Company's Board of Directors;
4. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
for the fiscal year ending May 31, 1999; and
5. To transact such other business as properly may come before the meeting.
Only shareholders of record at the close of business on August 17, 1998 (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.
[SIGNATURE]
SCOTT M. BROWN
SECRETARY
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
AUGUST 28, 1998
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 7, 1998, 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 31, 1998.
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 17, 1998, are
entitled to receive notice of and to vote at the Annual Meeting. On August 17,
1998, Tenet had outstanding 309,558,031 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.
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
$14,000 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.
<PAGE>
1. DIRECTORS AND NOMINEES
Jeffrey C. Barbakow
Chairman and Chief Executive Officer
Chairman of Executive Committee and
Member of Nominating Committee
Age: 54
Mr. Barbakow was elected by the Board to serve as Chief Executive Officer and
President of Tenet effective June 1, 1993. Effective July 28, 1993, Mr. Barbakow
was elected Chairman of the Board, at which time he relinquished the office of
President. Prior to June 1, 1993, Mr. Barbakow served as a Managing Director of
Donaldson, Lufkin & Jenrette Securities Corporation, a position he held from
September 1991 through May 31, 1993. From 1988 until 1991, Mr. Barbakow served
as Chairman, President and Chief Executive Officer of MGM/UA Communications,
Inc. Prior to October 1988, Mr. Barbakow served as a Managing Director of
Merrill Lynch Capital Markets and an executive officer of several Merrill Lynch
affiliates. In addition, Mr. Barbakow served as a director of MGM Grand, Inc.
from November 1988 through May 1993. Mr. Barbakow has been a director since
1990. His current term as a director of Tenet expires at the 2000 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: 55
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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Lawrence Biondi, S.J.
Director
Age: 59
Father Lawrence Biondi, a Jesuit priest, has been president of Saint Louis
University in Missouri since July 1987. From 1980 to 1987, Fr. Biondi was dean
of the College of Arts & Sciences at Loyola University of Chicago, where he had
served on the faculty of modern languages since 1968. Fr. Biondi was elected to
Tenet's Board of Directors in July of 1998. His current term expires at the 2000
Annual Meeting.
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2
<PAGE>
Bernice B. Bratter
Director
Member of Executive Committee,
Nominating Committee and Chair of
Compensation and Stock Option Committee
Age: 60
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 in March 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 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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Sanford Cloud Jr.
Director
Age: 53
Mr. Cloud has been President and Chief Executive Officer of The National
Conference for Community and Justice (formerly the National Conference of
Christians and Jews) since 1994. From January 1993 to March 1994, Mr. Cloud was
a partner in the law firm of Robinson & Cole in Hartford, Connecticut. From 1986
through 1992, he worked for Aetna Life and Casualty Co. as Vice President of
Corporate Public Involvement and Executive Director of the Aetna Foundation.
Currently, Mr. Cloud serves on the boards of directors of Advest Group Inc. and
Yankee Energy Systems Inc. Mr. Cloud is a former two-term Connecticut state
senator. Mr. Cloud was elected to Tenet's Board of Directors in May of 1998. His
current term as a director of Tenet expires at this year's Annual Meeting.
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Maurice J. DeWald
Director
Member of Executive Committee,
Compensation and Stock Option Committee
and Chairman of the Audit Committee
Age: 58
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. He is also 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 ARV Assisted Living, Inc. and Advanced Materials
Group, Inc. Mr. DeWald has been a director of Tenet since 1991. His current term
as a director expires at this year's Annual Meeting.
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3
<PAGE>
Raymond A. Hay
Director
Member of Audit Committee,
Ethics and Quality Assurance Committee
and Chairman of Nominating Committee
Age: 70
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. Mr. Hay has been
a director of Tenet since 1985. His current term as a director of Tenet expires
at this year's 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: 62
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 that 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: 72
Mr. Schweiker served as president of the American Council of Life Insurance from
1983
through December 1994, when he retired. He presently 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
the 2000 Annual Meeting.
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4
<PAGE>
DIRECTORS BY CLASS
Class 1 (term expires at the 1998 Annual Meeting of Shareholders)
Sanford Cloud Jr.
Maurice J. DeWald
Raymond A. Hay
Class 2 (term expires at the 1999 Annual Meeting of Shareholders)
Bernice B. Bratter
Michael H. Focht, Sr.
Lester B. Korn
Class 3 (term expires at the 2000 Annual Meeting of Shareholders)
Jeffrey C. Barbakow
Lawrence Biondi, S.J.
Richard S. Schweiker
NOMINEES AND VOTING
In July 1997, Mr. James P. Livingston retired from the Board and the size of
the Board was reduced from ten to nine directors. Mr. Peter de Wetter retired
from the Board in October 1997, at which time the size of the Board was further
reduced from nine to eight directors. In May 1998, the size of the Board was
increased from eight to nine directors and the Board elected Sanford Cloud Jr.
to the Board as a Class 1 director. In July 1998, the size of the Board was
increased from nine to ten directors and the Board elected Father Lawrence
Biondi, S.J., to serve as a Class 3 director.
On July 23, 1998, the Nominating Committee met and recommended that the
Board nominate each of Messrs. Cloud, DeWald and Hay to serve a three-year term
as a director until the 2001 Annual Meeting. After considering the Nominating
Committee's actions, the Board met on July 24, 1998, and nominated the directors
recommended by the Nominating Committee. Edward Egbert, M.D., whose term as a
director expires at this year's Annual Meeting, was not eligible for nomination
because he has reached the Company's mandatory retirement age for directors.
Directors are divided into three classes and serve for three-year
overlapping terms. Following the election of the three Class 1 directors at this
year's Annual Meeting, there will be three Class 1 directors, three Class 2
directors and three Class 3 directors. The terms of the Class 2 and Class 3
directors do not expire until 1999 and 2000, 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. Cloud, DeWald and Hay. The Board believes
each of its nominees will be able and willing to serve if elected. If any named
nominee becomes unavailable, the Board's proxies will be voted for the remaining
nominees and for such other person as the Board may recommend.
5
<PAGE>
SHAREHOLDER APPROVAL
Election of each nominee 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 vote against that nominee. Unless marked
to the contrary, proxies will be voted "FOR" the election of each nominee at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ITS NOMINEES
FOR DIRECTORS.
STOCK OWNERSHIP
As of August 17, 1998, ownership of common stock by all directors, all
nominees, each of the named executive officers (as defined herein on page 12)
and all of the named executive officers and directors as a group (13 persons)
was as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------------------------
OPTIONS
EXERCISABLE
PRIOR
SHARES OF TO OCTOBER 31, PERCENT OF
NAME COMMON STOCK 1998 CLASS(2)
- ------------------------------------------------------------------- -------------- ---------------- -------------
<S> <C> <C> <C>
Jeffrey C. Barbakow................................................ 52,450(3) 3,198,000 1.05%
Lawrence Biondi, S.J............................................... 0 0
Bernice B. Bratter................................................. 11,000 20,000
Scott M. Brown..................................................... 10,939 63,034
Sanford Cloud Jr................................................... 100 0
Maurice J. DeWald.................................................. 10,800 20,000
Edward Egbert, M.D................................................. 8,707 20,460
Trevor Fetter...................................................... 24,330 281,733
Michael H. Focht, Sr............................................... 10,000 1,125,976
Raymond A. Hay..................................................... 11,200 10,000
Lester B. Korn..................................................... 22,700 20,000
Raymond L. Mathiasen............................................... 38,546 185,700
Richard S. Schweiker............................................... 21,860 40,920
Executive officers and directors as a group (13 persons)........... 222,632 4,985,823 1.68%
</TABLE>
- --------------------------
(1) Except as otherwise indicated, each individual named has sole control as to
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, 1998, more than 1% of the
outstanding shares of common stock of the Company.
(3) The total shown includes 3,350 shares held by Mr. Barbakow's minor sons.
6
<PAGE>
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board met nine times during the fiscal year ended May 31, 1998. Each
director participated in at least 75 percent 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 1998, the Company's Executive Committee consisted of employee
directors Barbakow (Chairman) and Focht, and non-employee directors Bratter,
DeWald and Korn. The Executive Committee, which met once during fiscal 1998, may
exercise all of the powers of the Board in the management of the business and
affairs of the Company when the Board is not in session, 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 1998, the Company's Audit Committee consisted of non-employee
directors DeWald (Chairman), Hay and Schweiker. The Audit Committee selects,
engages on behalf of the Company (subject to the consent of the shareholders)
and fixes the compensation of, a firm of independent certified public
accountants whose duty it is to audit the books and accounts of the Company and
its subsidiaries for the fiscal year in which they are appointed. The Audit
Committee confers with the auditors and determines the scope of the auditing of
the books and accounts of the Company and its subsidiaries. The Audit Committee
also is responsible for determining that the business practices and conduct of
employees and other representatives of the Company and its subsidiaries comply
with the policies and procedures of the Company. None of the members of the
Audit Committee may be officers or employees of the Company. The Audit Committee
met four times during fiscal 1998.
During fiscal 1998, 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 administers 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 seven times
in fiscal 1998.
During fiscal 1998, the Company's Nominating Committee consisted of
non-employee directors Hay (Chairman), Bratter and Egbert 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 three times in fiscal
1998. Nominations by shareholders for the 1999 meeting of shareholders will be
considered by the Board if written information concerning the proposed nominee,
including the proposed nominee's name, biographical information and a signed
consent to be nominated and to serve if elected, is submitted to the Secretary
of the Company on or before May 3, 1999.
7
<PAGE>
The Company's Ethics and Quality Assurance Committee (the "Ethics
Committee") consisted during fiscal 1998 of non-employee directors Schweiker
(Chairman), Egbert and Hay 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 provides oversight for the
Company's corporate compliance and ethics program. The Ethics Committee met
twice in fiscal 1998.
During fiscal 1998, the Pension Committee consisted of non-employee
directors Korn (Chairman) 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
monitoring such plans. The Pension Committee met three times in fiscal 1998.
REMUNERATION OF DIRECTORS
During the fiscal year ended May 31, 1998, directors Bratter, DeWald,
Egbert, Hay, Korn and Schweiker, Tenet's non-employee directors during fiscal
1998, each received an annual retainer fee of $50,000 for serving on the Board,
as well as an attendance fee of $1,000 for attending each Board meeting and
$1,200 for attending each meeting of the respective committees on which he or
she was a member. Director Cloud received $4,166.66, a pro-rata portion of the
annual retainer fee, for the month of May, 1998. In addition, Mr. Hay was
permitted to use the Company aircraft for personal use. The incremental cost to
the Company of such use was approximately $49,000.
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 1998, all
of Tenet's non-employee directors participated in the Directors Retirement Plan.
Under the Directors Retirement Plan, the Company is obligated to pay to the
non-employee director an annual normal retirement benefit for a maximum period
of 10 years upon the director's retirement. The retirement benefit is based on
years of service to the Company as a non-employee director. The director's
interest in the retirement benefit becomes partially vested after five years of
service as a non-employee director and fully vested after 10 years of service as
a non-employee director. The 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
8
<PAGE>
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.
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.
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.
9
<PAGE>
The Program is administered by the Compensation Committee, members of which
may be participants under the Program. As of July 31, 1998, life insurance
policies had been purchased by the owners on the lives of directors Bratter,
DeWald, Egbert, Focht, Hay and Korn and their respective designated other
person. Directors Barbakow and Schweiker did not participate in the Program in
fiscal 1998.
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 7,500 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 7,500 shares of common stock. Subject to certain
adjustment provisions described in the DSOP, the aggregate number of shares of
common stock that may be acquired upon the exercise of options under the DSOP is
500,000. Unless previously terminated, the DSOP will terminate on January 26,
2004, except with respect to options then outstanding.
Each option is exercisable one year from the date of grant. The exercise
price is the fair market value of a share of common stock on the date of grant.
Each option will expire at the time a non-employee director ceases to be a
non-employee director, except as described below. If a non-employee director is
terminated other than for cause (as determined solely by the Company), or if a
director is nominated but not reelected by the shareholders, then the option
will expire one-year after the date of termination 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 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.
10
<PAGE>
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.
11
<PAGE>
MANAGEMENT AND CERTAIN SECURITY HOLDERS
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by the Company for
fiscal years 1998, 1997 and 1996 to the person acting as Chief Executive Officer
at May 31, 1998, 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 ......................... 1998 $ 1,091,475 $ 1,627,190 $ 78,420(3) 0 $ 77,404
CEO and Chairman 1997 992,250 1,262,947 64,950(3) 900,000 66,557
1996 945,000 1,165,707 61,933(3) 0 58,747
Focht ............................ 1998 700,000 1,014,505 192,241(4) 0 12,314
President and COO 1997 634,200 753,957 164,041(4) 450,000 39,795
1996 604,000 696,849 101,188(4) 0 69,643
Fetter ........................... 1998 460,000 809,140 61,507(5) 130,000 31,256
EVP and CFO 1997 426,667 463,519 80,447(6) 120,000 24,498
1996 222,115 475,636(7) 656,398(8) 247,600 4,914
Brown ............................ 1998 387,550 540,396 52,801(9) 80,000 24,404
General Counsel, SVP and 1997 337,000 328,747 84,754(9) 60,000 21,933
Secretary 1996 315,000 304,464 (10) 52,800 52,261
Mathiasen ........................ 1998 386,400 543,484 55,561(11) 62,000 26,351
SVP and CAO 1997 368,000 355,812 73,058(11) 60,000 23,761
1996 357,000 331,449 (10) 52,800 20,990
</TABLE>
12
<PAGE>
(1) Includes compensation deferred at the election of a named executive officer
or as determined by the Compensation Committee of the Board of Directors in
accordance with the Company's 1994 Annual Incentive Plan.
(2) The aggregate amounts set forth in All Other Compensation for 1998 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 Tenet's 401(k) Plan,
(iii) certain amounts in respect of life insurance and disability insurance
policies available under the Company's Supplemental Executive Retirement
Plan ("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 BROWN MATHIASEN
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Tenet Retirement Savings Plan....................... $ 4,800 $ 4,800 $ 4,800 $ 4,800 $ 4,800
Deferred Compensation Plan.......................... 61,920 0 22,183 15,670 17,374
Life and Disability Insurance Under SERP............ 10,095 6,765 3,684 3,345 3,588
Directors Life Insurance Program.................... 0 160 0 0 0
Personal Catastrophic Insurance..................... 589 589 589 589 589
</TABLE>
(3) Total for 1998 includes $42,884, total for 1997 includes $57,982 and total
for 1996 includes $55,710 of corporate-sponsored automobile use.
(4) Total for 1998 includes $144,952, total for 1997 includes $95,479 and total
for 1996 includes $66,706 of travel-related benefits.
(5) Total for 1998 includes $16,923 of corporate-sponsored automobile use and
$21,727 of travel-related benefits.
(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) Totals for 1998 and 1997 each include $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.
(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 1998 includes $34,327 and 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. Total for 1998
also includes $16,347 of corporate-sponsored automobile use.
13
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to the
named executive officers in fiscal year 1998.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE GRANT DATE PRESENT
NAME OPTIONS GRANTED(#) IN FY98 ($/SHARE) EXPIRATION DATE VALUE(3)
- ------------------- ------------------- ----------------- --------- ------------------------ ------------------
Barbakow........... 0(1)
Focht.............. 0(1)
Fetter............. 130,000(2) 2.4% 33.0625 December 1, 2007 $ 2,311,400
Brown.............. 80,000(2) 1.4% 33.0625 December 1, 2007 $ 1,422,400
Mathiasen.......... 62,000(2) 1.1% 33.0625 December 1, 2007 $ 1,102,360
</TABLE>
- ------------------------
(1) No options were granted to Messrs. Barbakow and Focht in 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 three equal annual
installments beginning December 2, 1998, and expire 10 years from the date
of grant.
(3) The Grant Date Present Value of the options granted to the named executive
officers during fiscal 1998 was derived using standard Black-Scholes stock
option valuation models. The assumptions used to calculate these values were
as follows:
<TABLE>
<CAPTION>
GRANT DATE/EXPIRATION
DATE
12-2-97/12-1-07
-------------------------
<S> <C>
Expected Volatility.................................................. 32.34%
Risk Free Rate of Return............................................. 5.89%
Dividend Yield....................................................... 0%
Time of Exercise (Years From Date of Grant).......................... 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 7- and 10-year United States Treasury Bonds 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.
14
<PAGE>
OPTION EXERCISES
The following table sets forth information concerning options exercised by
each of the named executive officers in fiscal year 1998 and unexercised options
held by each of them as of May 31, 1998.
OPTION EXERCISES IN FISCAL YEAR 1998 AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 5/31/98 OPTIONS AT 5/31/98(1)
ACQUIRED ON VALUE -------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------- ----------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barbakow....................... 0 0 2,598,000 900,000 $ 63,853,250 $ 12,037,500
Focht.......................... 0 0 825,976 450,000 16,724,481 6,018,750
Fetter......................... 0 0 205,066 292,534 3,239,890 2,486,837
Brown.......................... 41,000(2) 812,094 63,034 137,600 867,694 813,602
Mathiasen...................... 113,500 2,295,188 185,700 119,600 3,026,607 778,727
</TABLE>
- --------------------------
(1) Based on the $35.00 per share closing price of the Company's common stock on
May 29, 1998, the last business day of the fiscal year.
(2) Mr. Brown exercised options for 41,000 shares and continues to hold 7,000 of
the shares acquired upon the exercise of the options.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The SERP provides executive officers and certain other management employees
with supplemental deferred benefits in the form of retirement payments for life.
At retirement, the monthly benefit paid to participants will be a product of
four factors: (i) the participant's highest average monthly earnings for any
consecutive 60-month period during the 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
15
<PAGE>
from 5.04% to 3.0% per year and the maximum yearly reduction was reduced from
35.28% to 21%; (ii) the offset factor for the projected benefits from other
Company benefit plans will be applied only to the base salary component of
Earnings and (iii) the annual 8% cap on increases in Earnings that had been in
effect was eliminated.
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.
16
<PAGE>
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.
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
3,100,000................................. 418,500 837,000 1,255,500 1,674,000 1,674,000
3,300,000................................. 445,500 891,000 1,336,500 1,782,000 1,782,000
</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.
17
<PAGE>
As of May 31, 1998, the estimated credited years of service for the
individuals named in the Summary Compensation Table were as follows: Mr.
Barbakow, 5.00 years; Mr. Focht, 20.00 years; Mr. Fetter, 2.60 years; Mr.
Mathiasen, 12.65 years, and Mr. Brown, 16.72 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.
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 1998, over 78% of the total compensation opportunities
(which includes base salary, annual incentive opportunities and the estimated
value of stock option and any other long-term incentive awards) for the named
executive officers as a group were "at risk" based on the (i) price of the
Company's common stock, (ii) Company meeting its financial and
quality-of-service goals, (iii) executives meeting pre-established corporate
and/or individual objectives, (iv) growth in the Company's operating income,
discussed below, and (v) growth in the Company's economic value added, discussed
below.
18
<PAGE>
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 level of annual total
cash compensation and total compensation opportunities available to the
Company's executives for fiscal year 1998, the Compensation Committee compared
such opportunities primarily with the total cash compensation and total
compensation opportunities made available 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 based on revenues. The
Compensation Committee makes such comparison with those companies because it
believes that it is with those companies that the Company must compete for
qualified and experienced executives.
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 1997 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 1998 was
the Company's 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) ("Diluted EPS"), (b) the Company achieves
its quality-of-service and-care goals (measured in fiscal year 1998 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
and/or individual performance goals, if any, (d) the Company achieves growth in
operating income, and (e) the Company achieves growth in economic value added
("EVA"). (EVA is a registered trademark of Stern Stewart & Co.)
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. In general terms, EVA is the difference
19
<PAGE>
between the return on total capital invested in a business or project and the
cost of such capital invested. EVA is a measure of how efficiently the Company's
capital is being utilized. The component of each executive's AIP award based on
growth in EVA is calculated as (i) the quotient of (A) the actual growth in the
Company's EVA during the fiscal year divided by (B) a pre-established target for
growth in the Company's EVA multiplied by (ii) the executive's EVA target award.
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 and
growth in EVA (collectively referred to as the "Growth Awards") 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, if any, 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, the percentage multiplier
in the case of the portion of the award based on growth in operating income, the
target for growth in EVA and the executive's target EVA award in the case of the
portion of the award based on growth in EVA and the amount of the AIP award are
approved annually by the Compensation Committee. Each of the foregoing may vary
for each executive based on decision-making authority and ability 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 1998 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 other than the Growth Awards. 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 other than the
Growth Awards 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 to which the Company's operating income for a given fiscal year exceeds
its operating income for the previous fiscal year. The portion of each
executive's AIP award based on growth in EVA will depend upon the extent to
which the Company's EVA for a given fiscal year exceeds the targeted growth in
the Company's EVA for the fiscal year.
The Compensation Committee met in May 1997 and considered (1) Mr. Barbakow's
performance in fiscal year 1997, (2) the challenges facing the Company in fiscal
year 1998 and (3) the total compensation opportunities made available to the
chief executive officers of the Company's peer companies and other companies
generally, taking into account their relative sizes based on revenues. After
evaluating those factors the Compensation Committee set Mr. Barbakow's salary
for fiscal year 1998 at $1,091,475. The Compensation Committee also
20
<PAGE>
determined at that time (a) that the factors to be used in determining the
non-Growth Award portion of Mr. Barbakow's fiscal year 1998 AIP award would be
(i) Diluted EPS, and (ii) quality-of-service (measured in fiscal year 1998 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), (b) the weight to be given to each of the
factors, (c) the fiscal year 1998 target award for the non-Growth Award portion
of Mr. Barbakow's AIP award and (d) that the non-Growth Award portion of Mr.
Barbakow's fiscal year 1998 AIP award would be payable only if the Company were
to meet a threshold return on equity. In August 1997, the Compensation Committee
met and determined (A) the percentage multiplier for the portion of the fiscal
year 1998 AIP award based on growth in operating income and (B) set the target
for growth in the Company's EVA and Mr. Barbakow's target award for the portion
of the fiscal year 1998 AIP award based on growth in EVA. For fiscal year 1998,
the Compensation Committee established a base salary and target annual incentive
structure generally designed to position total cash compensation opportunities
for Mr. Barbakow in the third quartile of total cash compensation opportunities
provided by other companies generally, taking into account their relative sizes
based on revenues, and the Company's peer companies, to their chief executive
officers.
In July 1998, the Compensation Committee reviewed the Company's performance
in light of the pre-established AIP targets. The Committee determined that the
pre-established return on equity threshold had been met, and calculated Mr.
Barbakow's fiscal year 1998 award under the AIP as $1,627,190 based on the
extent to which the AIP targets had been met or exceeded, on the extent to which
operating income for fiscal year 1998 exceeded operating income for fiscal year
1997 and on the extent by which actual EVA growth exceeded the pre-established
target for EVA growth. As a result of the Company's above-target financial
performance in fiscal year 1998, Mr. Barbakow's AIP award was above his target
level. Total cash compensation paid to Mr. Barbakow for fiscal year 1998 was
around the 75th percentile of total cash compensation provided by the Company's
peer companies and other companies generally to their chief executive officers.
STOCK INCENTIVE PLAN
The Compensation Committee's objective for long-term compensation 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 1998 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
for Mr. Barbakow generally should be in the upper third of such opportunities
available at those other companies.
21
<PAGE>
In fiscal year 1998, the Compensation Committee implemented its long-term
compensation policy by granting awards under the Company's 1991 and 1995 Stock
Incentive Plans (collectively, the "SIP"), which provide longer-term
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 1998, no stock options were granted to
Messrs. Barbakow or Focht, since they had received multiple-year grants in
fiscal 1997, but the Company's named executive officers as a group were granted
non-qualified options for 272,000 shares of Tenet common stock.
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.
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. The Company and Mr. Barbakow entered into a Deferred
Compensation Agreement, dated as of May 31, 1997, pursuant to which they agreed
that the portion of Mr. Barbakow's salary in any year that would not be
deductible by the Company under Section 162(m) of the Code will be deferred.
Amounts deferred are unsecured and bear interest at one point less than the
Prime Rate.
22
<PAGE>
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 an annual incentive plan, which was
replaced in 1997 by 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.
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 does not qualify as a Code Section 162(m) Award (as defined in
the AIP), in which case 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
23
<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 Health Care Composite Index (a group of 30
companies, including Tenet).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
TENET HEALTHCARE CORPORATION, S&P 500 INDEX AND S&P HEALTH CARE COMPOSITE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TENET S&P 500 S&P HEALTH CARE
<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
May-98 $372.71 $270.18 $367.57
</TABLE>
Performance data assumes that $100.00 was invested on June 1, 1993, 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.
24
<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 1993 Correspondence set an initial base salary and
provides that 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.
The Company and Mr. Barbakow entered into a Deferred Compensation Agreement,
dated as of May 31, 1997, pursuant to which they agreed that the portion of Mr.
Barbakow's salary in any year that would not be deductible by the Company under
Section 162(m) of the Code will be deferred. Amounts deferred are unsecured and
bear interest at one point less than the Prime Rate.
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 confirmed 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 vested on the
second anniversary of the grant date, with the remaining one-third vesting on
the third anniversary of the grant date.
Upon the occurrence of a "Change of Control" of the Company, vesting of the
1996 Options may be accelerated. Under the 1995 SIP, a "Change of Control" has
the same meaning as it has under the Directors Stock Option Plan discussed on
pages 10-11 above.
25
<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.
26
<PAGE>
(C) A "Change in Control" of the Company shall be deemed to have occurred
if: (i) any Person is or becomes the beneficial owner directly or indirectly of
securities of the Company representing 20% or more of the combined Voting Stock
of the Company or; (ii) individuals who, as of April 1, 1994, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors; provided, however,
that (a) any individual who becomes a director of the Company subsequent to
April 1, 1994, whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be deemed to have been a member of the
Incumbent Board and (b) no individual who was elected initially (after April 1,
1994) as a director as a result of an actual or threatened election contest, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other
actual or threatened solicitations of proxies or consents by or on behalf of any
person other than the Incumbent Board shall be deemed to have been a member of
the Incumbent Board.
(D) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
(E) "Person" shall mean an individual, firm, corporation or other entity or
any successor to such entity, together with all Affiliates and Associates of
such Person, but "Person" shall not include the Company, any subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or any
subsidiary of the Company, or any Person organized, appointed, established or
holding Voting Stock by, for or pursuant to the terms of such a plan.
(F) "Voting Stock" with respect to a corporation shall mean shares of that
corporation's capital stock having general voting power, with "voting power"
meaning the power under ordinary circumstances (and not merely upon the
happening of a contingency) to vote in the election of directors.
(G) A voluntary termination for "Good Reason" shall mean a voluntary
termination following: (i) material downward change in the functions, duties, or
responsibilities which reduce the rank or position of the Participant; (ii) a
reduction in the Participant's annual base salary; (iii) a material reduction in
the Participant's annual incentive plan 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.
27
<PAGE>
RELOCATION SEVERANCE AGREEMENTS
In order to induce them to remain with the Company and relocate in
connection with the relocation of the Company's corporate headquarters, Messrs.
Brown, Fetter and Mathiasen are entitled to certain benefits under an agreement
related to the 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.
As used in the relocation agreement, the term "cause" includes, but is not
limited to, dishonesty, fraud, willful misconduct, self-dealing or violations of
the Tenet Standards of Conduct, breach of fiduciary duty (whether or not
involving personal profit), failure, neglect or refusal to perform his duties in
any material respect, violation of law (except traffic violations or similar
minor infractions), material violation of Tenet's human resources or other
policies, or any material breach of the agreement; provided, however, that a
failure to achieve or meet business objectives as defined by the Company shall
not be considered "cause" so long as the employee has devoted his best and good
faith efforts and full attention to the achievement of those business
objectives.
SHARES OWNED BY CERTAIN SHAREHOLDERS
As shown in the table below, as of June 30, 1998, Oppenheimer Capital was
the beneficial owner of 10.1% of the Company's common stock, and FMR Corp. was
the beneficial owner of 9.8% of the Company's common stock. No other person is
known by the Company to beneficially own more than 5% of its outstanding common
stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------------------- ------------------------------------- -----------------
<S> <C> <C>
Oppenheimer Capital 31,284,206 shares held directly 10.1%
200 Liberty Street
New York, NY 10281
FMR Corp. 30,316,776 shares held directly 9.8%
82 Devonshire Street
Boston, MA 02109
</TABLE>
28
<PAGE>
2. SHAREHOLDER PROPOSAL REQUIRING ADDITIONAL YEAR 2000 DISCLOSURES
SHAREHOLDER PROPOSAL
Mr. Dean V. Shahinian, 8909 Captains Row, Alexandria, Virginia 22308,
beneficial owner of 171 shares of Tenet common stock, has proposed the adoption
of the following resolution:
The shareholders ask the Board of Directors to inform the shareholders in
reports on the status of Tenet Healthcare's computer system preparedness for the
Year 2000, i.e. preparing its computer systems to operate without flaw beginning
on January 1, 2000, by providing the information described below:
1. A description of the progress of Tenet in completing five phases of Year
2000 remediation: (A) Awareness, (B) Assessment, (C) Renovation, (D) Validation
and (E) Implementation-- the description would include a timetable of the
progress on the Year 2000 problem;
2. The cost that Tenet incurred in connection with the remediation efforts
to date and an estimate of additional costs it expects to incur in connection
with future remediation efforts;
3. Information about any insurance it has to cover specific Year 2000
computer systems problems or the defense of legal actions against the company or
its officers and directors arising from Year 2000 problems; and
4. Information about contingency plans developed to ensure continuous
operation of the company's essential business functions in the event of Year
2000 problems in the computer systems of Tenet or its vendors, suppliers,
customers, or business affiliates.
Shareholders request that Tenet provide this information in a report sent
within four months of the meeting, if possible.
SUPPORTING STATEMENT
The "Year 2000 Problem" has drawn international attention from business
executives, legislators, regulators, journalists and others. Many regional,
national and international conferences discuss the Year 2000 problem and
solutions; the U.S. President has appointed a Year 2000 commission; many
articles have appeared in Fortune, Money, Forbes, Newsweek, and other
periodicals discussing its broad scope and serious consequences and legislators
have held hearings and proposed bills to require enhanced corporate disclosures
about the Year 2000 problem.
The Problem stems from computer software programs that use a two-digit field
(e.g., "98") instead of a four-digit field (e.g., "1998") for the year. At
present, many computer systems are not prepared to operate successfully after
January 1, 2000. Experts say that upgrading the computer software is the single
largest information technology project undertaken in history.
29
<PAGE>
On January 1, 2000, computer systems that do not recognize the proper year
may fail. The potential damage from the failure of part of a healthcare
company's computer systems may have large and far reaching effects. A failure
could damage the company's financial results and reputation and jeopardize
patient records and treatment, all of which would impact the interests of
shareholders. Additional damage could result from the failure of the computers
of a company's suppliers or customers.
The shareholders, in the Proposal above, request that Tenet Healthcare
Corporation report on its progress in the important effort of assessment and
preparing its computer systems to operate properly after January 1, 2000.
Although the company may make limited types of Year 2000 disclosures pursuant to
the federal securities laws, shareholders support this proposal because they
want to receive all of the significant information specified above provided on a
frequent basis.
STATEMENT OF BOARD IN OPPOSITION TO SHAREHOLDER PROPOSAL
The Company's Board of Directors is fully aware of the Year 2000 issue and
has instructed the Company's management to take appropriate steps to address the
issue. The Company has created a Year 2000 Steering Committee made up of
representatives from the Company's Information Systems, Accounting, Financial
Reporting, Risk Management and Legal Departments as well as from each of its
operations divisions. The Company's Chief Information Officer has reported and
will continue to report to the Audit Committee of the Board of Directors
concerning the Company's efforts to address the Year 2000 issue. The Audit
Committee in turn has made and will continue to make reports to the full Board
of Directors.
The Board agrees with Mr. Shahinian that the Year 2000 issue must be taken
seriously. Nevertheless, the Board opposes Mr. Shahinian's proposal for several
reasons.
First, the Company already is required to make and is making disclosure
concerning the Year 2000 issue. The Divisions of Corporate Finance and
Investment Management of the Securities and Exchange Commission ("SEC") have
issued guidance concerning the nature and extent of disclosure required with
respect to Year 2000-related costs, problems and uncertainties. The Company
believes it has complied with its disclosure obligations as evidenced by the
following disclosure concerning the Year 2000 issue that appears in its Annual
Report on Form 10-K for its fiscal year ended 1998 and in its Management's
Discussion and Analysis of Financial Condition and Results of Operations in its
Annual Report to Shareholders.
THE YEAR 2000 ISSUE
Many existing computer systems and programs process transactions using a
two-digit rather than a four-digit code for the year of a transaction.
Unless they have been or are modified, a significant number of those
computer systems and programs may process a transaction with a date of 2000
as the year "00", which could cause the system or program to fail or create
erroneous results before, on or after January 1, 2000. The Company has
initiated a six-phase program in order to assess the effect of this problem
(the "Year 2000 Issue") on the Company's computer systems and programs,
including the embedded systems that control certain medical and other
equipment, and address the Year 2000 Issues that are discovered. In
addition, as part of the program the Company is contacting its principal
suppliers, other vendors and payors to assess whether their Year 2000
Issues, if any, will affect the Company.
30
<PAGE>
The Company's financial and general ledger systems already are substantially
Year-2000 compliant. Furthermore, changes to the Company's payroll and
patient accounting systems are underway, testing of those changes is
expected to be substantially completed by the end of fiscal 1999 and
implementation of those changes is expected to be completed during the fall
of calendar 1999. The cost to bring these systems into Year 2000 compliance
has not been and is not expected to be material.
The first phase of the program, conducting an inventory of what systems and
programs may be affected by the Year 2000 Issue, has been substantially
completed. The second phase, assessment of how the Year 2000 Issues may
affect each piece of equipment and system, has begun and is expected to be
substantially completed by the second quarter of fiscal 1999. The third
phase involves planning how to correct any Year 2000 Issues that are
discovered and is expected to be substantially completed by the third
quarter of fiscal 1999. The fourth phase will entail executing the plans
developed during the third phase and correcting the Year 2000 Issues. During
the fifth phase the Company will test the corrections made during the fourth
phase to make sure that the Year 2000 Issues have been properly corrected.
The sixth phase will involve implementing the corrections of the Year 2000
Issues across all of the Company's systems and programs. Different systems
and programs will be subject to the fourth and fifth phases of the program
concurrently through the end of fiscal 1999, by which time those phases are
expected to be substantially completed. The sixth phase of the program is
expected to run through the fall of calendar 1999, by which time the program
is expected to be substantially completed.
In addition to the six-phase remediation program, the Company is preparing
general contingency plans to address unforseen Year 2000 Issues. These
contingency plans include preparing the Company's hospitals for any
increased service demands that may occur as a result of problems at non-Year
2000 compliant hospitals owned by others.
Since the Company has not yet completed its assessment of the scope of the
Year 2000 Issues facing most of its systems and programs, it is unable at
this time to estimate the costs to correct any Year 2000 Issues that may be
discovered. Although the costs incurred by the Company to date have not been
material, the Company is unable to estimate at this time whether or not
future costs will be material.
Furthermore, as noted above, the Company is contacting its principal
suppliers, other vendors and payors, including federal and state
governments, Medicare fiscal intermediaries, insurance companies and managed
care companies, concerning the state of their Year 2000 compliance. The
Company is not aware at this time whether those other systems are or will be
Year 2000 compliant and is unable to estimate at this time the impact on the
Company if one or more of those systems is not Year 2000 compliant. For the
foregoing reasons, the Company is not able to determine at this time whether
the Year 2000 Issue will materially affect its future financial results or
financial condition.
The Company intends to continue to make required disclosures in its future
quarterly and annual reports.
31
<PAGE>
Second, the Board believes that it is management's responsibility to
determine how best to comply with its disclosure obligations. The Board is
satisfied that the Company has met its disclosure obligations under the federal
securities laws concerning the Year 2000 issue and is opposed to imposing
arbitrary requirements for disclosures beyond those required by the federal
securities laws.
Third, the Board has been advised by its legal counsel that making certain
disclosures requested by Mr. Shahinian's proposal but not required by the
federal securities laws, such as providing information concerning any insurance
it has to cover specific Year 2000 computer system problems, may expose the
Company to the risk of increased claims and litigation. The Board believes that
the risk of the additional cost and expense of such additional claims and
litigation exceeds the benefit to the Company's shareholders of receiving the
additional information that would be required by Mr. Shahinian's proposal.
Fourth, the Board believes that disclosing certain of the items requested by
Mr. Shahinian's proposal may put the Company at a competitive disadvantage. For
example, the Company has developed certain contingency plans to ensure that the
Company's hospitals continue to operate notwithstanding the occurrence of
certain Year 2000 problems. Yet, the Company believes that disclosing the nature
of those plans may cause it to lose a competitive advantage or put it at a
competitive disadvantage.
Finally, complying with Mr. Shahinian's request will cause the Company to
incur additional expense. Preparing a report of the nature requested by Mr.
Shahinian's proposal and mailing that report to the Company's shareholders may
cause the Company to incur significant expenses. The Board believes that the
Company's resources should be put to more productive uses.
In short, the Company is aware of the Year 2000 issue and is working
diligently to identify and address any problems. The Board appreciates Mr.
Shahinian's concern about the Year 2000 issue. Nevertheless, the Board believes
that the adoption of his proposal will not cause the Company to work any harder
to address the Year 2000 issues but may subject the Company to the risk of the
cost and expense of additional litigation and liability as well as cause the
Company to incur significant additional expenses.
For the reasons set forth above, the Board opposes the foregoing shareholder
proposal.
SHAREHOLDER APPROVAL
Approval of this proposal requires that the votes cast in favor of the
proposal exceed the votes cast opposing the proposal, provided a quorum is
present. Unless marked to the contrary, proxies will be voted "AGAINST" the
proposal. Abstentions and broker non-votes will not be counted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST
APPROVAL OF THE SHAREHOLDER PROPOSAL REQUIRING ADDITIONAL YEAR 2000 DISCLOSURES.
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3. SHAREHOLDER PROPOSAL URGING DECLASSIFICATION OF BOARD OF DIRECTORS
SHAREHOLDER PROPOSAL
The Central Pension Fund of the International Union of Operating Engineers
and Participating Employers, 4115 Chesapeake Street, N.W., Washington, D.C.,
20016-4665, beneficial owner of 129,377 shares of Tenet common stock, has
proposed the adoption of the following resolution:
BE IT RESOLVED that the stockholders of Tenet Healthcare Corporation ("Company")
urge the Board of Directors to take the necessary steps, in compliance with
Nevada state law, to declassify the Board of Directors for the purpose of
director elections. The Board declassification shall be done in a manner that
does not affect the unexpired terms of directors previously elected.
SUPPORTING STATEMENT
The Board of Directors of our Company is divided into three classes serving
staggered, three-year terms. This type of board arrangement is commonly referred
to as a "classified" board. A classified board structure is not in the best
interests of the Company or the shareholders. The elimination of the staggered
election of the Board of Directors would require each director to stand for
election annually. Such a declassification of the board would allow
shareholders, annually, the opportunity to register their views on the
performance of the board collectively and each director individually.
Shareholders deserve the opportunity to vote on each director annually
rather than once every three years. Any concerns that the annual election of all
directors could leave our Company without experienced board members in the event
that all incumbents are voted out, are unfounded. In the event that the
shareholders voted to replace the entire board, such action would reflect the
discretion and will of the shareholders, and their judgement of the relative
value of the incumbents' experience.
A classified board structure serves to protect the incumbency of the Board
of Directors and current management, and limits accountability to shareholders.
Our Company also has other measures which protect incumbency and limit
accountability to shareholders, specifically: a lack of either confidential or
cumulative proxy voting rights by shareholders.
These protective measures for incumbent directors and executives are
unnecessary, reduce management accountability to shareholders and may negatively
impact financial performances.
We urge your support for this proposal.
STATEMENT OF BOARD IN OPPOSITION TO SHAREHOLDER PROPOSAL
The Company's Board of Directors is divided into three classes, with
approximately one-third of the directors elected each year for a three-year
term. Provisions governing this arrangement are set forth in the Company's
Articles of Incorporation and Bylaws and have been approved by the Company's
shareholders. The Board continues to believe that a classified Board of
Directors provides important benefits to both the Company and its stockholders.
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A classified Board helps provide continuity and consistency of business
strategy and policy. Because approximately two-thirds of the directors remain in
office each year, having a classified Board helps ensure that the Company will
continue to have experienced individuals, familiar with the Company's business
and affairs, serving on its Board. The Board believes that the election of
one-third of the Board each year provides shareholders with the opportunity to
influence corporate policy each year while avoiding any sudden and disruptive
changes in corporate operations and corporate policies that could arise if an
entirely new group of directors were elected in a single year.
The Board also believes that staggering the terms of its directors affords
the Company valuable protection against an unsolicited or unfriendly proposal to
take over the Company. One benefit of having a classified Board is that it
encourages a person seeking to obtain control of the Company to negotiate with
the Board. Because at least two annual shareholders meetings generally will be
required to effect a change in control of the Board, the classified system gives
the incumbent directors the time and leverage necessary to review any takeover
proposal, to negotiate a more favorable result for the Company's shareholders,
helping to assure that shareholder value is maximized, and to consider
alternative strategies.
If approved by the shareholders, the proposal would not in itself declassify
the Board. Instead, it would serve as a recommendation to the Board to take the
necessary steps to end the staggered system of electing directors. To declassify
the Board, it would be necessary to amend the relevant provisions of the
Company's Articles of Incorporation and Bylaws. The affirmative vote of a
majority of the outstanding shares of the Company's common stock would be
required to approve those amendments.
For the reasons set forth above, the Board opposes the foregoing shareholder
proposal.
SHAREHOLDER APPROVAL
Approval of this proposal requires that the votes cast in favor of the
proposal exceed the votes cast opposing the proposal, provided a quorum is
present. Unless marked to the contrary, proxies will be voted "AGAINST" the
proposal. Abstentions and broker non-votes will not be counted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST THE
SHAREHOLDER PROPOSAL URGING DECLASSIFICATION OF THE BOARD OF DIRECTORS.
4. 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, 1999. 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.
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SHAREHOLDER APPROVAL
Ratification of the independent auditors by the shareholders requires that
the votes cast in favor of ratification exceed the votes cast opposing
ratification, provided a quorum is present. Unless marked to the contrary,
proxies will be voted "FOR" the ratification of the selection of KPMG Peat
Marwick LLP as the Company's auditor. Abstentions will not be counted. If a
favorable vote is not obtained, other auditors will be selected by the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Any proposals by security holders intended to be presented at the next
annual meeting must be received by the Company for inclusion in its proxy
statement and form of proxy relating to that meeting by May 3, 1999.
If the Company does not receive notice by July 17, 1999, from a shareholder
who intends to present at the next annual meeting a proposal that is not
discussed in the Company's proxy statement, the proxies of the Company's Board
of Directors will have discretionary authority to vote on such proposal at the
annual meeting.
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 1998, 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.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998, 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
[SIGNATURE]
Scott M. Brown
SECRETARY
SANTA BARBARA, CALIFORNIA
AUGUST 28, 1998
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TENET HEALTHCARE CORPORATION
Proxy-Solicited by the Board of Directors
The undersigned hereby appoints Jeffrey C. Barbakow, Michael H. Focht,
Sr. 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 7, 1998, 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, "AGAINST"
ITEMS 2 AND 3, AND "FOR" ITEM 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1,
"AGAINST" ITEMS 2 AND 3, AND "FOR" ITEM 4.
(PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY.)
TENET HEALTHCARE CORPORATION
P.O. BOX 11336
NEW YORK, N.Y. 10203-0336
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of the following FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
nominees as Directors: listed below. for all nominees listed below.
Nominees: Sanford Cloud Jr, Maurice J. DeWald, Raymond A. Hay
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark the "Exceptions" box and write that (those)
nominee's(s') name(s) in the space provided below.)
2. Shareholder proposal regarding Year 2000 disclosures.
FOR / / AGAINST / / ABSTAIN / /
3. Shareholder proposal regarding declassification of the Company's Board of Directors.
FOR / / AGAINST / / ABSTAIN / /
4. Proposal to ratify the selection of KPMG Peat Marwick LLP as independent auditors for the fiscal year ending May 31, 1999.
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: , 1998
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Signature
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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.
</TABLE>
