SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2)
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
RAMSAY HEALTH CARE, INC.
...............................................................................
(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement, if other then the Registrant)
Payment of Filing (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and 0-11.
1) Title of each class of securities to which transaction applies:
...................................................................
2) Aggregate number of securities to which transaction applies:
...................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
...................................................................
4 Proposed maximum aggregate value of transaction:
...................................................................
5) Total fee paid:
...................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
...................................................................
2) Form, Schedule or Registration Statement No.:
...................................................................
3) Filing party:
...................................................................
4) Date Filed:
...................................................................
Set forth the amount on which the filing fee is calculated and state
how it was determined.
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RAMSAY HEALTH CARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 1996
The Annual Meeting of Stockholders of RAMSAY HEALTH CARE, INC. ("RHC" or
the "Company") will be held at The Peninsula New York, 700 Fifth Avenue, New
York, New York at 9:00 A.M., local time, on November 21, 1996, for the following
purposes, as more fully described in the accompanying Proxy Statement:
1. To elect seven directors of RHC for the ensuing year;
2. To consider and take action upon a proposal to ratify the Board of
Directors' selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ending June 30, 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only RHC stockholders of record at the close of business on October 1, 1996
will be entitled to notice of and to vote at the meeting, or any adjournment or
adjournments thereof. A list of the stockholders entitled to vote at the meeting
may be examined at the offices of Haythe & Curley, 237 Park Avenue, New York,
New York during the ten-day period preceding the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. NO POSTAGE IS REQUIRED WHEN MAILED IN THE
UNITED STATES. THE PROXY IS REVOCABLE AT ANY TIME. IF YOU ARE PRESENT AT THE
MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON IF YOU SO DESIRE. YOUR
BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF THE NOMINEES FOR DIRECTORS AND FOR
THE OTHER PROPOSAL TO BE CONSIDERED AT THE MEETING.
By Order of the Board of Directors,
Paul J. Ramsay
Chairman of the Board
October 31, 1996
<PAGE>
RAMSAY HEALTH CARE, INC.
Entergy Corporation Building
639 Loyola Avenue, Suite 1700
New Orleans, Louisiana 70113
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held
November 21, 1996
General
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Ramsay Health Care, Inc. ("RHC" or the "Company")
for use at the Annual Meeting of Stockholders (the "Meeting") to be held at the
time and place and for the purposes specified in the accompanying Notice of
Annual Meeting of Stockholders and at any adjournment or adjournments thereof.
When the enclosed proxy is properly executed and returned, the shares that it
represents will be voted at the Meeting in accordance with the instructions
thereon. In the absence of any such instructions, the shares represented thereby
will be voted IN FAVOR of the nominees for directors listed on the proxy and FOR
the ratification of the Board of Directors' selection of independent auditors
for the Company. Management does not know of any other business to be brought
before the Meeting not described herein, but it is intended that as to such
other business, a vote may be cast pursuant to the proxy in accordance with the
best judgment of the person or persons acting thereunder. It is anticipated that
the proxy materials will be mailed to the stockholders of the Company on or
about October 31, 1996.
It is important that proxies be returned promptly. Stockholders who do not
expect to attend the Meeting in person are urged to mark, sign and date the
accompanying form of proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
Any stockholder who executes and delivers a proxy may revoke it at any time
prior to its use by (i) giving written notice of such revocation to the Company,
care of the Assistant Secretary, Entergy Corporation Building, 639 Loyola
Avenue, Suite 1700, New Orleans, Louisiana 70113 prior to the Meeting; (ii)
executing and delivering a proxy bearing a later date to the Company, care of
the Assistant Secretary, Entergy Corporation Building, 639 Loyola Avenue, Suite
1700, New Orleans, Louisiana 70113 prior to the Meeting; or (iii) appearing at
the Meeting and voting in person.
1996 Annual Report
The Company's 1996 Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 is enclosed with this Proxy Statement.
<PAGE>
Expenses of Solicitation
The cost of soliciting proxies will be borne by the Company. Officers,
directors, and employees of the Company may solicit proxies by telephone,
telecopier, telegram or in person. The Company has also engaged the services of
Corporate Communications, Inc. and First Union National Bank of North Carolina
to assist in the solicitation and tabulation of proxies. The Company estimates
that these entities will receive fees totalling approximately $5,000, plus
expenses, in connection with these services.
Voting
Holders of record of issued and outstanding shares of (i) common stock,
$.01 par value ("Common Stock"), of the Company and (ii) class B convertible
preferred stock, series C, $1.00 par value ("Series C Preferred Stock"), of the
Company, in each case as of October 1, 1996 (the "Record Date"), will be
entitled to notice of and to vote at the Meeting as described below. On the
Record Date, there were issued and outstanding 8,307,131 shares of Common Stock
and 142,486 shares of Series C Preferred Stock.
Each share of Common Stock is entitled to one vote with respect to each
matter to be voted on at the Meeting. Each share of Series C Preferred Stock is
entitled to 10 votes with respect to each matter to be voted on at the Meeting,
voting together with the Common Stock as a single class.
Directors are elected by plurality vote. Adoption of proposal 2 will
require the affirmative vote of a majority of the votes cast by the holders of
shares of Common Stock and Series C Preferred Stock present and voting thereon
at the Meeting. Abstentions and broker non-votes (as hereinafter defined) will
be counted as present for the purpose of determining the presence of a quorum.
For the purpose of determining the vote required for approval of matters to be
voted on at the Meeting, abstentions will be treated as being "present" and
"entitled to vote" on the matter and, thus, an abstention has the same legal
effect as a vote against the matter. However, in the case of a broker non-vote
or where a stockholder withholds authority from his proxy to vote the proxy as
to a particular matter, such shares will not be treated as "present" and
"entitled to vote" on the matter and, thus, a broker non-vote or the withholding
of a proxy's authority will have no effect on the outcome of the vote on the
matter. A "broker non-vote" refers to shares of Common Stock represented at the
Meeting in person or by proxy by a broker or nominee where such broker or
nominee (i) has not received voting instructions on a particular matter from the
beneficial owners or persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on such matter.
Ramsay Holdings HSA Limited ("Ramsay Holdings") and Paul Ramsay Holdings
Pty. Limited ("Holdings Pty.") are the holders of all of the 142,486 issued and
outstanding shares of Series C Preferred Stock, Ramsay Holdings is the holder of
1,404,035 shares of Common Stock and Holdings Pty. is the holder of 551,409
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shares of Common Stock. Accordingly, as of the Record Date, Ramsay Holdings and
Holdings Pty. had an approximate 34.8% voting interest in the Company. To the
best of the Company's knowledge, Ramsay Holdings and Holdings Pty. will vote
their shares of Common Stock and Series C Preferred Stock in favor of each of
the proposals presented at the Meeting. See "Certain Relationships and Related
Transactions," "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" below.
Merger Agreement
As previously announced, on October 1, 1996, the Company, RHCI Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of the Company
("RHCI Sub"), and Ramsay Managed Care, Inc., a Delaware corporation ("RMCI"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") providing
for the acquisition of RMCI by the Company through the merger of RHCI Sub with
and into RMCI (the "Merger"). The Merger has been approved by the Board of
Directors of each of the Company and RMCI following the recommendation by a
special committee of the Board of Directors of each of the Company and RMCI. As
a result of the Merger, RMCI will become a wholly owned subsidiary of the
Company.
Upon consummation of the Merger, (i) each share of common stock, $.01 par
value (the "RMCI Common Stock"), of RMCI will be converted into one-third (1/3)
of a share of Common Stock and (ii) each share of preferred stock, series 1996,
$.01 par value (the "RMCI Series 1996 Preferred Stock"), of RMCI will be
converted into one share of class B preferred stock, series 1996, $1.00 par
value, of the Company. The Merger is intended to qualify, for federal income tax
purposes, as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended.
The Merger is subject to the approval by (i) the holders of a majority of
the shares of Common Stock and Series C Preferred Stock (voting on an as
converted basis into Common Stock and voting together with the Common Stock as a
single class) voting on the transaction, (ii) the holders of a majority of the
issued and outstanding shares of RMCI Common Stock and RMCI Series 1996
Preferred Stock (voting on an as converted basis into RMCI Common Stock and
voting together with the RMCI Common Stock as a single class) and (iii) the
holders of a majority of the issued and outstanding shares of RMCI Series 1996
Preferred Stock (voting as a separate class). Affiliates of Paul J. Ramsay, the
Chairman of the Board of the Company and RMCI, hold an approximate 34.8% voting
interest in the Company, an approximate 69.0% voting interest in RMCI and 100%
of the RMCI Series 1996 Preferred Stock, and have indicated that they will vote
their shares of capital stock of each of the Company and RMCI in favor of the
Merger. The Merger is also subject to various other conditions, including the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, the receipt of necessary lender and other
consents, and the declaration of effectiveness by the Securities and Exchange
Commission of a registration statement to be filed by the Company. Subject to
the satisfaction of these conditions, it is expected that the Merger will be
consummated in March 1997.
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The Company is not soliciting any proxies at this time in connection with
the Merger and stockholders of the Company are not being asked to consider the
Merger at the Meeting. The Company intends to call a special meeting of its
stockholders at a later date to consider the Merger.
1. ELECTION OF DIRECTORS
Seven directors will be elected at the Meeting. It is the intention of each
of the persons named in the accompanying proxy to vote the shares represented
thereby in favor of the seven nominees listed in the following table, unless
contrary instructions are given. All of the nominees are presently serving as
directors. In case any nominee is unable or declines to serve, such persons
reserve the right to vote the shares represented by such proxy for another
person duly nominated by the Board of Directors in his stead or, if no other
person is so nominated, to vote such shares only for the remaining nominees. The
Board of Directors has no reason to believe that any person nominated will be
unable or will decline to serve. The directors elected by the stockholders will
serve until the next Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified.
Certain information concerning the nominees for election of directors is
set forth below. Such information was furnished by them to the Company.
Principal Occupations for Past Five
Name and Age Years and Certain Other Directorships
Aaron Beam, Jr. (52) Executive Vice President and Chief Financial Officer of
HEALTHSOUTH Corporation (provider of medical
rehabilitation services) since prior to 1991;
Director of HEALTHSOUTH Corporation since 1993;
Director of Ramsay Managed Care, Inc. (provider of
managed mental health care and HMO services); Director
of the Company since 1991.
Peter J. Evans (47) Financial consultant to a number of Australian companies;
Partner, P.J. Evans & Co., a chartered accounting firm in
Australia, since prior to 1991; Former partner in big six
accounting firm; Director of Ramsay Health Care Pty.
Limited (or its predecessors) (owner and operator of
hospitals in Australia), Prime Television Limited
(operator of an Australian television network) and Ramsay
Managed Care, Inc.; Director of the Company since 1989.
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Thomas M. Haythe (57) Partner, Haythe & Curley (attorneys) since prior to 1991;
Director of Novametrix Medical Systems Inc. (manufacturer
of electronic medical instruments), Isomedix Inc.
(provider of sterilization services), Guest Supply, Inc.
(provider of hotel guest room amenities, accessories and
products), Westerbeke Corporation (manufacturer of marine
engine products) and Ramsay Managed Care, Inc.; Director
of the Company since 1987.
Luis E. Lamela (46) Vice Chairman of the Board of the Company since January
1996; Chief Executive Officer of CAC Medical Centers, a
division of United HealthCare of Florida, since July
1996; President and Chief Executive Officer of CAC -
United HealthCare Plans of Florida from May 1994 to
July1996; President and Chief Executive Officer of Ramsay
- HMO, Inc. from prior to 1991 to May 1994; Director of
the Company since January 1996.
Paul J. Ramsay (60) Chairman of the Board of the Company since July 1988;
President of the Company from February 1988 to July
1988; Chairman of the Board of the Company from
November 1987 to February 1988; involved in the health
care industry for more than 25 years; Chairman of the
Board of Ramsay Health Care Pty. Limited (or its
predecessors), Paul Ramsay Hospitals Pty. Limited and
Prime Television Limited; Director of Ramsay Managed
Care, Inc.; Director of the Company since 1987.
Steven J. Shulman (45) President of the Pharmacy and Disease Management Group
of Value Health, Inc. (provider of specialty managed care
programs) since September 1995; Executive Vice President
of Value Health, Inc. since prior to 1991 to September
1995; Director of Value Health, Inc. and Novametrix
Medical Systems Inc.; Director of the Company since 1991.
Michael S. Siddle (47) Managing Director (Chief Executive Officer) of Ramsay
Health Care Pty. Limited (or its predecessors) and Paul
Ramsay Hospitals Pty. Limited since prior to 1991;
various executive positions with corporations controlled
by Paul J. Ramsay since prior to 1991; Director of Prime
Television Limited and Ramsay Managed Care, Inc.;
Director of the Company since 1987.
5
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Robert E. Galloway elected to not serve as a director of the Company for
the upcoming year in order to devote more time to his other business interests.
Gregory H. Browne and Reynold J. Jennings resigned as directors of the Company
effective May 13, 1996 and August 12, 1996, respectively.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company met four times in fiscal 1996. All of
the directors named above attended at least 75% of the meetings of the Board of
Directors and meetings of the committees of the Board of Directors on which such
director served held during the time that such person served.
The Company had five standing committees during fiscal 1996: the Executive
Operating Committee, the Audit Committee, the Compensation and Conflict of
Interest Committee, the Quality Assurance Committee and the Independent
Directors Committee.
The Executive Operating Committee presently is composed of Messrs. Evans,
Haythe, Lamela and Ramsay. The Committee's function is to act in the place and
stead of the Board of Directors to the extent permitted by law on matters which
require Board action between meetings of the Board of Directors. The Executive
Operating Committee met once during fiscal 1996.
The Audit Committee presently is composed of Messrs. Beam, Evans and
Haythe. The Audit Committee's functions include reviewing the results of the
reports and audits by the Company's independent public accountants and making
recommendations to the Board of Directors with respect to accounting practices
and procedures and internal controls. The Audit Committee of the Company met
once during fiscal 1996.
The Compensation and Conflict of Interest Committee (the "Compensation
Committee") presently is composed of Messrs. Beam, Evans and Haythe. The
Compensation Committee's functions include reviewing and recommending
remuneration arrangements for senior officers and for members of the Board of
Directors, adopting compensation plans in which officers and directors are
eligible to participate, granting stock options under the Company's stock option
plans, acting on important personnel matters, nominating senior officers,
resolving matters involving possible conflicts of interest and providing for
management succession. The Compensation Committee met four times during fiscal
1996.
The Quality Assurance Committee presently is composed of Messrs. Galloway
and Beam. The Committee's functions are to review and monitor the clinical
functions of the Company, to administer peer review and a case management
system, and to implement a professional education program. The Quality Assurance
Committee did not meet during fiscal 1996.
The Independent Directors Committee presently is composed of Messrs. Beam,
Galloway, Haythe and Shulman. The Committee's function is to review all
transactions between the Company and persons affiliated with Paul J. Ramsay or
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any entity in which Paul J. Ramsay directly or indirectly has an equity
interest. The Independent Directors Committee did not meet during fiscal 1996.
The Company does not have a nominating committee and has established no
procedures whereby nominees for director may be recommended by stockholders.
Compensation of Directors
During fiscal 1996, the Company paid directors who were not employees of
the Company an annual fee of $12,000 and a fee of $3,000 for each of the first
four meetings of the Board of Directors attended. On September 1, 1995,
approximately 25% of the fiscal 1996 fees to nonemployee directors were paid by
way of the issuance of 1,750 shares of Common Stock and the grant of options to
purchase 1,750 shares of Common Stock. Additionally, the Company reimbursed
directors for out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors and committees of the Board of Directors. For
fiscal 1997, it is the Company's policy to pay directors who are not employees
of the Company an annual fee of $12,000 and a fee of $3,000 for each of the
first four meetings of the Board of Directors attended during the year, with no
additional compensation to be paid for attendance at additional meetings. In
accordance with the terms of the Company's credit agreements, the Company will
pay the fiscal 1997 nonemployee directors' fees by way of the issuance of shares
of Common Stock.
Executive Compensation
The following table sets forth information for the fiscal years ended June
30, 1996, 1995 and 1994 concerning the compensation paid or awarded to the Chief
Executive Officer and the other most highly compensated executive officers of
the Company.
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SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Fiscal Securities
Name and Year Other Annual Underlying All Other
Principal Ended Salary Bonus Compensation Stock Options Compensation
Position June 30 ($) ($) ($) (#) ($)
________________________________________________________________________________
Reynold J.
Jennings(1) 1996 225,859 (2) 7,500 (3) 124,830 (5) 4,421 (9)
Executive 1995 225,859 135,000 7,500 (3) 50,000 (6)(7) 63,830 (9)
Vice 1994 141,162 -- 12,150 (4) 124,830 (7)(8) 7,319 (9)
President
Wallace E.
Smith 1996 160,609 (2) 4,800 (3) -- --
Vice 1995 160,609 6,300 4,800 (3) -- --
President 1994 159,908 27,000 4,800 (3) 6,242(7) 836
John A.
Quinn 1996 155,598 (2) 4,800 (3) 20,000(10) --
Vice 1995 135,156 45,000 4,800 (3) -- --
President 1994 126,823 25,000 4,800 (3) 6,242 (7) 481
Brent J.
Bryson 1996 122,248 (2) 1,800 (3) -- --
Vice 1995 131,748 -- 3,600 (3) 18,725 (7) --
President 1994 -- -- -- -- --
William N.
Nyman 1996 120,478 (2) 4,800 (3) 5,000 (11) --
Vice 1995 115,012 25,000 4,800 (3) -- --
President 1994 104,889 25,000 4,000 (3) 6,242 (7) --
Gregory H.
Browne(12) 1996 59,865 -- -- -- 188,855(13)
Former Chief 1995 220,757 -- 32,046 (4) -- --
Executive 1994 206,472 -- 27,860 (4) -- --
Officer
(1) Mr. Jennings became Chief Executive Officer of the Company in January 1996.
He assumed the position of Executive Vice President in August 1996 upon the
appointment of Bert G. Cibran as President and Chief Operating Officer of
the Company.
(2) Bonus for the fiscal year ended June 30, 1996 has not yet been determined.
(3) Represents an automobile allowance.
(4) Includes a housing allowance for Mr. Jennings of approximately $9,000 and
for Mr. Browne of approximately $20,000.
(5) Represents options to purchase shares of Common Stock granted in fiscal
1996. Does not include the repricing in fiscal 1996 of options to purchase
an aggregate of 299,660 shares of Common Stock.
(6) Does not include the repricing in fiscal 1995 of options to purchase
124,830 shares of Common Stock.
(7) Reflects the antidilution adjustment in connection with the RMCI
Distribution (as defined below).
(8) Does not include the repricing in fiscal 1994 of options to purchase
124,830 shares of Common Stock granted in fiscal 1994.
(9) Includes moving expense reimbursement and other costs of relocation
totalling $51,619 in 1995. Amount also includes or, in 1996 and 1994
represents, the benefit to Mr. Jennings of premiums paid by the Company
during the fiscal year with respect to a split-dollar insurance
arrangement, which benefit was determined by calculating the time value of
money from the date premiums were paid until the date (March 1999) premiums
may be repaid to the Company.
(10) Represents options to purchase shares of Common Stock granted in fiscal
1996. Does not include the repricing in fiscal 1996 of options to purchase
an aggregate of 60,692 shares of Common Stock.
(11) Represents options to purchase shares of Common Stock granted in fiscal
1996. Does not include the repricing in fiscal 1996 of options to purchase
an aggregate of 34,129 shares of Common Stock.
(12) Effective September 30, 1995, Mr. Browne resigned from his position as
Chief Executive Officer of the Company.
(13) Includes severance payments of $177,435 and, as part of Mr. Browne's
severance arrangements, travel costs subsequent to his resignation of
$11,420.
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In connection with the Company's distribution on April 24, 1995 of the
common stock of RMCI held by it to the holders of the Company's common and
preferred stock (the "RMCI Distribution") and in accordance with the Company's
1990, 1991 and 1993 stock option plans, the Company made certain antidilution
adjustments to stock options granted under these stock option plans. These
adjustments were made to reflect the assumed reduction in the market price of
the Common Stock following the RMCI Distribution and to preserve the aggregate
"spread" (if any) between the aggregate option price under each option and the
aggregate market value of the shares of Common Stock of the Company purchasable
upon exercise of the option. Accordingly, the exercise price of each option
outstanding under the Company's 1990, 1991 and 1993 stock option plans was
adjusted by multiplying the option price in effect prior to the RMCI
Distribution by 0.8011 and the number of options was adjusted by multiplying the
number of options prior to the RMCI Distribution by 1.2483. All information
contained in this Proxy Statement reflects such adjustments.
On November 10, 1995, the Board of Directors approved an offer (the
"Repricing Offer") to the holders of options to purchase Common Stock under the
Company's stock option plans whereby each option holder could exchange existing
options held by such holder for amended options to purchase the same number of
shares of Common Stock at an exercise price of $2.50 per share; provided that
such repriced options (the "Repriced Options") will not be exercisable until the
date which is six months prior to their expiration date and provided further
that vested Repriced Options will become exercisable earlier in the event that,
at the time of exercise, the closing price for the Common Stock as quoted on
NASDAQ has equalled or exceeded $7.00 (subject to adjustment for events
affecting the Common Stock or the capital structure of the Company) per share on
at least 15 trading days, which need not be consecutive, subsequent to November
10, 1995. The holders of an aggregate of 1,539,105 (out of 2,052,628
outstanding) stock options accepted the Repricing Offer. The Repriced Options
are not currently exercisable.
The following table sets forth the grants of stock options to the executive
officers named in the Summary Compensation Table during the fiscal year ended
June 30, 1996. The table also includes options which were repriced pursuant to
the Repricing Offer. The amounts shown for each of the named executive officers
as potential realizable values are based on arbitrarily assumed annualized rates
of stock price appreciation of five percent and ten percent over the exercise
price of the options during the full terms of the options. No gain to the
optionees is possible without an increase in stock price which will benefit all
stockholders proportionately. These potential realizable values are based solely
on arbitrarily assumed rates of appreciation required by applicable Securities
and Exchange Commission regulations. Actual gains, if any, on option exercises
and holdings of Common Stock are dependent on the future performance of the
Common Stock and overall stock market conditions. There can be no assurance that
the potential realizable values shown in this table will be achieved.
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STOCK OPTION GRANTS IN FISCAL 1996
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Individual Price
Grants Appreciation
----------------------------------------------- -------------------
% of
Total
Options
Granted
to Exercise
Name Options Employees or Base
Granted in Fiscal Price Expiration
(#) Year ($/Sh) Date 5%($) 10%($)
- ---------- ------------- --------- ------- ---------- ------- ----------
Reynold J.
Jennings 124,830 (1) $2.50 11/9/2003 148,500 357,000
50,000 (1) $2.50 6/1/2005 74,000 177,000
124,830 (2,3) 51.3% $2.50 8/30/2005 196,000 496,800
John A.
Quinn 12,483 (1) $2.50 8/7/2001 10,100 21,000
18,725 (1) $2.50 2/4/2002 16,700 37,300
6,242 (1) $2.50 3/12/2003 6,600 15,200
6,242 (1) $2.50 5/26/2004 8,000 18,700
20,000 (2,3) 8.2% $2.50 8/30/2005 31,400 79,600
William N.
Nyman 2,497 (1) $2.50 8/7/2001 2,000 4,200
6,242 (1) $2.50 2/4/2002 5,600 12,400
14,148 (1) $2.50 3/12/2003 15,000 34,400
6,242 (1) $2.50 11/9/2003 7,400 17,900
5,000 (2,3) 2.1% $2.50 8/30/2005 7,900 19,900
Gregory H.
Browne(4) 10,403 (1) $2.50 (4) (4) (4)
124,830 (1) $2.50 (4) (4) (4)
43,691 (1) $2.50 (4) (4) (4)
8,321 (3,5) $2.50 (4) (4) (4)
(1) Represents options to purchase shares of Common Stock which were granted to
the named executive officer in a fiscal year prior to 1996 but which were
repriced during fiscal 1996 pursuant to the Repricing Offer discussed
above.
(2) Represents options to purchase shares of Common Stock which were granted to
the named executive officer during fiscal 1996 with an exercise price of
$3.38 per share and which were repriced during fiscal 1996 pursuant to the
Repricing Offer discussed above.
(3) The options include a reload feature. The reload feature provides that if
upon exercise of an option the optionee pays the exercise price of such
option in shares of Common Stock owned by the optionee for at least six
months, the Company shall grant such optionee on the date of such exercise
an additional option to purchase a number of shares of Common Stock equal
to the number of shares of Common Stock transferred to the Company in
payment of the exercise price.
(4) Effective September 30, 1995, Mr. Browne resigned from his position as
Chief Executive Officer of the Company. All outstanding stock options held
by Mr. Browne expired unexercised on August 13, 1996.
(5) Represents options to purchase shares of Common Stock which were granted on
November 10, 1995 (the date of the Repricing Offer) while Mr. Browne was a
director with an exercise price of $2.50 per share.
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The following table summarizes stock options exercised during fiscal 1996
and the number and value of options held by the executive officers named in the
Summary Compensation Table at June 30, 1996.
STOCK OPTION EXERCISES IN FISCAL 1996 AND
STOCK OPTION VALUES AT JUNE 30, 1996
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
June 30, 1996 June 30, 1996
(#) ($) (1)
--------------------- -----------------
Shares
Acquired
on Value Exer-
Exer- Real- Exercis- cis- Unexer-
Name cise ized able Unexercisable able cisable
- -------------------- ----- ----- ------- ------------ -- -------
Reynold J. Jennings -- -- -- 299,660 -- 149,830
Wallace E. Smith -- -- 47,853 -- -- --
John A. Quinn 3,000 1,125 -- 60,692 -- 30,346
William N. Nyman -- -- -- 34,129 -- 17,065
Gregory H. Browne(2) -- -- -- 187,245 (2) -- 93,622 (2)
(1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The value
of in-the-money options is determined in accordance with regulations of the
Securities and Exchange Commission by subtracting the aggregate exercise
price of the options from the aggregate year-end value of the underlying
Common Stock.
(2) Effective September 30, 1995, Mr. Browne resigned from his position as
Chief Executive Officer of the Company. All outstanding stock options held
by Mr. Browne expired unexercised on August 13, 1996.
All outstanding stock options in the above table held by the executive
officers (except Mr. Smith) were repriced pursuant to the Repricing Offer. In
accordance with applicable Securities and Exchange Commission regulations, the
following table sets forth information as to the repricing of options held by
executive officers of the Company during the past ten fiscal years.
11
<PAGE>
TEN-YEAR OPTION REPRICINGS
Market Exer-
Price cise
of Price
Stock at at Length of
Number Time Time Original
of of of Option Term
Options Repric- Repric- New Remaining
Repriced ing or ing or Exer- at Date of
or Amend- Amend- cise Repricing or
Name Date Amended ment ment Price Amendment
Reynold J.
Jennings November 10, 1995 124,830 $2.50 $3.75 $2.50 8 years
50,000 2.50 3.75 2.50 9.5 years
124,830 2.50 3.38 2.50 10 years
June 1, 1995 124,830 3.75 5.51 3.75 8 years
May 26, 1994 124,830 5.51 6.31 5.51 9 years
Wallace E.
Smith November 16, 1992 20,804 $4.01 $5.61 $4.01 3 years
29,128 4.01 5.61 4.01 8 years
April 7, 1992 20,804 5.61 7.81 5.61 4 years
29,128 5.61 7.81 5.61 9 years
November 11, 1991 29,128 7.81 11.32 7.81 10 years
John A.
Quinn November 10, 1995 12,483 $2.50 $4.01 $2.50 6 years
18,725 2.50 4.01 2.50 6 years
6,242 2.50 4.25 2.50 7.5 years
6,242 2.50 5.51 2.50 8.5 years
17,000 2.50 3.38 2.50 10 years
November 16, 1992 12,483 4.01 5.61 4.01 8 years
18,725 4.01 5.61 4.01 9 years
April 7, 1992 12,483 5.61 7.81 5.61 9 years
18,725 5.61 7.81 5.61 10 years
November 11, 1991 12,483 7.81 11.32 7.81 10 years
William N.
Nyman November 10, 1995 2,497 $2.50 $4.01 $2.50 6 years
6,242 2.50 4.01 2.50 6 years
14,148 2.50 4.25 2.50 7.5 years
6,242 2.50 6.31 2.50 8 years
5,000 2.50 3.38 2.50 10 years
November 16, 1992 2,497 4.01 5.61 4.01 8 years
6,242 4.01 5.61 4.01 9 years
6,242 4.01 5.61 4.01 9 years
April 7, 1992 2,497 5.61 7.81 5.61 9 years
6,242 5.61 7.81 5.61 10 years
6,242 5.61 7.01 5.61 10 years
November 11, 1991 2,497 7.81 11.22 7.81 10 years
6,242 7.81 11.32 7.81 10 years
Bruce R.
Soden (1) November 16, 1992 8,321 $4.01 $6.01 $4.01 3 years
22,886 4.01 5.61 4.01 8 years
18,725 4.01 5.61 4.01 9 years
April 7, 1992 22,886 5.61 7.81 5.61 9 years
18,725 5.61 7.01 5.61 10 years
November 11, 1991 22,886 7.81 11.66 7.81 10 years
Gregory H.
Browne(2) November 10, 1995 10,403 $2.50 $4.01 $2.50 6 years
124,830 2.50 4.01 2.50 6 years
43,691 2.50 4.25 2.50 7.5 years
November 16, 1992 8,321 4.01 6.01 4.01 3 years
10,403 4.01 5.61 4.01 8 years
249,660 4.01 5.61 4.01 9 years
April 7, 1992 10,403 5.61 7.81 5.61 9 years
124,830 5.61 7.01 5.61 10 years
November 11, 1991 10,403 7.81 11.32 7.81 10 years
12
<PAGE>
TEN-YEAR OPTION REPRICINGS (continued)
Market Exer-
Price cise
of Price
Stock at at Length of
Number Time Time Original
of of of Option Term
Options Repric- Repric- New Remaining
Repriced ing or ing or Exer- at Date of
or Amend- Amend- cise Repricing or
Name Date Amended ment ment Price Amendment
Curtis L.
Dosch (3) November 16, 1992 2,497 $4.01 $5.61 $4.01 8 years
6,242 4.01 5.61 4.01 9 years
6,242 4.01 5.61 4.01 9 years
April 7, 1992 2,497 5.61 7.81 5.61 9 years
6,242 5.61 7.81 5.61 10 years
6,242 5.61 7.01 5.61 10 years
November 11, 1991 2,497 7.81 11.22 7.81 10 years
6,242 7.81 11.32 7.81 10 years
Rea A.
Oliver (4) November 16, 1992 15,000 $5.00 $7.00 $5.00 9 years
5,000 5.00 7.00 5.00 8 years
April 7, 1992 5,000 7.00 9.75 7.00 10 years
5,000 7.00 8.75 7.00 10 years
5,000 7.00 9.75 7.00 9 years
November 11, 1991 5,000 9.75 14.13 9.75 10 years
(1) Mr. Soden was the Chief Financial Officer of the Company from September
1991 to September 1993 and a member of its Board of Directors from
September 1993 to August 1995.
(2) Effective September 30, 1995, Mr. Browne resigned from his position as
Chief Executive Officer of the Company. All outstanding stock options held
by Mr. Browne expired unexercised on August 13, 1996.
(3) Mr. Dosch resigned from the Company in March 1996. All outstanding stock
options held by Mr. Dosch expired unexercised.
(4) Mr. Oliver resigned from the Company in March 1994. All outstanding stock
options held by Mr. Oliver expired unexercised.
Employment and Other Agreements
In August 1996, the Company entered into an employment agreement with Bert
G. Cibran, President and Chief Operating Officer of the Company, providing for
the payment of an initial annual base salary of $300,000, subject to annual
increases determined by the Company's Board of Directors and minimum annual
increases based on the Consumer Price Index. In addition, Mr. Cibran is entitled
to an annual bonus in an amount equal to 2% of any increase in the operating
income of the Company over the preceding fiscal year. The agreement is for an
initial term of three years with annual renewals. Pursuant to the employment
agreement, the Company agreed to provide Mr. Cibran an automobile allowance and
options to purchase 125,000 shares of Common Stock. In addition, Mr. Cibran's
employment by the Company may be terminated by either the Company or Mr. Cibran;
however, in the event the Company terminates Mr. Cibran's employment without due
cause, the Company must continue to pay Mr. Cibran his base salary in effect at
the time for 24 months after the date of such termination. The agreement also
provides for a lump sum cash payment to Mr. Cibran of his bonus and 24 months'
base salary upon termination of his employment for any reason following certain
change of control events involving the Company.
In August 1996, the Company entered into an employment agreement with
Reynold J. Jennings, Executive Vice President of the Company, providing for the
payment of an initial annual base salary of $275,000, subject to annual
increases determined by the Company's Board of Directors and minimum annual
increases based on the Consumer Price Index. In addition, Mr. Jennings is
13
<PAGE>
entitled to an annual bonus in an amount equal to 2% of any increase in the
operating income of the Company over the preceding fiscal year. The employment
agreement, which replaces an employment agreement entered into in October 1993,
expires on December 31, 1999. The agreement also provides for a split-dollar
insurance arrangement, pursuant to which the Company will pay the premium costs
of life insurance for Mr. Jennings (up to $150,000). The premium costs are
repayable by Mr. Jennings to the Company under certain circumstances and also
are scheduled to be forgiven and treated as a bonus in November 1998, provided
Mr. Jennings is employed by the Company at that time. Mr. Jennings' employment
agreement also provides for the use of a Company automobile and gives him the
right to require the Company to purchase options covering 124,830 shares of
Common Stock granted to him pursuant to his initial employment agreement at a
price of $3.20 per share (as adjusted for stock dividends or splits). In
addition, Mr. Jennings will receive reimbursement of relocation expenses in an
amount not to exceed $60,000. Pursuant to the agreement, Mr. Jennings'
employment by the Company may be terminated by either the Company or, upon six
months notice, by Mr. Jennings; however, in the event the Company terminates Mr.
Jennings' employment without due cause, the Company must continue to pay Mr.
Jennings his base salary in effect at the time through December 31, 1999. The
agreement also provides for a lump sum cash payment to Mr. Jennings of his bonus
and the greater of (a) 12 months' base salary, or (b) the base salary that would
have been payable to Mr. Jennings from the date of termination through December
31, 1999, upon the termination of his employment for any reason following
certain change of control events involving the Company.
In August 1996, the Company entered into a two year services agreement with
Healthlink Enterprises, Inc., a Florida corporation ("Healthlink"), pursuant to
which Healthlink agreed to make available to the Company the services of Carol
C. Lang, Vice President and Chief Financial Officer of the Company. The services
agreement provides for the payment of an initial annual base compensation to
Healthlink of $240,000, subject to annual increases determined by the Company's
Board of Directors and minimum annual increases based on the Consumer Price
Index. In addition, Healthlink is entitled to a bonus of up to 40% of the base
compensation, based on the achievement of targets set by the President or Board
of Directors of the Company. In addition, the services agreement provides that
Ms. Lang will receive options to purchase 100,000 shares of Common Stock. The
services agreement may be terminated by the Company or, upon three months
notice, by Healthlink; however, in the event the Company terminates the
agreement without due cause, the Company must continue to pay the base
compensation until the later of the end of the term of the services agreement or
six months after the date of termination. The services agreement also provides
for a lump sum cash payment to Healthlink of any bonus due and the greater of
(a) 12 months' base compensation or (b) the base compensation that would have
been payable to Healthlink from the date of termination to the last day of the
services agreement, upon the termination of the services agreement for any
reason following certain change of control events involving the Company.
In September 1996, the Company entered into an employment agreement with
Brent J. Bryson, Vice President, providing for the payment of an initial annual
base salary of $180,000, subject to annual review by the Board of Directors. The
agreement also provides for the payment of a bonus of up to 2% of the
improvement in operating income of assigned operations, based upon the
achievement by the Company and Mr. Bryson of certain performance targets. In
addition, the agreement provides for an automobile allowance, the reimbursement
14
<PAGE>
of certain relocation expenses and options to purchase 60,000 shares of Common
Stock. Pursuant to the agreement, if the Company terminates the agreement for
any reason other than due cause, Mr. Bryson will be entitled to continue to
receive his base salary for a period of six months after the date of such
termination.
In January 1992, the Company entered into an employment agreement with
Gregory H. Browne, Chief Executive Officer of the Company through September 30,
1995, providing for the payment of an initial annual base salary of $200,000,
subject to annual increases determined by the Company's Board of Directors and
minimum annual increases based on the Consumer Price Index. The agreement was
for an initial term of two years with annual renewals. Mr. Browne's agreement
was renewed in January 1994 and again in January 1995. In addition, in February
1995, Mr. Browne's base salary was increased by $25,000 by the Board of
Directors. Pursuant to the employment agreement, the Company agreed to provide
Mr. Browne with housing and automobile allowances, reimbursement of certain
travel expenses and a bonus based on the positive percentage change in earnings
per share between years. In September 1995, Mr. Browne announced his intention
to resign from his positions as Vice Chairman and Chief Executive Officer of the
Company, effective September 30, 1995. As part of a termination agreement, the
Company paid Mr. Browne his then current salary during the 12-month period
subsequent to his resignation and certain travel costs following his
resignation.
In January 1992, the Company entered into employment agreements with
Wallace E. Smith, Vice President and John A. Quinn, Vice President, for the
payment of initial annual base salaries to Mr. Smith and Mr. Quinn of $125,000
and $115,000, respectively, subject to annual review by the Board of Directors.
The base salaries of Mr. Smith and Mr. Quinn have been increased periodically
since the inception of the agreement and, for the fiscal year ended June 30,
1996, their base salaries were $160,000 and $155,000, respectively. The
agreements also provide for the payment to Mr. Smith and Mr. Quinn of a bonus of
up to 30% of their respective base salaries based upon the attainment of certain
performance targets, as well as a discretionary amount based on job performance
and approved by the Compensation Committee. In addition, the agreements provide
for an automobile allowance and the reimbursement of certain relocation
expenses. Pursuant to the agreements, if the Company terminates either of the
agreements for any reason other than due cause, the employee will be entitled to
continue to receive his base salary for a period of six months after the date of
such termination.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock. Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) reports they file.
15
<PAGE>
The Company believes that for the period ended June 30, 1996, its executive
officers, directors and greater than ten percent stockholders complied with all
Section 16(a) filing requirements.
Certain Relationships and Related Transactions
The Management Agreement:
In June 1992, the Company renewed its management agreement (the "Management
Agreement") with Ramsay Health Care Pty. Limited, an affiliate of Paul J. Ramsay
(the "Manager"). Pursuant to the Management Agreement, the Manager provides
managerial services to the Company including, but not limited to (a)
participation in overall strategic planning of the Company, (b) strategic and
operational discussions with the executive officers of the Company, (c) review
and evaluation of possible acquisition candidates, (d) review of material
contracts and commitments entered into by the Company and (e) participation in
debt refinancing negotiations. In addition, the Manager provides a pool of
management standby resources (on both a part-time and full-time basis) to
mitigate the impact of executive and senior management turnover. The Management
Agreement provides for the payment of an initial annual management fee of
$677,422, subject to increases based on increases in the Consumer Price Index
and subject to certain restrictions set forth in certain credit agreements to
which the Company is a party. The management fee payable under the Management
Agreement was set on the basis of a negotiated amount based on the time spent by
personnel of the Manager in performing the duties pursuant to the Management
Agreement. During the fiscal year ended June 30, 1996, the Company incurred
management fee expenses of $737,000 for services performed by the Manager under
the Management Agreement. Of this total, approximately $560,000 was paid by way
of the issuance of shares of Common Stock to Holdings Pty. and the remainder was
paid in cash. In August 1996, the Company issued additional shares of Common
Stock to Holdings Pty. for management fees due under the Management Agreement in
fiscal 1997. (See "Stock Purchase Agreements" below.)
On September 10, 1996, the Company entered into a letter agreement with the
Manager and Holdings Pty. which terminated the Management Agreement effective
July 1, 1997. In consideration for this termination, the Company issued to
Holdings Pty. warrants to purchase 250,000 shares of Common Stock at an exercise
price of $2.63 per share. These warrants are fully exercisable and expire on
September 10, 2006.
Relationship With Ramsay Affiliates:
Ramsay Holdings, Holdings Pty. and Ramsay Hospitals (the "Ramsay
Affiliates") are corporations controlled by the Company's Chairman, Paul J.
Ramsay. At October 15, 1996, Paul J. Ramsay, Ramsay Holdings and Holdings Pty.
owned of record approximately 23.6% of the issued and outstanding shares of
Common Stock and 100% of the issued and outstanding shares of Series C Preferred
Stock and had an approximate 34.8% voting interest in RHC.
16
<PAGE>
Amounts Due From And Other Agreements With Ramsay Managed Care, Inc:
In connection with the RMCI Distribution in April 1995, RMCI issued to RHC
a subordinated promissory note (the "Subordinated Promissory Note") in the
principal amount of $6,000,000, which note bears interest at 8% per annum and
evidences certain advances by RHC made to or on behalf of RMCI since RMCI's
inception, including for working capital and other general corporate purposes
and partially to finance the cash portion of the purchase prices of certain
acquired businesses. In addition, at June 30, 1996, RMCI owed RHC $360,000 of
accrued interest on the Subordinated Promissory Note from October 1, 1995 and
$1,847,000 of additional amounts paid by RHC on behalf of RMCI or charged by RHC
to RMCI for certain administrative services. Of the $6,000,000 due on the
Subordinated Promissory Note, approximately $1,412,000 is due on or before June
30, 1997 and the remainder is payable in 13 quarterly installments of
approximately $353,000, beginning September 30, 1997. RHC has agreed that the
payment of interest on the Subordinated Promissory Note for the period October
1, 1995 through June 30, 1997, as well as the $1,847,000 of additional amounts
owed, will not be required to be made until after July 1, 1997, all on terms and
conditions to be mutually agreed to by RHC and RMCI.
The Subordinated Promissory Note is unsecured and subordinated and junior
in right of payment to all indebtedness of RMCI and its subsidiaries incurred in
connection with (i) the acquisition of Florida Psychiatric Management, a managed
behavioral health care company, (ii) the acquisition of Human Dynamics
Institute, a former managed mental health care services division of Phoenix
South Community Mental Health Services, Inc., (iii) future acquisitions of other
managed mental health care services businesses and (iv) any other Senior
Indebtedness (as defined in the Subordinated Promissory Note), including any
indebtedness arising under RMCI's credit facility with First Union National Bank
of Florida and any other bank indebtedness of RMCI or its subsidiaries.
In connection with the RMCI Distribution, RHC and RMCI entered into various
agreements governing the RMCI Distribution, covering the provision by RHC of
various administrative services, and covering certain tax, employee benefit and
other matters. Amounts payable to RHC under these agreements during fiscal year
1996 totaled approximately $180,000.
Stock Purchase Agreements:
In October 1995, RHC entered into a Stock Purchase Agreement with Holdings
Pty. and the Manager pursuant to which Holdings Pty. agreed to purchase 275,863
shares of Common Stock at a purchase price of $3.625 per share, as follows: (i)
121,363 of the shares for a purchase price of $439,940.88, payable in cash and
(ii) 154,500 of the shares for a purchase price of $560,062.50, payable $1,545
in cash and $558,517.50 as a partial payment by the Company of management fees
due for fiscal year 1996 under the Management Agreement.
In August 1996, RHC entered into another Stock Purchase Agreement with
Holdings Pty. and the Manager pursuant to which Holdings Pty. agreed to purchase
275,546 shares of Common Stock at a purchase price of $2.75 per share. The
purchase price of $757,752.00 was payable $2,755.46 in cash and $754,996.54 as a
17
<PAGE>
payment by the Company of management fees due for fiscal 1997 under the
Management Agreement.
Exchange Agreement:
At the request of the Company, Paul J. Ramsay agreed to surrender certain
options granted to him under the Company's stock option plans in exchange for
the issuance of warrants to purchase Common Stock to a corporate affiliate of
Mr. Ramsay. The Company made this request in order to make additional shares of
Common Stock available for grant under its stock option plans. Accordingly, on
September 10, 1996, Mr. Ramsay, the Company and the corporate affiliate entered
into an Exchange Agreement pursuant to which Mr. Ramsay surrendered for
cancellation an aggregate of 476,070 stock options to purchase shares of Common
Stock granted by the Company to Mr. Ramsay under its stock option plans in
exchange for the issuance to the corporate affiliate of warrants to purchase
500,000 shares of Common Stock at an exercise price of $2.75 per share. The
warrants will be exercisable during the period December 31, 2002 through June
30, 2003, provided that the warrants will be exercisable earlier in the event
that, at the time of exercise, the closing price for the Common Stock as quoted
on NASDAQ equals or exceeds $7.00 (subject to adjustment for events affecting
the Common Stock or the capital structure of the Company) per share on at least
15 trading days, which need not be consecutive, subsequent to September 10,
1996. These warrants are not currently exercisable.
Other Arrangements:
The Company has entered into indemnification agreements with its directors
and executive officers. These agreements provide that the directors and
executive officers will be indemnified to the fullest possible extent permitted
by Delaware law against all expenses (including attorneys' fees), judgments,
fines, penalties, taxes and settlement amounts paid or incurred by them in any
action or proceeding (including any action by or in the right of the Company or
any of its subsidiaries or affiliates) on account of their service as directors,
officers, employees, fiduciaries or agents of the Company or any of its
subsidiaries or affiliates and their service at the request of the Company or
any of its subsidiaries or affiliates as directors, officers, employees,
fiduciaries or agents of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Thomas M. Haythe, a director of the Company, is a partner of the New York
City law firm of Haythe & Curley, which firm rendered legal services to the
Company during fiscal year 1996 and will continue to render legal services to
the Company in the future.
Robert E. Galloway, a director of the Company during fiscal 1996, rendered
consulting services to the Company during fiscal year 1996. Mr. Galloway
received $60,000 for these services.
The Company has entered into a consulting agreement dated as of January 1,
1996 with Summa Healthcare Group, Inc. ("Summa"), a company of which Luis E.
Lamela, the Vice Chairman of the Board of the Company, is the principal. Under
the consulting agreement, Summa provides the Company with advisory and
consulting services in connection with strategic planning, business development
18
<PAGE>
and investor relations at a cost of $12,500 per month. The consulting agreement
is for an initial term of one year, subject to automatic renewal from year to
year unless either party gives a notice of non- renewal three months prior to
expiration of the then current term. In addition, the consulting agreement may
be cancelled by either party on three months' notice effective at any time
following January 1, 1997.
Compensation Committee Interlocks
and Insider Participation
The members of the Compensation Committee of the Board of Directors are
Aaron Beam, Jr., Peter J. Evans and Thomas M. Haythe. Mr. Evans is a director of
Ramsay Health Care Pty. Limited, which provides management services to the
Company pursuant to the Management Agreement. Mr. Haythe is a partner of the New
York City law firm of Haythe & Curley, which firm rendered legal services to the
Company during the last fiscal year and will continue to render legal services
to the Company in the future. See "Certain Relationships and Related
Transactions" above.
Compensation Committee Report
on Executive Compensation
The Compensation Committee of the Board of Directors determines the
compensation arrangements for executive officers of the Company. The Company's
executive compensation program is designed to attract, motivate, reward and
retain individuals with the executive and management skills needed to achieve
the Company's business objectives. The compensation program accomplishes this
goal by providing the Company's executives with incentives which reward
achievement of both short- and long-term objectives that contribute to the
growth and profitability of the Company, and which link executive pay with the
interests of the Company's stockholders.
The Company's executive compensation program consists of base salary,
bonuses and stock options. The Company's salary levels are determined by
comparisons with companies of similar size and complexity in the behavioral
health care industry. Salary increases are determined in light of the financial
performance of the Company, the individual performance of the executive and any
increased responsibilities assumed by the executive. The salaries for Mr. Cibran
and Mr. Jennings were determined pursuant to the terms of their employment
agreements with the Company, which in turn were based on the foregoing
considerations.
Mr. Cibran's and Mr. Jennings' employment agreements provide for bonuses
equal to 2% of any increase in operating income, as defined in the applicable
agreement, of the Company over the preceding fiscal year. The services agreement
with Healthlink and the employment agreements with Mr. Bryson, Mr. Smith and Mr.
Quinn also provide for bonuses based upon the attainment of certain performance
targets. Bonuses for the Company's executives for the fiscal year ended June 30,
1996 have not yet been determined.
19
<PAGE>
The Company may also award bonuses to other executives based on the level
of financial performance achieved by the Company and the individual
accomplishments of the executive, as evaluated by the President of the Company.
Annual bonuses are paid to the chief executive officers of each hospital, based
on (a) the financial performance of his/her hospital compared to budgeted and
prior year performance, (b) the overall results of the Company and (c) the
attainment of certain quality of care levels.
The Company periodically grants stock options to its executive officers and
other key employees. Also, in November 1995, the Board of Directors approved the
Repricing Offer whereby each option holder could exchange existing options for
amended options to purchase the same number of shares of Common Stock at an
exercise price of $2.50 per share; provided that the Repriced Options will not
be exercisable until the date which is six months prior to their expiration date
and provided further that vested Repriced Options will become exercisable
earlier in the event that, at the time of exercise, the closing price for the
Common Stock as quoted on NASDAQ has equalled or exceeded $7.00 (subject to
adjustment for events affecting the Common Stock or the capital structure of the
Company) per share on at least 15 trading days, which need not be consecutive,
subsequent to November 10, 1995. The Repriced Options are not currently
exercisable.
Stock option grants and the Repricing Offer are intended to provide the
Company's executives and other key employees with a significant incentive to
work to maximize stockholder value. The Committee believes that by providing its
executives and key employees who have substantial responsibility for the
management and growth of the Company with an opportunity to profit from
increases in the value of the Common Stock, the interests of the Company's
stockholders and executives will be most closely aligned.
THE COMPENSATION AND CONFLICT OF
INTEREST COMMITTEE OF THE BOARD OF
DIRECTORS
Aaron Beam, Jr.
Peter J. Evans
Thomas M. Haythe
20
<PAGE>
Performance Graph
The following performance graph compares the cumulative total return on the
Company's Common Stock to the NASDAQ Stock Market-U.S. Index, a 1996 peer group
and a 1995 peer group. The 1996 peer group consists of Community Psychiatric
Centers, Magellan Health Services, Inc. and Comprehensive Care Corporation. The
Company believes that these peer companies, which are engaged in the behavioral
health services industry, are most comparable to the Company, within the
parameters set by the Securities and Exchange Commission. The 1995 peer group
consisted of Community Psychiatric Centers, Magellan Health Services, Inc.,
Comprehensive Care Corporation and Mental Health Management, Inc. Mental Health
Management, Inc. was not included in the peer group this year due to its
divestiture of primarily all of its inpatient psychiatric health care
operations. The graph assumes that $100 was invested in the Common Stock, the
NASDAQ Stock Market - U.S. Index, the 1996 peer group and the 1995 peer group on
June 30, 1991 and that all dividends were reinvested.
21
<PAGE>
[GRAPH APPEARS HERE]
Cumulative Total Return
____________________________________________________
6/91 6/92 6/93 6/94 6/95 6/96
Ramsay Health Care, Inc 100 45 46 50 33 23
1996 PEER GROUP 100 39 40 45 37 40
1995 PEER GROUP 100 39 40 45 37 39
NASDAQ STOCK MARKET-US 100 120 151 153 204 261
22
<PAGE>
Security Ownership of Certain Beneficial Owners
The stockholders (including any "group," as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than five percent of
any class of the outstanding voting securities of the Company as of October 15,
1996 and their respective shareholdings as of such date (according to
information furnished by them to the Company), are set forth in the following
table. Except as indicated in the footnotes to the table, all of such shares are
owned with sole voting and investment power.
Name and Address Title Number of Percentage
Beneficial Owner of Class Shares Owned (1) of Class (1)
Paul J. Ramsay Common 3,632,054 (2) 36.39%
Paul Ramsay Group
154 Pacific Highway Series C
Greenwich, NSW 2065 Preferred 142,486 (3) 100.0%
Australia
Ramsay Holdings HSA Limited Common 2,117,065 (3) 23.47%
c/o Haythe & Curley
237 Park Avenue Series C
New York, New York 10017 Preferred 71,303 (3) 50.0%
Paul Ramsay Holdings Pty.
Limited Common 1,513,239 (3) 16.33%
c/o Haythe & Curley
237 Park Avenue Series C
New York, New York 10017 Preferred 71,183 (3) 50.0%
Brinson Holdings, Inc. Common 776,100 (4) 9.34%
Brinson Partners, Inc.
Brinson Trust Company
209 South LaSalle
Chicago, Illinois 60604
Heartland Advisors, Inc. Common 1,530,800 (5) 18.43%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Merrill Lynch & Co., Inc. Common 586,300 (6) 7.06%
World Financial Center,
North Tower
250 Vesey Street
New York, New York 10281
(1) Includes all shares that each named person is entitled to receive within 60
days, through the exercise of any option, warrant, conversion right, or
similar arrangement. Such shares are deemed to be owned and outstanding by
such person individually for purposes of calculating the number of shares
owned and the percentage of class for each such named person, but are not
deemed outstanding for purposes of such calculations for any other named
person.
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(2) Mr. Ramsay's beneficial ownership of Common Stock includes 2,117,065 shares
of Common Stock beneficially owned by Ramsay Holdings and 1,513,239 shares
of Common Stock beneficially owned by Holdings Pty., which entities Mr.
Ramsay indirectly controls. The shares beneficially owned by Ramsay
Holdings consist of 1,404,035 shares of Common Stock owned of record by
Ramsay Holdings and 713,030 shares of Common Stock issuable upon the
conversion of 71,303 shares of Series C Preferred Stock owned of record by
Ramsay Holdings. The shares beneficially owned by Holdings Pty. consist of
551,409 shares of Common Stock owned of record by Holdings Pty., 250,000
shares of Common Stock issuable upon the exercise of currently exercisable
warrants to purchase shares of Common Stock and 711,830 shares of Common
Stock issuable upon the conversion of 71,183 shares of Series C Preferred
Stock owned of record by Holdings Pty. Does not include 25,000 shares of
Common Stock issuable upon the exercise of options granted to Mr. Ramsay,
which are not currently exercisable, and 500,000 shares of Common Stock
issuable upon the exercise of warrants held by a corporate affiliate of Mr.
Ramsay, which are not currently exercisable.
(3) These shares are included in the beneficial ownership of Common Stock of
Paul J. Ramsay and are included in footnote (2) above.
(4) Information as to the holdings of Brinson Holdings, Inc. ("BHI"), Brinson
Partners, Inc. ("BPI") and Brinson Trust Company ("BTC") is based upon a
report on Schedule 13G filed with the Securities and Exchange Commission.
Such report indicates that 776,100 shares were owned by BPI with shared
voting and shared dispositive power and 211,060 shares were owned by BTC
with shared voting and shared dispositive power. Such report indicates that
BTC is a bank and the wholly owned subsidiary of BPI, an investment adviser
registered under the Investment Advisers Act of 1940, which in turn is a
wholly-owned subsidiary of BHI, a parent holding company. BHI is a wholly
owned subsidiary of SBC Holding (USA), Inc. ("SBC"), whose address is 222
Broadway, New York, New York 10038. SBC is a wholly owned subsidiary of
Swiss Bank Corporation, whose address is Aeschenplatz 6 CH-4002, Basel,
Switzerland.
(5) Information as to the holdings of Heartland Advisors, Inc. ("HAI") is based
upon a report on Schedule 13G filed with the Securities and Exchange
Commission. Such report indicates that HAI owned 1,154,800 shares with sole
voting power and 1,530,800 shares with sole dispositive power. Such report
indicates that HAI is an investment adviser registered under the Investment
Advisers Act of 1940.
(6) Information as to the holdings of Merrill Lynch & Co., Inc. ("Merrill") is
based upon a report on Schedule 13G filed with the Securities and Exchange
Commission. Such report indicates that 586,300 shares were owned by Merrill
and its affiliates with shared voting and dispositive power. Merrill and
its affiliates disclaim any beneficial interest in such shares, other than
shares held by Merrill and its affiliates in proprietary accounts.
On May 3, 1996, Holdings Pty. entered into a secured demand loan facility
with Coutts & Co. AG ("Coutts") pursuant to which Holdings Pty. is entitled to
borrow an amount equal to the lesser of $7,000,000 and the collateral value of
certain assets which have been pledged to Coutts. The current collateral
includes, among other things, 1,679,898 of the shares of Common Stock held by
Holdings Pty. and Ramsay Holdings and the 142,486 shares of Series C Preferred
Stock held by Holdings Pty. and Ramsay Holdings (the "Pledged Stock"). Holdings
Pty. has the right (but is under no obligation) to pledge additional shares of
Common Stock to secure the obligations of Holdings Pty. to Coutts.
Coutts is entitled to repayment of amounts outstanding under the loan
facility on demand. In the event that Holdings Pty. were to default on its
obligations to Coutts under the loan facility, Coutts would be entitled to
liquidate the Pledged Stock to repay the outstanding debt. In the event that
Coutts were to attempt to liquidate the Pledged Stock, the sale of the Pledged
Stock would be subject to the volume limitations pursuant to Rule 144 under the
Securities Act.
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Security Ownership of Management
The following table sets forth, as of October 15, 1996, the number of
shares of Common Stock of the Company beneficially owned by each of the
Company's directors and nominees for directors, each executive officer named in
the Summary Compensation Table, and all directors and executive officers as a
group, based upon information obtained from such persons.
Percentage
Name of Title of Number of of
Beneficial Owner Class Shares Owned(1) Class(1)
Paul J. Ramsay Common 3,632,054 (2) 36.39%
Series C
Preferred 142,486 (3) 100.0%
Aaron Beam, Jr. Common 1,750 *
Peter J. Evans Common 1,750 *
Robert E. Galloway Common 2,000 *
Thomas M. Haythe Common 23,750 *
Luis E. Lamela Common -- --
Steven J. Shulman Common 1,750 *
Michael S. Siddle Common 1,750 *
Brent J. Bryson Common -- --
Reynold J. Jennings Common 10,000 *
William N. Nyman Common -- --
John A. Quinn Common 3,000 *
Wallace E. Smith Common 48,783 (4) *
All directors and
executive officers
as a group
(16 persons) Common 3,733,965 (2)(4) 37.23%
Series C
Preferred 142,486 100.0%
(*) Indicates ownership percentage of less than one percent (1%).
(1) Includes all shares that each named person is entitled to receive within 60
days, through the exercise of any option, warrant, conversion right, or
similar arrangement. Such shares are deemed to be owned and outstanding by
such person individually, and by all directors and officers as a group, for
purposes of calculating the number of shares owned and the percentage of
class for each such named person and the group, but are not deemed to be
outstanding for purposes of such calculations for any other named person.
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(2) Mr. Ramsay's beneficial ownership of Common Stock includes 2,117,065 shares
of Common Stock beneficially owned by Ramsay Holdings and 1,513,239 shares
of Common Stock beneficially owned by Holdings Pty., which entities Mr.
Ramsay indirectly controls. The shares beneficially owned by Ramsay
Holdings consist of 1,404,035 shares of Common Stock owned of record by
Ramsay Holdings and 713,030 shares of Common Stock issuable upon the
conversion of 71,303 shares of Series C Preferred Stock owned of record by
Ramsay Holdings. The shares beneficially owned by Holdings Pty. consist of
551,409 shares of Common Stock owned of record by Holdings Pty., 250,000
shares of Common Stock issuable upon the exercise of currently exercisable
warrants to purchase shares of Common Stock and 711,830 shares of Common
Stock issuable upon the conversion of 71,183 shares of Series C Preferred
Stock owned of record by Holdings Pty. Does not include 25,000 shares of
Common Stock issuable upon the exercise of options granted to Mr. Ramsay,
which are not currently exercisable, and 500,000 shares of Common Stock
issuable upon the exercise of warrants held by a corporate affiliate of Mr.
Ramsay, which are not currently exercisable.
(3) These shares are included in the beneficial ownership of Common Stock of
Paul J. Ramsay and are included in footnote (2) above.
(4) Includes 47,853 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock pursuant
to the Company's 1990, 1991 and 1993 stock option plans.
2. RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to serve as
independent auditors for the Company for the fiscal year ending June 30, 1997.
The Board of Directors considers Ernst & Young LLP to be eminently qualified.
Although it is not required to do so, the Board of Directors is submitting
its selection of the Company's auditors for ratification at the Meeting, in
order to ascertain the views of stockholders regarding such selection. If the
selection is not ratified, the Board of Directors will reconsider its selection.
The Board of Directors recommends that stockholders vote FOR ratification
of the selection of Ernst & Young LLP to audit the financial statements of the
Company for the Company's fiscal year ending June 30, 1997. It is the intention
of the persons named in the accompanying form of proxy to vote the shares
represented thereby in favor of such ratification unless otherwise instructed in
such proxy.
A representative of Ernst & Young LLP will be present at the Meeting with
the opportunity to make a statement if such representative desires to do so and
will be available to respond to appropriate questions.
3. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
that may be brought before the Meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in accordance
with their best judgment on such matters.
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Stockholder Proposals
Stockholder proposals intended to be presented at the next Annual Meeting
of Stockholders of the Company must be received by the Company by July 3, 1997,
in order to be considered for inclusion in the Company's proxy statement
relating to such meeting.
October 31, 1996
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Proxy Card - Side #1:
RAMSAY HEALTH CARE, INC.
PROXY - Annual Meeting of Stockholders - November 21, 1996
The undersigned, a stockholder of RAMSAY HEALTH CARE, INC., does hereby
appoint Paul J. Ramsay and Bert G. Cibran, or either of them, with full power of
substitution, the undersigned's proxies, to appear and vote all shares of Common
Stock or Class B Convertible Preferred Stock, Series C of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at The Peninsula New York, 700 Fifth Avenue, New York, NY, on Thursday, November
21, 1996, at 9:00 A.M., Eastern Standard Time, or at any adjournment thereof,
upon such matters as may properly come before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby instructs said proxies or their substitutes to vote
as specified below on each of the following matters and in accordance with their
best judgment on any other matters which may properly come before the Meeting.
1. Election of Directors [ ] FOR all the nominees listed (except
as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for the
nominees listed below.
Aaron Beam, Jr., Peter J. Evans, Thomas M. Haythe, Luis E. Lamela, Paul J.
Ramsay, Steven J. Shulman and Michael S. Siddle
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
______________________________________________________________________________
2. Ratification of appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending June 30, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Board of Directors favors a vote "FOR" each item.
<PAGE>
Proxy Card - Side #2:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS INDICATED AS TO EITHER ITEMS 1 OR 2, THEY WILL BE VOTED IN FAVOR OF THE
ITEM(S) FOR WHICH NO DIRECTION IS INDICATED.
IMPORTANT: Before returning this proxy, please sign your
name or names on the line(s) below exactly as shown thereon.
Executors, shareholders, trustees, guardians or corporate
officers should indicate their full titles when signing.
Where shares are registered in the name of joint tenants or
trustees, such joint tenants or trustees should sign.
Dated: ______________________________________, 1996
___________________________________________________
Entity Name
_______________________________________________(L.S.)
_______________________________________________(L.S.)
Stockholder(s) Sign Here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
