<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
______________________
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PARACELSUS HEALTHCARE CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any 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:
<PAGE> 2
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 3
PARACELSUS HEALTHCARE CORPORATION
515 W. GREENS ROAD, SUITE 800
HOUSTON, TEXAS 77067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_____________________
To Be Held May 28, 1997
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Paracelsus Healthcare Corporation will be held at the Wyndham Greenspoint
Hotel, 12400 Greenspoint Drive, Houston, Texas 77060, on Wednesday, May 28,
1997, at 10:00 a.m. Houston, Texas time, for the following purposes:
1. To elect two Class I directors to serve for a term of three
years;
2. To ratify the appointment of Ernst & Young LLP by the Board
of Directors as the Company's independent auditors for 1997;
and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 28, 1997,
as the record date for determining stockholders entitled to notice of and to
vote at the meeting or any adjournment thereof. A list of stockholders eligible
to vote at the meeting may be examined by any stockholder during the ten-day
period preceding the meeting at the Company's executive offices located at 515
W. Greens Road, Suite 800, Houston, Texas 77067 during ordinary business hours.
PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY to
assure that your shares are voted and that a quorum will be present at the
meeting. A return envelope, which requires no postage if mailed in the United
States, has been provided for your use. If you attend the meeting and vote your
shares in person or inform the Secretary of the Company in writing that you
wish to revoke your proxy, your proxy will not be used.
By order of the Board of Directors,
/s/ Robert C. Joyner
Robert C. Joyner
Corporate Secretary
Houston, Texas
May 13, 1997
<PAGE> 4
PARACELSUS HEALTHCARE CORPORATION
515 W. Greens Road, Suite 800
Houston, Texas 77067
_____________
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
_____________
To Be Held May 28, 1997
This Proxy Statement is furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Paracelsus
Healthcare Corporation (the "Company") to be used at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Wyndham Greenspoint
Hotel, 12400 Greenspoint Drive, Houston, Texas 77060, on Wednesday May 28,
1997, at 10:00 a.m. Houston, Texas time, and any adjournment thereof, as set
forth in the foregoing notice.
This Proxy Statement, the accompanying proxy card and the Annual Report
are being mailed to stockholders on or about May 13, 1997. The proxy, when
properly executed and received by the Secretary of the Company prior to the
Annual Meeting, will be voted as therein specified. If no election is made, the
persons designated as proxies in the accompanying proxy card will vote "FOR"
the election of the nominees to the Board named herein and "FOR" the
ratification of the selection of Ernst & Young LLP as the Company's independent
auditors for 1997. The Board is not currently aware of any matters other than
those referred to herein which will come before the Annual Meeting. If any
other matter should be presented at the Annual Meeting for action, the persons
named in the accompanying proxy card will vote the proxy on such matter in
their own discretion.
Proxies may be revoked at any time before they are exercised by delivering
notice of revocation to the Secretary of the Company, by submitting a
subsequently dated proxy, or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, in itself, constitute
revocation of the proxy.
Only holders of record of the Company's common stock, no stated par value
("Common Stock"), at the close of business on April 28, 1997, will be entitled
to vote at the Annual Meeting. As of that date, there were 54,813,417 shares
of Common Stock outstanding. Each share of Common Stock entitles the holder to
one vote. A majority of the shares of Common Stock entitled to vote, present in
person or by proxy (including shares that abstain or do not vote with respect
to one or more of the matters presented at the Annual Meeting), will constitute
a quorum for the Annual Meeting. There is no cumulative voting and there are no
other voting securities of the Company outstanding.
The cost of preparing, printing and mailing proxy materials to the
Company's stockholders will be borne by the Company. The Company has retained
Georgeson & Company Inc., a professional solicitation firm, to assist in the
soliciting of proxies from stockholders at a fee of $7.50 for each delivery
plus $0.04 per set of material, but in no event to be less than $600, plus
reimbursement for out-of-pocket expenses. In addition, proxies may be solicited
personally or by telephone by officers or employees of the Company, none of
whom will receive additional compensation therefor. The Company will also
reimburse brokerage houses and other nominees for their expenses in forwarding
proxy materials to beneficial owners of Common Stock.
<PAGE> 5
ELECTION OF DIRECTORS
The Bylaws of the Company currently provide that there shall be nine
members on the Board. Currently, the Board consists of six persons, two of whom
are employees of the Company. As of the time of this Annual Meeting, the Board
has not chosen nominees to replace two director positions which have become
vacant since the last meeting of stockholders held in August 1996. As provided
by the terms of the related merger agreements with Champion Healthcare
Corporation ("Champion") in August 1996 (the "Merger"), the four members on the
Board then serving continued, five specified new members were elected, and the
Board was divided into three classes as described below.
In accordance with the Bylaws of the Company, directors are divided into
three classes composed as nearly as possible of an equal number of directors.
Pursuant to a shareholder agreement between Park Hospital GmbH (the
"Shareholder"), a wholly owned corporation of Dr. Manfred G. Krukemeyer, and
the Company dated August 16, 1996 (the "Shareholder Agreement"), four members
of the Board, consisting of one Class I director, one Class II director and two
Class III directors, shall be designated by the Shareholder (the "Shareholder
Directors") for nomination by the Board as each class is up for election.
Pursuant to the Shareholder Agreement, three of the nine members are to be
nominees who are neither Shareholder Nominees nor officers of the Company (the
"Independent Directors") and the remaining two members may be directors who are
neither Shareholder Directors nor Independent Directors (the "Management
Directors"). The Company and Shareholder have agreed that the Class I
directors, whose terms expire at the 1997 Annual Meeting, shall be comprised of
two Independent Directors and one Shareholder Director; the Class II directors,
whose terms expire at the 1998 Annual Meeting, shall be comprised of one
Shareholder Director, one Management Director and one Independent Director; and
the Class III directors, whose terms expire at the 1999 Annual Meeting, shall
be comprised of two Shareholder Directors and one Management Director. The
Shareholder has agreed to vote its Common Stock for those nominees nominated
pursuant to the Shareholder Agreement. The size of the Board may be increased
to include three additional Independent Directors if the beneficial ownership
of Common Stock of the Shareholder falls below certain levels. Each director
will hold office until a successor has been elected and qualified.
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
The Board has nominated Messrs. James A. Conroy and L. Stanton Tuttle to
serve as Class I directors for a three-year term expiring at the date of the
Annual Meeting in 2000. Mr. Conroy currently serves as a Class I director. Each
of the nominees has consented to serve if elected, but if either nominee
becomes unable to serve as a director, and if the Board designates a substitute
nominee, the persons named in the accompanying proxy card will vote for the
substitute nominee designated by the Board. The two positions on the Board for
which there are no nominees are positions the Shareholder under the Shareholder
Agreement has the right to nominate. The Shareholder has not, at this time,
determined to make any such nominations. The accompanying proxy will not be
voted to fill any director positions other than the two positions for whom the
nominees are described herein.
The following table sets forth certain information regarding the nominees,
furnished to the Company by such persons. Under the Shareholder Agreement, both
nominees will be Independent Directors.
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
- ---------------------------------------------------------- -------- -----
<S> <C> <C>
JAMES A. CONROY, age 36, has been a general partner of OGP 1996 I
Partner, L.P., the general partner of Olympus Private
Placement Fund, L.P. ("Olympus"), since 1993 and a Vice
President of Olympus from 1990 to 1993. Mr. Conroy is also
a general partner of OGP II, L.P. and OEF, L.P., the
general partner of Olympus Growth Fund II, L.P. and Olympus
Executive Fund, L.P., respectively, since 1994. Olympus
invests in growth companies, acquisitions and
restructurings through the purchase of private equity
and equity-linked securities. From 1992 to August 1996,
Mr. Conroy served as a director of Champion. Mr. Conroy
also has served as a director of Frontier Vision Partners,
L.P. since 1995.
L. STANTON TUTTLE, age 56, has been President, Chief Executive N/A I
Officer and Chairman of L. Stanton Tuttle & Associates,
a healthcare consulting firm, since 1995. From 1991 to 1994,
Mr. Tuttle was President, CEO and Chairman of New Day of
America, Inc. Prior thereto, he was President of American
Medical International, Inc. Psychiatric Co. from 1988 to 1990,
President and CEO of National Healthcare Corp. from 1986
to 1987, Senior Vice President of Hospital Corporation of
America and President of Hospital Corporation of America
Psychiatric Co. from 1983 to 1986. From 1968 to 1985, Mr. Tuttle
was employed in senior executive positions with various
healthcare companies, including Brookwood Health Services, Inc.
and ExtendiCare (which later became Humana).
</TABLE>
STOCKHOLDER APPROVAL
SHARES REPRESENTED BY THE ACCOMPANYING PROXY CARD WILL BE VOTED "FOR" THE
ELECTION OF THE ABOVE NOMINEES UNLESS AUTHORITY TO VOTE FOR ALL OR ANY NOMINEE
IS WITHHELD. DIRECTORS WILL BE ELECTED BY A PLURALITY OF THE VOTES OF THE
SHARES OF COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING.
ABSTENTIONS ON THIS MATTER WILL BE COUNTED FOR QUORUM PURPOSES BUT NOT VOTED.
BROKER NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME OF THE ELECTION OF
DIRECTORS.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE ABOVE NOMINEES AS CLASS I MEMBERS OF THE BOARD.
CONTINUING DIRECTORS WHOSE TERMS ARE NOT EXPIRING
The following table sets forth certain information for those Class II and
III directors who will continue to serve until the 1998 and 1999 Annual
Meetings, respectively. Each director provided the information to the
Company.
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
- ----------------------------------------------------------- -------- -----
<S> <C> <C>
JAMES G. VANDEVENDER(1), age 49, has served as Executive Vice 1996 II
President and Chief Financial Officer of the Company since
August 1996. From 1990 to 1996, he was Executive Vice
President, Chief Financial Officer, Secretary and a director
of Champion, which he co-founded. From 1987 to 1989, Mr.
VanDevender pursued private investments. From 1981 to 1987,
he was Senior Vice President of Republic Health Corporation
("Republic"), primarily responsible for acquisitions and
development, and held other senior management positions in
the areas of accounting and finance. Prior thereto, he
was employed in various management positions for four years
by Hospital Affiliates International ("HAI").
CHRISTIAN A. LANGE(2), age 57, has been President of European 1983 II
Investors, Inc., since 1983 and has served as Chairman
of the Board of European Investors Corporate Finance, Inc.
Prior to 1983, he was a senior executive of Friedrich Flick
Industrieverwaltung KgaA of Dusseldorf, Germany. From July
1983 to August 1996, Mr. Lange was a financial consultant to
the Company.
DARYL J. WHITE(3), age 49, has been Chairman of Pinnacle 1996 II
Micro, Inc. since May 1996. He was Senior Vice President,
Finance and Chief Financial Officer of Compaq Computer Corp.
("Compaq") from 1989 to 1996. He joined Compaq in 1983 as
Director of Information Management and was named Corporate
Controller in 1984, Vice President and Corporate Controller
in 1986 and Vice President, Finance and Chief Financial
Officer in 1988. Mr. White is also a director of IMATION
Corporation.
DR. MANFRED G. KRUKEMEYER(4), age 35, a German medical doctor, 1981 III
has served as Chairman of the Board since the death of his
father, Dr. Harmut Krukemeyer, the Company's founder and
previous Chairman of the Board, in 1994. He was Vice Chairman
of the Board from 1983 until 1994. Dr. Krukemeyer is the
Chief Executive Officer and sole shareholder of Paracelsus
Klinik Osnabruck, which owns and operates 37 hospitals
ranging in size from 100 to 400 beds in Germany, England
and Switzerland. Dr. Krukemeyer is a graduate of the
University of Vienna School of Medicine and practiced
medicine in Europe before assuming full time business
responsibilities in 1992.
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
- ---------------------------------------------------------- ------- -----
<S> <C> <C>
CHARLES R. MILLER(5), age 58, has served as President and 1996 III
Chief Operating Officer of the Company since August 1996.
From 1990 to 1996, he was Chairman, President and Chief
Executive Officer of Champion, which he co-founded. From
1987 to 1989, he co-owned and operated an acute care
hospital in El Paso, Texas, which he sold in 1988. From
1981 to 1986, he co-founded Republic and served as President
and director until his resignation as a result of his
election not to participate in a leveraged buy-out of
Republic, which was then the fifth largest publicly-held
hospital management company. Prior thereto, he was employed
in various management positions for seven years by HAI.
</TABLE>
__________________
(1) Pursuant to the Shareholder Agreement, Mr. VanDevender is a
Management Director. Under the terms of his employment
agreement, Mr. VanDevender may terminate the agreement and
receive agreed to benefits if he is not elected a member of
the Board and to the Executive Committee.
(2) Under the Shareholder Agreement, Mr. Lange is a Shareholder
Director.
(3) Under the Shareholder Agreement, Mr. White is an Independent
Director.
(4) Under the Shareholder Agreement, Dr. Krukemeyer is a Shareholder
Director.
(5) Pursuant to the Shareholder Agreement, Mr. Miller is a
Management Director. Under the terms of his employment
agreement, Mr. Miller may terminate the agreement and
receive agreed to benefits if he is not elected a member of
the Board and to the Executive Committee.
<PAGE> 9
MEETINGS OF THE BOARD
The Board met five times and acted by unanimous written consent nine times
during 1996. All current members of the Board attended at least 75% of the
combined total of the meetings of the Board and its committees on which they
served.
COMMITTEES OF THE BOARD
The Company has four standing committees: the Executive Committee,
the Stock Option and Compensation Committee, the Audit Committee and the
Finance and Strategic Planning Committee. The Company has no standing
Nominating Committee. These committees were established effective August 13,
1996 with the exception of the Stock Option and Compensation Committee that was
established in July 1996.
The Executive Committee is composed of Messrs. Miller and
VanDevender, with one vacant position to be filled at later date. The Committee
is empowered to exercise all of the powers and authority of the Board
permitted by law between meetings of the Board. The Executive Committee
met three times and acted by unanimous written consent one time during
1996.
The Audit Committee is composed of Messrs. Conroy and White, with one
vacant position to be filled at a later date. The Committee is empowered, among
other things, to (i) recommend to the Board the appointment of independent
public accountants to the Board, (ii) review the scope of audits made by
independent public accountants and the audit reports submitted by such
accountants, (iii) review the scope and results of internal audits, overall
accounting practices, accounting policies and accounting and financial
controls and (iv) perform such other functions as may be necessary or
appropriate for the efficient discharge of its duties. The Audit Committee
met one time during 1996.
The Finance and Strategic Planning Committee is composed of Mr. Lange,
with two vacant positions to be filled at a later date. The Committee is
empowered to supervise the financial and strategic planning of the
Company. There was no meeting of the Finance and Strategic Planning Committee
during 1996.
The Stock Option and Compensation Committee is composed of Dr. Krukemeyer,
Messrs. Lange and White. The Committee develops recommendations for
compensation and benefit levels for the executive officers and administers the
Company's stock incentive plan. This Committee acted by unanimous written
consent one time during 1996.
On October 8, 1996, the Board appointed a Special Committee consisting
of Messrs. Conroy and White and then director Michael D. Hofmann to supervise
and direct the conduct of an inquiry assisted by outside legal counsel,
regarding among other things, the Company's accounting and financial
reporting practices and procedures for the periods prior to the quarter ended
September 30, 1996. The Committee will be discharged of its duties by the Board
upon completing all of its defined tasks. In March 1997, Mr. Hofmann resigned
as a director of the Company, with the Special Committee having
substantially completed its investigation.
The Shareholder Agreement provides that each committee of the Board
(other than the Audit and Stock Option and Compensation Committees) will
<PAGE> 10
contain that number of Shareholder Directors that is in the same proportion as
there are Shareholder Directors on the Board. In addition, the Audit
Committee shall be comprised solely of Independent Directors and the Stock
Option and Compensation Committee shall be comprised of one non-employee
Shareholder Director, one Independent Director and one additional non-
employee director. At this time, certain of these requirements under the
Shareholder Agreement have been waived.
COMPENSATION OF DIRECTORS
Prior to August 16, 1996, the Company did not compensate directors
for serving in that capacity, but reimbursed their out of pocket expenses for
attending board meetings. Effective August 16, 1996, non-employee directors
of the Company will each receive an annual fee of $30,000 and a fee of $2,500
for each meeting of the Board or any committee thereof attended, up to a
maximum of $50,000 per year. Notwithstanding the foregoing, each member of
the Special Committee also receives a fee of $35,000, $2,000 per
Special Committee meeting and is reimbursed for any out of pocket expenses.
Directors of the Company who are also employees of the Company will not
receive any additional compensation for their service as directors. All
directors will be reimbursed for reasonable expenses incurred in the performance
of their duties. Certain directors had services and consulting agreements with
the Company during 1996. See "Executive Compensation - Employment, Services
and Consulting Agreements" for a description of their 1996 compensation.
Directors are also eligible to receive options to purchase shares of
the Company's Common Stock under the 1996 Stock Incentive Plan (the "Incentive
Plan"). During 1996, Mr. Lange was paid $750,000 and was granted an option to
purchase 56,000 shares of the Company's Common Stock at $.01 per share
(the "Value Option"), which is fully vested and expires on August 9,
2006, in exchange for the termination of outstanding awards under the
Company's Phantom Equity Long-Term Incentive Plan (see "Phantom Equity Long
- -Term Incentive Plan"). The combined cash payment and grant of the Value
Option were intended to have a value substantially equivalent to the accrued
value of the canceled phantom stock appreciation rights and/or preferred
stock units. See "Executive Compensation - Option Grants in Last Fiscal
Year" for options granted to other employee directors of the Company.
Effective August 16, 1996, the Company entered into indemnity and
insurance coverage agreements with all then existing directors of the Company.
See "Executive and Services Agreements" for information regarding indemnity and
insurance coverage agreements entered into between the Company and certain
executive officers.
<PAGE> 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 28, 1997, certain
information concerning the shares of Common Stock beneficially owned by (i)
each stockholder known by the Company to be a beneficial owner of more than
five percent of the Company's Common Stock, (ii) each director and nominee as
director of the Company, (iii) each "Named Executive" (see "Executive
Compensation"), and (iv) all directors and executive officers of the Company as
a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) (2)(3) CLASS (3)
---------------------------------------- --------------------- -------------
<S> <C> <C> Park Hospital GmbH
AM Natruper Holz 69
D-49076 Osnabruck
Federal Republic of Germany 29,771,742 (4) 54.3%
Dr. Manfred George Krukemeyer 29,771,742 (4) 54.3%
Charles R. Miller 1,075,025 (5) 1.9%
James G. VanDevender 630,000 (6) 1.1%
James A. Conroy 2,087,292 (7) 3.8%
Christian A. Lange 56,000 (8) *
Daryl J. White 4,000 *
L. Stanton Tuttle - -
Ronald R. Patterson 461,761 (9) *
Warren W. Wilkey 25,333 (10) *
All directors and executive officers as
a group (28 persons) 34,851,059 (11) 61.1%
</TABLE>
___________________________________
<TABLE>
<CAPTION>
<S> <C>
* Percentage is less than 1% of the total outstanding shares of the Company.
(1) The address of each named director and officer is c/o Paracelsus
Healthcare Corporation, 515 W. Greens Road, Suite 800, Houston, Texas
77067.
(2) Unless otherwise indicated, such shares of Common Stock are owned
directly with sole voting and investment power.
(3) Includes shares issuable upon exercise of stock options or warrant that
are currently exercisable or that become exercisable within 60 days of
April 28, 1997. Such shares, for the purpose of computing the percentage
of outstanding common stock, are deemed owned by each named individual
and by the group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(4) Park Hospital GmbH, a German corporation wholly owned by Dr. Krukemeyer,
is the record owner of such shares. Such amount does not include shares
owned by Messrs. Miller and VanDevender which are subject to a voting
agreement with Park Hospital GmbH to vote with Park GmbH, and to sell
their shares in accordance with, for certain acquisition proposals
described in the Shareholder Agreement.
(5) Includes 547,876 shares issuable upon exercise of options that are
currently exercisable.
<PAGE> 12
(6) Includes 530,000 shares issuable upon exercise of options that are
currently exercisable.
(7) Mr. Conroy is a general partner of Olympus Private Placement Fund, L.P
and Olympus Executive Fund, L.P. (collectively, "Olympus") and disclaims
beneficial ownership of 2,077,292 shares and 10,000 shares of the
Company's Common Stock owned by these funds, respectively. OGP Partners,
L.P., James A. Conroy and Robert S. Morris may be deemed to beneficially
own the shares of the Company's Common Stock beneficially owned by
Olympus.
(8) Includes 56,000 shares issuable upon exercise of options that are currently
exercisable.
(9) Includes 450,690 shares issuable upon exercise of options that are
currently exercisable.
(10) Includes 13,333 shares issuable upon exercise of options that are currently
exercisable.
(11) Includes 2,183,932 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 28, 1997.
</TABLE>
The Shareholder Agreement provides that the Shareholder may not acquire
66 2/3% or more of the outstanding Common Stock except under circumstances
designed to insure a fair price is paid. If the Board determines to support a
proposal to acquire the Company by a third party, the Shareholder has the first
right to make a similar offer on substantially equivalent terms. If the
Shareholder fails to make such an offer, then the Shareholder must vote for or
sell its Common Stock in support of such approved acquisition proposal.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's
Chief Executive Officer and four most highly compensated executive officers
whose total annual salary and bonus for 1996 exceeded $100,000 (the "Named
Executives") with respect to all services rendered to the Company during
the calendar years indicated.
<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ---------- ---------
OTHER ALL
ANNUAL SECURITIES OTHER
COMP- UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS ENSATION OPTIONS PAYOUTS SATION
POSITION(a) YEAR ($) ($) ($) (#)(e) ($) ($)(g)
- ------------------ ---- --------- ---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
R.J. Messenger (b) 1996 $ 716,715 $ 627,046 $ 429,651(d) 2,000,000 $6,920,858(f)$ 42,152
Vice Chairman & 1995 686,433 3,970,041 88,370(d) - 895,134 10,860
Chief Executive 1994 588,726 518,218 94,684(d) - 457,246 7,288
Officer
Charles R. Miller 1996 187,500 1,492,188(c) - 1,547,876 - -
President & 1995 - - - - - -
Chief Operating 1994 - - - - - -
Officer
James G. VanDevender 1996 131,250 911,875(c) - 1,070,000 - -
Executive Vice 1995 - - - - - -
President 1994 - - - - - -
&Chief Financial
Officer
Ronald R. Patterson 1996 131,250 661,875(c) - 690,690 - 563
Executive Vice 1995 - - - - - -
President 1994 - - - - - -
& President,
Healthcare
Operations
Warren W. Wilkey 1996 84,375 377,755(c) - 20,000 - 563
Senior Vice 1995 - - - - - -
President, 1994 - - - - - -
Operations
</TABLE>
___________________________
<TABLE>
<CAPTION>
<S> <C>
(a) Except for Mr. Messenger, the latter four Named Executives are former
Champion executives who became employees of the Company effective
August 16, 1996, the consummation date of the merger with Champion.
Salaries reflect amounts paid for the period from August 16, 1996 to
December 31, 1996 except with respect to Mr. Messenger.
(b) Effective April 14, 1997, Mr. Messenger ceased to be Chief Executive
Officer and director of the Company.See "Employment and Services
Agreements." Amounts shown for 1995 and 1994 represent amounts earned
for fiscal years ended September 30, 1995 and 1994, respectively.
Effective September 1996, the Company changed its fiscal year from
September 30 to December 31. Accordingly, amounts shown for 1996
represent amounts earned for calendar year ended December 31, 1996.
(c) Bonus amounts of $1.2 million, $750,000, $500,000 and $280,000 for
Messrs. Miller, VanDevender, Patterson and Wilkey, respectively, were
made in exchange for Messrs. Miller, VanDevender and Patterson
surrendering certain severance rights under the Change of Control
provisions in their Champion employment agreements and as a special merger
bonus to Mr. Wilkey.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
(d) Represents accrued vacation payment of $405,369 in 1996 and perquisites
and personal benefits, including, among other things, club dues in the
amounts of $21,532, $20,199 and $43,767 in 1996, 1995 and 1994,
respectively, and automobile-related expenses of $2,750 and $35,408 in
1996 and 1995, respectively.
(e) Includes Champion stock options assumed pursuant to the terms of the
Merger.
(f) Includes payment of $6,881,000 in settlement of the awards outstanding
under the Company's Phantom Equity Long-Term Incentive Plan that was
terminated effective August 16, 1996 upon the merger with Champion.
(g) Represents life insurance premiums and matching contributions by the
Company under its Employee Retirement Savings 401(k) Plan.
</TABLE>
The following table summarizes stock option grants made during 1996 to the
Named Executives and the potential realizable values of the option, based on
certain assumptions. Except for the Champion options which were assumed
pursuant to the terms of the Merger, all options were granted in August 1996
under the Company's 1996 Stock Incentive Plan. The Company has no outstanding
stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF MARKET
SECURITIES % OF TOTAL PRICE GRANT
UNDERLYING OPTIONS ON DATE
OPTIONS GRANTED TO EXERCISE DATE PRESENT
GRANTED EMPLOYEES IN PRICE OF EXPIRATION VALUE
NAME* (#) FISCAL YEAR ($/SHARE) GRANT DATE ($)(e)
- ---------------------- ---------- ------------- --------- ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Messenger (a) 1,000,000(b) 14.6% $ 0.01 $ 8.50 08/09/2006 $8,490,000
1,000,000(c) 14.6% 8.50 8.50 08/09/2006 3,860,000
---------- ----- ---------
2,000,000 29.2% 12,350,000
C. Miller 336,000(b) 4.9% 0.01 8.50 08/09/2006 2,852,640
1,000,000(c) 14.6% 8.50 8.50 08/09/2006 3,860,000
108,000(d) 1.6% 1.00 8.50 12/31/2000 833,760
90,000(d) 1.3% 5.33 8.50 05/27/2002 456,300
13,876(d) 0.2% 9.00 8.50 01/05/2004 51,341
---------- ---- --------
1,547,876 22.6% 8,054,041
J. VanDevender 180,000(b) 2.6% 0.01 8.50 08/09/2006 1,528,200
540,000(c) 7.9% 8.50 8.50 08/09/2006 2,084,400
72,000(d) 1.1% 1.00 8.50 12/31/2000 555,840
30,000(d) 0.4% 4.00 8.50 01/31/2002 172,200
120,000(d) 1.7% 5.33 8.50 05/27/2002 608,400
128,000(d) 1.9% 9.00 8.50 01/05/2004 473,600
--------- ---- --------
1,070,000 15.6% 5,422,640
R. Patterson 180,000(b) 2.6% 0.01 8.50 08/09/2006 1,528,200
240,000(c) 3.5% 8.50 8.50 08/09/2006 926,400
60,000(d) 0.9% 4.00 8.50 01/01/2002 344,400
60,000(d) 0.9% 5.33 8.50 05/27/2002 304,200
150,690(d) 2.2% 9.00 8.50 01/05/2004 557,553
------- ----- -------
690,690 10.1% 3,660,753
W. Wilkey 20,000(d) 0.3% 9.00 8.50 01/16/2005 74,000
</TABLE>
________________________
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
* In an event of a Change in Control, as defined in the employment
agreements of certain Named Executives, options will become fully vested.
(a) Effective April 14, 1997, Mr. Messenger ceased to be Chief Executive
Officer and director of the Company. See "Employment and Services
Agreements."
(b) Options have a ten-year term and are fully vested on the date of grant
("Value Options). Option to purchase 513,000 shares was granted to Mr.
Messenger in settlement of the awards outstanding under the canceled
Phantom Equity Long-Term Incentive Plan.
(c) Options have a ten-year term and are excercisable in 25% increments on
August 9, commencing on August 9, 1997, with full vesting occurring on
August 9, 2000 ("Market Options").
(d) Represent Champion stock options assumed pursuant to the terms of the
Merger. The term of such options and their exercise prices remained the
same as with Champion. All options are fully vested at the date of the
Merger, except for options with an exercise price of $9.00, which are
exercisable in 1/3 increments on each anniversary date of the original date
of grant.
(e) The fair value for these options was estimated at the date of grant or
the assumption date using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate of 6.25%,
dividend yield of 0%, volatility factor of the expected market price of the
Company's stock of 49.2%, and a weighted-average expected life of the
option of 4 years. There can be no assurance that the hypothetical grant
date present values of the options reflected in this table will be
realized.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR OPTION VALUES
No options were exercised by the Named Executives during 1996. The
following table sets forth the number of shares covered by unexercised options
held by the Named Executives and their value at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END($)(a)
--------------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
R. J. Messenger (b) 1,000,000 1,000,000 $3,615,000 $ -
Charles R. Miller 543,250 1,004,626 1,498,140 -
James G. VanDevender 487,333 582,667 839,700 -
Ronald R. Patterson 400,460 290,230 650,700 -
Warren W. Wilkey 6,666 13,334 - -
</TABLE>
____________________
<TABLE>
<CAPTION>
<S> <C>
(a) Market value of underlying securities at December 31, 1996 minus the
option exercise price times the number of unexercised options at December
31, 1996.
(b) Effective April 14, 1997, Mr. Messenger ceased to be Chief Executive
Officer and director of the Company. See "Employment and Services
Agreements."
</TABLE>
<PAGE> 16
The following table sets forth benefits payable to the Named Executives
under the Company's Supplemental Executive Retirement Plan (the "SERP").
Amounts shown represent the annual benefits to which the Named Executives would
be entitled under the SERP (assuming payment in the form of single life
annuity), but do not reflect an offset with respect to certain Social Security
benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------------
AVERAGE ANNUAL
COMPENSATION 5 10 15
--------------- ------ ------- ----------
<S> <C> <C> <C>
100,000 18,350 36,700 55,050
125,000 22,938 45,875 68,813
150,000 27,525 55,050 82,575
175,000 32,113 64,225 96,338
200,000 36,700 73,400 110,100
225,000 41,228 85,575 123,863
250,000 45,875 91,750 137,625
300,000 55,050 110,100 165,150
400,000 73,400 146,800 220,200
500,000 91,750 183,500 275,250
600,000 110,100 220,200 330,300
700,000 128,450 256,900 385,350
700,000 146,800 293,600 440,400
</TABLE>
SERP benefits are determined, subject to certain vesting requirements, as
(i) the product of (x) number of years of service with the Company, (y) 3.67%
for officer participants (2.33% for non-officer participants) and (z) average
earnings for the final 36 months of employment (final 60 months of employment
for non-officer participants), less (ii) a percentage of the participating
officer's Social Security benefits. SERP benefits generally accrue and vest
ratably over a 15-year period. In the event of a Change in Control, as defined
in the plan document, all benefits become fully vested. Messrs. Miller,
VanDevender, and Patterson each has 6, 6 and 4 years of credited service,
respectively, under the SERP. Mr. Wilkey does not participate in the SERP. Mr.
Messenger had approximately 15 years of credited service when he ceased to be
Chief Executive Officer and director effective April 14, 1997.
EXECUTIVE OFFICER PERFORMANCE BONUS PLAN
The Executive Officer Performance Bonus Plan (the "Bonus Plan") is
designed to reward executive officers of the Company for achieving corporate
performance objectives. The Bonus Plan is intended to provide an incentive for
superior work and to motivate participating officers toward higher achievement
and business results, to link their goals and interests more closely with those
of the Company and its stockholders, and to enable the Company to attract and
retain highly qualified executive officers. The Bonus Plan is administered by
the Stock Option and Compensation Committee, which each year, beginning as of
January 1, 1997 and on each January 1 thereafter, will select the officers of
the Company who will be eligible to receive awards under the Bonus Plan. Upon
achievement by the Company of certain targeted operating results or other
performance goals, such as operating income, pre-tax income or earnings per
share, the Company will pay performance bonuses, the aggregate amounts of which
will be determined annually based upon an objective formula. The Company is
also a party to an employment agreement with certain executives, which provides
for the payment of certain minimum bonuses upon the achievement of targeted
<PAGE 17>
performance criteria under the Bonus Plan. See "Employment and Services
Agreements."
EMPLOYEE RETIREMENT SAVINGS 401(K) PLAN
The Company has a defined contribution 401(k) retirement plan covering all
eligible employees at its hospitals and the corporate office. During 1996,
participants could contribute up to 20% of pretax compensation, not exceeding a
limit set annually by the Internal Revenue Service. The Company matched $.50
for each $1.00 of employee contributions up to 4% of employees' gross pay but
did not elect to make additional discretionary contributions. Effective April
1, 1997, the participants' and the Company's matching contribution rates were
changed to 15% and $.25 for each $1.00 of employee contributions up to 6% of
employees' gross pay, respectively. The Company may make additional
discretionary contributions.
PHANTOM EQUITY LONG-TERM INCENTIVE PLAN
Effective August 16, 1996, the Company terminated the Phantom Equity Long-
Term Incentive Plan pursuant to which it had previously granted certain
executives phantom stock appreciation rights (the "PSARs") and/or preferred
stock units (the "PSUs"). Such PSARs and PSUs were canceled in exchange for the
grant of Value Options to purchase a specified number of shares of Common Stock
and the payment of a lump sum amount in cash which, in the aggregate,
approximated the accrued value of the PSARs and/or PSUs. See "Executive
Compensation - Summary Compensation Table and Option Grants in Last Fiscal
Year." The Company did not grant any PSARs of PSUs during the 1996 calendar
year.
EMPLOYMENT AND SERVICES AGREEMENT
Effective August 16, 1996, the Company is a party to employment agreements
with Messrs. Miller, VanDevender and Patterson, providing for initial base
salaries of $500,000, $350,000 and $350,000 and minimum annual bonuses as a
percentage of base salary of 85%, 70% and 70%, respectively, upon attainment of
targeted strategic, business and financial goals under the Company's Executive
Officer Performance Bonus Plan. When Mr. Messenger ceased to be Chief Executive
Officer and director in April 1997, the Company had an employment agreement
with him providing for an initial base salary of $750,000 and a minimum annual
bonus of 100% of base salary. The agreements further provide for such
officers to participate in the employee benefit and fringe benefit plans of
the Company that are generally available to the executives of the Company,
including participation in the Company's Supplemental Executive
Retirement Plan ("SERP") and life and long-term disability insurance
coverage. Mr. Messenger also received a car, a personal liability insurance
policy in the face amount of not less than $10 million and reimbursement of
club membership dues. In addition, pursuant to their respective
agreements, Messrs. Messenger, Miller, VanDevender and Patterson received
Value Options to purchase 1.0 million, 336,000, 180,000 and 180,000 shares
of Common Stock and Market Options to purchase 1.0 million, 1.0 million,
540,000 and 240,000 shares of Common Stock, respectively (see Executive
Compensation - Option Grants in Last Fiscal Year).
Each of the employment agreements of Messrs. Messenger, Miller and
VanDevender has an initial term of five years, renewable automatically upon
expiration of its initial term and any subsequent five-year term. Mr.
<PAGE> 18
Patterson's employment agreement has an initial term of three years, renewable
automatically one time only for three additional years. Each agreement is
renewable for the specified terms unless the Company or each individual gives
12 months prior notice that such agreement will not be renewed. The employment
of Messrs. Messenger, Miller and VanDevender cannot be terminated by the
Company without the prior approval of 80% of the Board and 2/3 of the
Independent Directors.
Upon termination of the above employment by the Company without Cause or
by such officer for Good Reason, each as defined in his employment agreement,
such officer's outstanding options will immediately vest and become
exercisable. Additionally, such officer will be entitled to receive a lump sum
payment equal to the greater of (x) his current base salary and annual target
bonus payable over the remaining term of employment or (y) three times (2.5
times for Mr. Patterson) his current annual salary plus annual target bonus, in
addition to an amount sufficient to offset the effect of any excise and other
taxes by reason of Section 4999 of the Internal Revenue Code. In an event of a
Change in Control, as defined in the employment agreements, each such officer
may terminate his employment without Good Reason within a 12-month period
following such event and receive the benefits described above that are
otherwise payable upon termination of his employment with Good Reason.
In connection with the commencement of their employment with the Company,
Messrs. Miller, VanDevender and Patterson received bonuses of $1.2 million,
$750,000 and $500,000, respectively. These bonus payments were made in exchange
for these executives surrendering certain severance rights under the Change of
Control provisions of their Champion employment agreements, which if exercised,
would have allowed each affected executive to leave the employ of the Company
and receive severance payments greater than the amount of bonus payment
received. Each also received credit for eligibility, vesting and benefit
accrual purposes under the SERP for their prior service with Champion.
Effective April 14, 1997, Mr. Messenger ceased to be Chief Executive
Officer and director of the Company. At that time, he and the Company entered
into an agreement in which both parties fully reserved their rights, claims and
defenses, including those under existing agreements such as Mr. Messenger's
employment agreement and the SERP, while they attempt to negotiate a
resolution of all issues between them. In the April 1997 agreement, the
Company agreed to continue to provide certain health and life insurance
benefits to Mr. Messenger and, pursuant to an indemnity and insurance coverage
agreement with him, to continue to advance his reasonable defense costs in
connection with litigation, investigations and other proceedings, subject to
his undertaking to repay them in certain circumstances.
In addition to the agreement entered into with Mr. Messenger, the Company
entered into indemnity and insurance coverage agreements, effective August 16,
1996, with Messrs. Miller, VanDevender, Patterson and Wilkey, certain other
officers of the Company, and former Chief Financial Officer James T. Rush, to
advance reasonable defense costs in connection with litigation, investigations
and other proceedings, subject to their undertakings to repay such costs in
certain circumstances.
Effective August 16, 1996, the Company became a party to a services
agreement with Dr. Krukemeyer, pursuant to which Dr. Krukemeyer will provide
management and strategic advisory services to the Company for a consulting fee
of $1.0 million per year, for a term not to exceed ten years. Effective April
14, 1997, the annual consulting fee to be paid to Dr. Krukemeyer was reduced to
<PAGE> 19
$250,000 until all obligations of the Company under its senior bank credit
agreement have been satisfied. Payments of $375,000 were made to Dr. Krukemeyer
during 1996 under the services agreement. The services agreement may be
terminated only by mutual consent of the parties. The Company is also a party
to an insurance agreement which provides insurance benefits to Dr. Krukemeyer
in the event of his death or permanent disability, in an amount equal to $1.0
million per year during the 10-year term of such agreement.
Additionally, the Company was a party to a consulting agreement with Mr.
Lange for serving as a financial consultant to the Company. Under such
agreement, Mr. Lange was paid $125,000 during 1996. The agreement was
terminated on August 16, 1996, upon the consummation of the merger with
Champion, pursuant to which $125,000 was paid to Mr. Lange during 1996. The
Company was also a party to a consulting agreement with Mr. Rush, the
Chief Financial Officer of the Company prior to its merger with Champion,
providing for an annual consulting fee of $200,000. Such agreement was
terminated in April 1997 pursuant to an agreement under which both parties
fully reserve their rights, claims and defenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July 1996, the Company did not have a formal compensation
committee. Dr. Krukemeyer and Mr. Messenger each participated in deliberations
of the Board concerning executive officer compensation. Effective in July 1996,
the Stock Option and Compensation Committee was comprised of Dr. Krukemeyer,
Mr. Lange and a former director. Effective in January 1997, Mr. Daryl White is
now a member of this committee.
STOCK OPTION AND COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee (the "Compensation Committee")
was established in July 1996 and is responsible for determining compensation
and benefit levels for executive officers and administrating the Stock
Incentive Plan. Its recommendations are subject to approval by the Board of
Directors of the Company. Prior to July 1996, there was no Compensation
Committee at Paracelsus. Post Merger compensation, bonus and incentive
arrangements were negotiated as part of the overall Merger terms and approved
by both companies. Effective January 1997, Daryl White was added to the
Compensation Committee. Accordingly, he did not participate in setting
compensation levels for executive officers during 1996.
COMPENSATION PHILOSOPHY
The Board of Directors and the Compensation Committee set the Company's
executive officer compensation program to meet the following objectives:
<TABLE>
<CAPTION>
<S> <C>
(i) To target executive compensation at a level sufficient to attract,
motivate and retain superior executive talent;
(ii) To motivate executives to advance stockholder interests with compensation
plans that are tied to the Company's operating performance and achievement
of strategic objectives;
<PAGE> 20
(iii) To provide a compensation package that balances individual
contributions with overall business results and is competitive within the
healthcare industry; and
(iv) To align the interests of the Company's employees with those of
stockholders through potential stock ownership.
</TABLE>
Accordingly, the Company has adopted a compensation program consisting of
base salary, bonus and long-term incentive compensation, mainly through stock-
based incentive awards. The Company, through its Compensation Committee,
attempts to offer an overall compensation program which is competitive with
comparable executive positions in similar-sized publicly traded healthcare
companies. This may be determined by either a formal study by a consulting firm
recognized in the field of executive compensation and/or by a review of
information which may be publicly available on such companies such as proxy
statements, annual reports and similar information. The Company may also take
into consideration any special qualitative or quantitative objectives which may
be unique to the Company's circumstances or performance in terms of structuring
either annual base salary or annual bonus plans for its executives. Executive
compensation is further aligned to stockholder value through stock-based
incentives awards such as stock option grants by providing executives with an
appropriate level of ownership interest in the Company and the opportunity to
participate with stockholders in the value derived from appreciation in the
price of the Company's stock.
EXECUTIVE COMPENSATION PROGRAM
Effective August 16, 1996, the Company increased the Named Executives' pay
levels in effect prior to the Merger. The new salary levels were deemed
appropriate based on comparisons to comparable executive positions in similar-
sized peer group companies as reflected in a study conducted by a nationally
recognized healthcare compensation consulting firm, adjusted for inflationary
increases, that had been previously commissioned by the former Champion
organization in developing the 1996 compensation program for its executives.
Similar guidelines and structure were used in developing compensation levels
for other executive officers of the Company.
BASE SALARY - Salaries are reviewed on an annual basis and may be adjusted
at that time based on the Compensation Committee's subjective assessment of
individual performance and contribution to the Company during the preceding
fiscal year, level of responsibility and competitive pay level of a comparable
position at similar organizations.
BONUS - Bonus payments to executives are predicated on the Company's
success in achieving certain strategic, business and financial goals as well as
other specific objectives set forth for such individuals at the beginning of
each performance period. Targeted bonuses, calculated as a percentage of base
salary, range from 30% for vice presidents to 100% for the Chief Executive
Officer, if all performance goals are met. Pursuant to the terms of the Merger,
Mr. Messenger received cash bonuses for the year ended September 30, 1996 as if
the maximum performance thereunder had been satisfied. Messrs. Miller,
VanDevender and Patterson, all former Champion executives, received pro-rated
bonuses for the nine months ended September 30, 1996 based on the attainment of
Champion's targeted performance goals from January 1, 1996 to August 16, 1996.
Additionally, in connection with the commencement of their employment with the
Company, Messrs. Miller, VanDevender and Patterson received bonuses of $1.2
million, $750,000 and $500,000, respectively. The bonus payments were made in
<PAGE> 21
exchange for these executives surrendering certain severance rights under the
Change of Control provision of their Champion employment agreements, which if
exercised, would have allowed each affected executive to leave the employ of
the Company and receive severance payments greater than the amount of bonus
payment received. A new Executive Officer Performance Bonus Plan, which
replaced the previous bonus plan, was adopted on August 16, 1996. All executive
officers are eligible to participate in such plan effective January 1, 1997.
Accordingly, no bonus had been paid to the executive officers for the three
months ended December 31, 1996. Reference is made to the information included
under "Executive Compensation - Executive Officer Performance Bonus Plan" in
the Proxy Statement for additional information regarding such plan.
LONG-TERM INCENTIVES - The Company provides long-term incentives to its
executives through the Stock Incentive Plan. This plan replaced the Phantom
Equity Long-Term Incentive Plan ("Phantom Equity Plan") in effect before August
1996. Reference is made to the information included under "Executive
Compensation - Phantom Equity Long Term Incentive Plan" in the Proxy Statement
for additional information regarding such plan. Through the ability to offer
stock-incentive awards such as stock options, restricted stock, performance
shares, stock appreciation rights and deferred stock, the Company offers the
executives the right to obtain an ownership interest in the Company which is of
value only if the share price increases, with the naturally resulting benefit
to stockholder value. Stock option awards are based on the Company's subjective
assessment of each executive's previous and anticipated future contribution to
the Company and the amount and terms of options already held by the executive.
Stock awards, including all terms such as exercise price and vesting schedule,
are determined by the Compensation Committee. Effective with the Merger cash
payments were made and Value Options were granted on a one-time basis to
certain executives in settlement of the awards outstanding under the Phantom
Equity Plan. Under their employment agreements and in recognition of their
efforts in effecting the Merger, Market Options and Value Options were granted
to certain Named Executives. See "Executive Compensation - Option Grants in
Last Fiscal Year." Pursuant to the terms of the Merger, the Company also
assumed with the same basic terms, all outstanding stock options under the
various option plans of Champion.
Executive officers may also participate in the Company's 401(k) retirement
plan, which includes both employee and employer contributions. In addition,
certain selected executives may participate in a Supplemental Executive
Retirement Plan. See "Executive Compensation - Supplemental Executive
Retirement Plan."
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Messenger's compensation was based on those criteria described above
for all executive officers pursuant to the Company's executive compensation
philosophy and policies.
Prior to the consummation of the Merger, Mr. Messenger automatically
received a 10% annual increase in salary and a bonus participation ranging from
40% to 90% of his annual base salary, based on the attainment of certain
performance measures, in accordance with the terms of his previous employment
agreement. Effective August 16, 1996, the Company increased Mr. Messenger's
annual salary from $696,717 to $750,000. During 1996, pursuant to the terms of
the Merger, Mr. Messenger received a bonus of $627,046, which was determined
as if all performance goals thereunder had been satisfied at maximum for the
year ended September 30, 1996.
<PAGE> 22
To provide Mr. Messenger with an added incentive to increase long-term
stockholder value, pursuant to his Employment Contract the Company granted him
a Value Option to purchase 487,000 shares and a Market Option to purchase an
additional 1.0 million shares at the time of the Merger. Mr. Messenger also
received a cash payment of $6,881,000 and a Value Option to purchase 513,000
shares in settlement of the awards outstanding under the Company's Phantom
Equity Plan, which was discontinued effective with the Merger.
Mr. Messenger ceased to be Vice-Chairman, Chief Executive Officer and a
director of the Company effective April 14, 1997 and is no longer in the employ
of the Company. See "Employment and Services Agreement." The Company has not
designated a new Chief Executive Officer.
Stock Option and Compensation Committee
/s/ Dr. Manfred George Krukemeyer
/s/ Christian A. Lange
Dr. Manfred George Krukemeyer
Mr. Christian A. Lange
STOCK PRICE PERFORMANCE GRAPH
The following graph demonstrates comparison of cumulative stockholder
returns, on a dividend basis, for the Company, the companies on the Standard &
Poor's ("S&P") 500 Stock Index and the companies on the S&P Healthcare Sector,
commencing on August 16, 1996, the first day the Company's Common Stock was
publicly traded.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PARACELSUS HEALTHCARE CORPORATION*,
THE S&P 500 STOCK INDEX AND
THE S&P HEALTHCARE SECTOR INDEX
(Graph appears here)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1996 1996
---------- --------
<S> <C> <C>
Paracelsus Healthcare Corporation. $100 $ 41
S&P 500 Stock Index $100 117
S&P Healthcare Sector Index $100 118
</TABLE>
* Assumes $100 invested on August 16, 1996 in the Company's Common Stock and on
July 31, 1996 for the indices presented.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the securities laws that might incorporate future
filings, the report of the Stock Option and Compensation Committee and the
performance graph included in this Proxy Statement shall not be incorporated by
reference into any such filing.
<PAGE> 23
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1996, Mr. G. Wayne McAlister, Vice President of the Company,
inadvertently failed to report on a timely basis the acquisition of 6,200
shares of the Company's Common Stock. This transaction was reported on Form 5
filed on February 14, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, the Company paid Dr. Krukemeyer, the former sole shareholder
of the Company, dividends of $24.9 million. The Company also paid accrued
interest of $104,000 to Dr. Krukemeyer in connection with the dividend paid in
August 1996, pursuant to the terms of the Merger agreement. After receipt of
the dividend in August 1996 and pursuant to a related agreement, Dr. Krukemeyer
paid approximately $3.0 million plus accrued interest in full satisfaction of
the amount outstanding under a $3.2 million note bearing 8% interest payable to
the Company. Additionally, Dr. Krukemeyer loaned the Company $7.2 million in
the form of a $7.2 million 6.51% subordinated note from the Company, payable
in the annual amount of $1.0 million over a term of 10 years. No principal and
interest had been paid as of December 31, 1996. Effective April 14, 1997,
pursuant to the terms of an amendment to the Company's senior bank credit
agreement, Dr. Krukemeyer waived his right to receive principal payments under
the note until all obligations of the Company under such credit agreement have
been satisfied.
In August 1994, Dr. Krukemeyer and Internationale, Nederlanden (U.S.)
Capital Corporation ("INCC") entered into certain arrangements relating to the
extension of credit by INCC to Dr. Krukemeyer. In connection with such
extension of credit to Dr. Krukemeyer, the Company entered into certain
agreements with INCC whereby the Company agreed to pay Dr. Krukemeyer, to the
extent permitted by the provisions of certain senior debt of the Company, (i)
transfer payments, such as dividends and know-how payments in an amount equal
to the consolidated net income of the Company on a quarterly basis and (ii)
salary and bonus payments equal to a minimum of $2.0 million per year. The
$10.5 million outstanding under this loan was repaid in full contemporaneously
with the dividend payment referred to above and the Company is no longer
obligated to make such payments to Dr. Krukemeyer.
Prior to the consummation of the merger with Champion, the Company was a
party to an Amended and Restated Know-how Contract with Paracelsus Klinik, a
sole proprietorship owned by Dr. Krukemeyer, which provided for the transfer of
specified know-how to the Company for an annual payment of the lesser of
$400,000 or 0.75% of Paracelsus' net operating revenue, as defined in the Know-
how Contract. Such contract was terminated in August 1996. Payment of $250,000
was made to Paracelsus Klinik during 1996.
The Shareholder, which is wholly owned by Dr. Krukemeyer, and certain
former Champion investors, including an associated entity of Mr. Conroy, have
contractual rights to participate in the filing of registration statements by
the Company with the Securities and Exchange Commission.
Effective with the consummation of the Merger on August 16, 1996, Dr.
Krukemeyer and the Company entered into a Non-Compete Agreement that generally
provides Dr. Krukemeyer to not directly or indirectly compete with the Company
for so long as the Shareholder Agreement is in effect.
<PAGE> 24
Messrs. Miller and VanDevender and Park Hospital GmbH (the "Shareholder")
executed a voting agreement effective August 16, 1996 whereby Messrs. Miller
and VanDevender agreed to vote their Common Stock with the Shareholder, as the
Shareholder votes or is required to vote, in connection with certain
acquisition proposals specified in the Shareholder Agreement. Furthermore,
Messrs. Miller and VanDevender are required to sell their Common stock
according to such acquisition proposals.
RATIFICATION OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, Certified Public Accountants, have been the
independent auditors for the Company since 1981. The Board has selected Ernst &
Young LLP as the Company's independent auditors for 1997 and request the
stockholders to ratify such selection. Representatives of Ernst & Young LLP,
the Company's independent auditors, are expected to be present at the Annual
Meeting to respond to any appropriate questions and to make a statement if they
so desire.
STOCKHOLDER APPROVAL
SHARES REPRESENTED BY THE ACCOMPANYING PROXY CARD WILL BE VOTED "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR 1997. THE RATIFICATION MUST BE APPROVED BY THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT IN PERSON
OR BY PROXY AT THE ANNUAL MEETING. ABSTENTIONS ON THIS MATTER WILL BE COUNTED
FOR QUORUM PURPOSES BUT NOT VOTED. BROKER NON-VOTES WILL HAVE NO EFFECT ON ITS
OUTCOME. IF A MAJORITY OF STOCKHOLDERS VOTING AT THE ANNUAL MEETING SHOULD NOT
APPROVE THIS PROPOSAL, THE SELECTION OF INDEPENDENT AUDITORS MAY BE
RECONSIDERED BY THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR 1997.
TRANSACTION OF OTHER BUSINESS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. However, if any such other business is properly presented for
action, the persons named in the accompanying form of proxy will vote the
shares represented thereby in their discretion on such matters.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting and included in the proxy materials for such meeting must be received
by the Company by no later than January 10, 1998. Otherwise, the Bylaws of the
Company provide that only stockholder proposals containing the information
required by the Bylaws and delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the anniversary date of the immediately preceding annual
meeting will be considered at the Annual Meeting.
By order of the Board of Directors
/s/ Charles R. Miller
CHARLES R. MILLER
Date: May 10, 1997 President and
Chief Operating Officer
<PAGE> 25
THE COMPANY'S ANNUAL REPORT FOR 1996 INCLUDES AS A PART THEREOF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. UPON WRITTEN REQUEST AND THE PAYMENT OF A
PER PAGE FEE OF $0.20, THE COMPANY WILL FURNISH STOCKHOLDERS OF RECORD ON APRIL
28, 1997, AND TO EACH BENEFICIAL OWNER OF SHARES ON THAT DATE, COPIES OF
EXHIBITS LISTED IN ITS FORM 10-K FOR 1996. ALL SUCH REQUESTS SHOULD BE DIRECTED
TO MR. ROBERT C. JOYNER, CORPORATE SECRETARY, PARACELSUS HEALTHCARE
CORPORATION, 515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS 77067. REQUESTS FROM
BENEFICIAL OWNERS OF COMMON STOCK MUST SET FORTH A GOOD FAITH REPRESENTATION AS
TO SUCH OWNERSHIP.
<PAGE> 26
PROXY
PARACELSUS HEALTHCARE CORPORATION
This proxy is solicited on behalf of the board of directors for the annual
meeting of stockholders on May 28, 1997.
The undersigned hereby appoints Robert C. Joyner and Suzanne S. Miskin,
and any one of them, with full power of substitution, attorneys and proxies of
the undersigned to vote all shares of common stock of Paracelsus healthcare
Corporation (the "Company") which the undersigned is entitled to vote at the
annual meeting of stockholders of the Company to be held on May 28, 1997, at
the Wyndham Hotel, 12400 Greenspoint Drive, Houston, Texas at 10:00 a.m.
central daylight time (Houston time).
(Please date and sign on reverse side)
1. ELECTION OF DIRECTORS NOMINEES: James A. Conroy and L. Stanton Tuttle
FOR the election WITHHOLD authority for all nominees listed
(except as indicated below)
[______] [______]
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below).
________________________________________________________________________________
2. Ratification of appointment of Ernst & Young LLP, as the Company's auditors
for 1997.
FOR AGAINST ABSTAIN
[________] [________] [_______]
All as described in the Notice of Meeting of Stockholders and Proxy Statement,
receipt of which is hereby acknowledged.
This proxy will be voted in accordance with the specifications made herein. If
no contrary specification is made, it will be voted "FOR" each of the proposals
set forth.
Dated this__________________day of ________________________, 1997.
________________________________________________________
________________________________________________________
Signature(s) stockholder(s)
Please sign exactly as your name appears on your stock certificate. When
signing as as executor, administrator, trustee of other representative, please
sign your full title. All joint owners should sign.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY.
