<PAGE> 1
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:
<TABLE>
<S> <C>
/ / 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
Quorum Health Group, Inc.
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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 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:
<PAGE> 2
QUORUM HEALTH GROUP, INC.
103 CONTINENTAL PLACE
BRENTWOOD, TENNESSEE 37027
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 20, 1996
---------------------
Notice is hereby given that the Annual Meeting of Stockholders of Quorum
Health Group, Inc. ("Quorum" or the "Company") will be held at the Holiday
Inn -- Brentwood at 760 Old Hickory Boulevard, Brentwood, Tennessee 37027, on
November 20, 1996, at 9:00 a.m. local time, for the following purposes:
1. To elect ten (10) directors to hold office until the next Annual
Meeting and until their successors have been duly elected and qualified.
2. To ratify the selection of Ernst & Young LLP as the Company's
independent auditor for the 1997 fiscal year.
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on September 30,
1996, as the record date for the determination of the stockholders of the
Company entitled to notice of and to vote at the Annual Meeting of Stockholders.
Each share of the Company's Common Stock is entitled to one vote on all matters
presented at the Annual Meeting.
By Order of the Board of Directors
Christy F. Batts, Secretary
Brentwood, Tennessee
October 15, 1996
YOUR REPRESENTATION AT THE MEETING IS IMPORTANT. TO ENSURE YOUR REPRESENTATION,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD. SHOULD YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO
AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 3
QUORUM HEALTH GROUP, INC.
103 CONTINENTAL PLACE
BRENTWOOD, TENNESSEE 37027
---------------------
PROXY STATEMENT
---------------------
THE ACCOMPANYING PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF QUORUM
HEALTH GROUP, INC. ("QUORUM" OR THE "COMPANY"), FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS AND ANY ADJOURNMENTS THEREOF, NOTICE OF WHICH IS ATTACHED HERETO.
The Annual Meeting will be held at Holiday Inn -- Brentwood at 760 Old Hickory
Boulevard, Brentwood, Tennessee 37027 on Wednesday, November 20, 1996, at 9:00
a.m. local time. The principal executive offices of the Company are located at
103 Continental Place, Brentwood, Tennessee 37027.
This Proxy Statement and the Annual Report of the Company for the fiscal
year ended June 30, 1996, have been mailed on or about October 15, 1996, to all
stockholders of record as of September 30, 1996.
The purpose of the Annual Meeting is to elect ten (10) directors to hold
office until the next Annual Meeting and until their successors have been duly
elected and qualified; to ratify the selection of Ernst & Young LLP as the
Company's independent auditor for the next fiscal year; and to transact such
other business as may properly come before the meeting and any adjournment
thereof.
A stockholder of record who signs and returns a proxy in the accompanying
form may revoke the same at any time before the authority granted thereby is
exercised by attending the Annual Meeting and electing to vote in person, by
filing with the Secretary of the Company a written revocation, or by duly
executing a proxy bearing a later date. Unless so revoked, the shares
represented by the proxy will be voted at the Annual Meeting. Where a choice is
specified on the proxy, the shares represented thereby will be voted in
accordance with such specifications. If no specification is made, such shares
will be voted in favor of the election of all director nominees and the
ratification of Ernst & Young LLP as the Company's independent auditor for the
1997 fiscal year. Proxies also confer discretionary authority with respect to
such other matters as may properly come before the meeting.
The Board of Directors has fixed the close of business on September 30,
1996, as the record date for the Annual Meeting. The Company's only outstanding
class of voting securities is its common stock, $.01 par value per share (the
"Common Stock"). On September 30, 1996, the Company had 48,732,661 outstanding
shares of Common Stock. Only stockholders of record at the close of business on
that date will be entitled to vote at the Annual Meeting. A majority of shares
entitled to vote constitutes a quorum. A share, once represented for any purpose
at the meeting, is deemed present for purposes of determining a quorum for the
meeting (unless the meeting is adjourned and a new record date is set for the
adjourned meeting), even if the holder of the share abstains from voting with
respect to any matter brought before the meeting. Stockholders will be entitled
to one vote for each share so held, which may be given in person or by proxy
authorized in writing. Abstentions and broker non-votes will not be counted as
affirmative votes on matters to be voted upon but will be counted for purposes
of determining the presence or absence of a quorum; they have no legal effect on
the election of directors, which requires a plurality of votes cast. On matters
requiring a majority vote of the shares present and represented at the meeting,
abstentions and broker non-votes have the effect of negative votes.
The cost of soliciting proxies will be borne by the Company, including
expenses in connection with preparing, assembling, and mailing this Proxy
Statement. Such solicitation will be made by mail and may also be made by the
Company's regular officers or employees personally or by telephone or telegram.
The Company may reimburse brokers, custodians, and nominees for their expenses
in sending proxies and proxy materials to beneficial owners.
1
<PAGE> 4
PROPOSAL 1. ELECTION OF DIRECTORS
The terms of all present directors will expire upon the election of new
directors at the Annual Meeting. The Board of Directors proposes the election of
the nominees listed below to serve until the next Annual Meeting of Stockholders
and until their successors are duly elected and qualified. The Directors shall
be elected by a plurality of the votes cast by the shares entitled to vote in
the election at the Annual Meeting. Unless contrary instructions are received,
it is intended that the shares represented by proxies solicited by the Board of
Directors will be voted in favor of the election as directors of all the
nominees named below. If for any reason any of such nominees is not available
for election, the proxies empower the appointed officers to vote for such
substitute nominees as the Board of Directors of the Company may propose. The
information relating to the ten (10) nominees set forth below has been furnished
to the Company by the individuals named. All of the nominees are presently
directors of the Company.
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ------------------------------ --- -------- -------------------------------------------------
<S> <C> <C> <C>
Russell L. Carson (1)(3)...... 53 1989 Mr. Carson has been Chairman of the Board since
July 1989. Since 1979 he has been a general
partner of Welsh, Carson, Anderson & Stowe, an
investment firm that specializes in the
acquisition of companies in the information
services and health care industries, and the
Company's largest stockholder. Mr. Carson serves
on the Board of Directors of Steris Corporation,
a manufacturer of medical equipment; Health
Management Systems, Inc., a provider of accounts
receivable management services to hospitals;
American Oncology Resources, Inc., a physician
practice management company; National Surgery
Centers, Inc., a developer and manager of
outpatient surgery centers, and several private
companies.
James E. Dalton, Jr........... 54 1990 Mr. Dalton became President, Chief Executive
Officer and a director of the Company in 1990.
Prior to joining the Company, he served as
Regional Vice President, Southwest Region for
HealthTrust, Inc., division Vice President of
Hospital Corporation of America, and regional
Vice President of HCA Management Company. He
serves on the Board of Directors of the Nashville
Branch of the Federal Reserve Bank of Atlanta and
the Nashville Health Care Council. Mr. Dalton is
a Fellow of the American College of Healthcare
Executives and is on the Board of Directors and
past Chairman of the Federation of American
Health Systems.
S. Douglas Smith.............. 58 1989 Mr. Smith is Adjunct Professor of Health Care
Management, Owen Graduate School of Management
and Vanderbilt University. He has been a director
of the Company since July 1989. He was Vice
Chairman of the Company from 1990 through 1992,
Vice Chairman of Quorum Health Resources, Inc.
from 1991 to 1992, and President of Quorum Health
Resources, Inc. from 1985 to 1991. Mr. Smith
earlier held management positions with Hospital
Corporation of America, Duke University Medical
Center and Humana, Inc. He serves on the Board of
Directors of PhyCor Management Company, Inc.,
Intermed, LLC and Executive Learning, Inc.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ------------------------------ --- -------- -------------------------------------------------
<S> <C> <C> <C>
Sam A. Brooks, Jr.(2)......... 57 1989 Mr. Brooks has been a director of the Company
since July 1989. Mr. Brooks is President and CEO
of Renal Care Group, a specialized provider of
nephrology services, and is President of MedCare
Investment Corp., a health care investment
company. Mr. Brooks serves on the Board of
Directors of Renal Care Group; Nationwide Health
Properties, Inc., a real estate investment trust;
Kinetic Concepts, Inc., a company engaged in the
manufacture of hospital beds for immobile
patients; and PhyCor, Inc., an operator of
multi-specialty medical clinics.
Kenneth J. Melkus(2)(3)....... 50 1992 Mr. Melkus became a director of the Company in
March 1992. From August 1993 until its merger
with United HealthCare of Minneapolis in 1996,
Mr. Melkus served as Chairman of the Board and
Chief Executive Officer of HealthWise of America,
Inc., a publicly held company that owned, managed
and developed health maintenance organizations.
Mr. Melkus is currently serving as an independent
consultant to United to assist with transitional
and special projects. From 1985 until its recent
acquisition by HealthSouth Corporation, Mr.
Melkus served as Vice Chairman and President of
Surgical Care Affiliates, Inc., an owner and
operator of independent ambulatory surgery
centers.
Rocco A. Ortenzio(1).......... 63 1992 Mr. Ortenzio has been a director of the Company
since March 1992. He was the co-founder, Chairman
and Chief Executive Officer of Continental
Medical Systems, Inc. until its merger with
Horizon HealthCare Corporation. He is a
Consultant to Horizon/CMS Healthcare Corporation,
a leading post-acute healthcare provider in the
United States. Mr. Ortenzio also serves on the
Board of Directors of PNC Bank and National
Surgery Centers, Inc.
Thomas S. Murphy, Jr.......... 37 1993 Mr. Murphy has been a director of the Company
since December 1993. He joined Goldman, Sachs &
Co. in 1986 where he has served as Vice President
since 1990. Mr. Murphy is also a director of Tire
Kingdom, Inc.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ------------------------------ --- -------- -------------------------------------------------
<S> <C> <C> <C>
Joseph C. Hutts(1)(3)......... 55 1994 Mr. Hutts has been a director of the Company
since February 1994. He has served as Chairman of
the Board, President and Chief Executive Officer
of PhyCor, Inc., which owns and operates
physician organizations, since its inception in
1988. Mr. Hutts served at Hospital Corporation of
America ("HCA") from 1977 to 1986 in various
positions, including Vice President, Operations;
President, HCA Management Company, Inc., Senior
Vice President, Western Operations; and President
of HCA Health Plans, a managed care subsidiary of
HCA. Mr. Hutts was Vice Chairman and Chief
Operating Officer of EQUICOR-Equitable HCA
Corporation, an employee benefits company, from
October 1986 until June 1987. Mr. Hutts serves on
the Board of Directors of Renal Care Group, a
provider of dialysis and nephrology services.
Jack O. Bovender, Jr.(2)(3)... 51 1994 Mr. Bovender has been a director of the Company
since March 1992 and resigned as a director of
the Company on August 1, 1993. Mr. Bovender was
reappointed to the Board effective April 1, 1994.
Mr. Bovender served for 18 years with Hospital
Corporation of America until his resignation as
Executive Vice President and Chief Operating
Officer effective March 31, 1994. In that
position, he was responsible for HCA's 73 acute
care hospitals, 26 psychiatric hospitals and
various related corporate departments. He was
also, at various times, a Senior Vice President
and President of Eastern Group Operations with
HCA and Chief Executive Officer of HCA's West
Florida Regional Medical Center, a 547-bed
tertiary referral center.
C. Edward Floyd, M.D.......... 62 1995 Dr. Floyd has been a director of the Company
since June 1995. He is Board Certified in general
and vascular surgery and serves on the medical
staffs of Carolinas Hospital System and other
local hospitals. He is chairman of the University
of South Carolina's Board of Trustees and is
founder and director of Vascular Laboratory of
Florence, Inc. In addition to serving on several
medical boards, Dr. Floyd is clinical professor
of surgery at the University of South Carolina
Medical School as well as clinical associate
professor of surgery at the Medical University of
South Carolina. He is a member of the South
Carolina State Commission on Higher Education and
also serves on the Board of Directors of National
Bank of South Carolina, Synovus Financial
Corporation and the Drs. Bruce and Lee
Foundation. Dr. Floyd is a diplomat of the
American Board of Surgery and a Fellow of the
American College of Surgeons.
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
The Board held six meetings during the 1996 fiscal year and executed eight
unanimous written consent actions. All directors attended meetings or executed
unanimous written consent actions with respect to at least 75% of the meetings
and consent actions of the Board and of the committees of which they were
members.
4
<PAGE> 7
The Company's executive officers are appointed annually by the Board and serve
at the discretion of the Board.
COMMITTEES OF THE BOARD
Among the standing committees of the Company's Board of Directors are the
Compensation Committee, the Audit Committee and the Nominating Committee.
The Compensation Committee is currently composed of Mr. Carson, Mr.
Ortenzio, and Mr. Hutts, none of whom are employees of the Company.
Responsibilities of this committee include approval of remuneration arrangements
for executive officers of the Company, review of compensation plans relating to
executive officers and directors, other benefits under the Company's
compensation plans, and general review of the Company's employee compensation
plans. During fiscal 1996, the Compensation Committee held two meetings and
executed eight unanimous written consent actions.
The Audit Committee is composed of Mr. Brooks, Mr. Bovender, and Mr.
Melkus, none of whom are employees of the Company. Responsibilities of this
committee include approval of the engagement of independent auditors, review of
activities and recommendations of the internal auditors, review of arrangements
and scope of audit examinations, consideration of the results of independent
auditors' review of internal accounting controls and other matters, and review
and setting of internal accounting policies and procedures. During fiscal 1996,
the Audit Committee held two meetings.
The Nominating Committee is composed of Mr. Carson, Mr. Melkus, Mr.
Bovender and Mr. Hutts, none of whom are employees of the Company.
Responsibilities of this committee include recommending nominees for election as
directors at the Company's annual shareholders' meeting, recommending persons to
fill vacancies and newly created positions on the Board between annual
shareholders' meetings, and recommending changes concerning the responsibilities
and composition of the Board and its committees. During fiscal 1996, the
Nominating Committee executed one unanimous written consent action.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE
NOMINEES LISTED ABOVE. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED
FOR THE LISTED NOMINEES.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITOR
The Board of Directors has appointed Ernst & Young LLP as independent
auditor of the Company for fiscal year 1997. Ernst & Young LLP has served as the
Company's independent auditor since the Company's inception. A representative of
Ernst & Young LLP is expected to be present at the Annual Meeting, will be given
an opportunity to make a statement if such representative so desires, and will
be available to respond to appropriate questions. The Board's appointment of
Ernst & Young LLP will be ratified by a majority of the votes present and
represented by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS HAS APPROVED THE APPOINTMENT OF ERNST & YOUNG LLP AS
THE COMPANY'S INDEPENDENT AUDITOR AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR
THE PROPOSAL. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED FOR THE
PROPOSAL.
OTHER MATTERS
Management of the Company is not aware of any other matters to be brought
before the Annual Meeting. However, if any other matter is properly brought
before the annual meeting the persons named in the enclosed Proxy will have
discretionary authority to vote all proxies with respect to such matters in
accordance with their best judgment.
5
<PAGE> 8
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The following table sets forth as of September 30, 1996, the number and
percentage of outstanding shares of the Company's Common Stock owned by all
persons known to the Company to be holders of 5% or more of the issued and
outstanding shares of Common Stock, by each director and certain executive
officers of the Company, and by the officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED(1) TOTAL SHARES(2)
- ----------------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe V, L.P..................... 1,063,826(3) 2.2%
One World Financial Center
200 Liberty Street, Suite 3601
New York, NY 10281
Welsh, Carson, Anderson & Stowe VI, L.P.................... 3,333,334(3) 6.8%
One World Financial Center
200 Liberty Street, Suite 3601
New York, NY 10281
WCAS Healthcare Partners, L.P.............................. 66,667(3) *
One World Financial Center
200 Liberty Street, Suite 3601
New York, NY 10281
The Goldman Sachs Group, L.P............................... 3,462,502(4) 7.1%
85 Broad Street
New York, NY 10004
Russell L. Carson.......................................... 5,489,172(5)(6) 11.3%
James E. Dalton, Jr........................................ 438,717(7) *
Jack O. Bovender, Jr....................................... 18,665(8) *
Sam A. Brooks, Jr.......................................... 141,668(9) *
C. Edward Floyd, M.D....................................... 6,216(10) *
Robert J. Huseby........................................... 33,579(11) *
Joseph C. Hutts............................................ 9,165(12) *
Kenneth J. Melkus.......................................... 62,017(13) *
Thomas S. Murphy, Jr....................................... 3,471,667(12)(14) 7.1%
C. Thomas Neill............................................ 99,193 *
Rocco A. Ortenzio.......................................... 108,125(15) *
Roland P. Richardson....................................... 168,358 *
S. Douglas Smith........................................... 533,195 1.1%
S. Frank Williams, Jr...................................... 134,776(16) *
All current directors and officers as a group (a total of 10,721,511(17) 21.9%
17 persons)..............................................
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property laws,
where applicable.
(2) The percentages shown are based on 48,732,661 shares of Common Stock
outstanding on September 30, 1996, plus, as to each individual and group
listed, unless otherwise noted, the number of shares of Common Stock deemed
to be owned by such holder pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, assuming exercise of options held by such holder that
are exercisable within 60 days of September 30, 1996. Because of the
computations called for by Rule 13d-3, the total "Percentage of Total
Shares" exceeds 100%.
(3) Does not include the shares reflected in footnote 5 as being owned by Mr.
Carson.
(4) Includes shares beneficially owned by certain investment limited
partnerships of which affiliates of The Goldman Sachs Group, L.P. ("GS
Group") are the general partner or the managing general partner.
6
<PAGE> 9
One of such partnerships, GS Capital Partners, L.P., owns approximately
2,875,000 of such shares, or approximately 5.9% of the company's issued and
outstanding shares. GS Group disclaims beneficial ownership of shares held
by such investment partnerships to the extent partnership interests in such
partnerships are held by persons other than GS Group and its affiliates.
(5) Includes 1,003,678 shares of Common Stock and options to purchase a total
of 21,667 shares owned of record by Mr. Carson.
(6) Mr. Carson, the Chairman of the Board of the Company, has voting power over
1,063,926 shares owned by Welsh, Carson, Anderson and Stowe V, L.P.;
3,333,334 shares owned by Welsh, Carson, Anderson & Stowe VI, L.P.; and
66,667 shares owned by WCAS Healthcare Partners, L.P. Mr. Carson is deemed
to beneficially own such shares under Rule 13d-3 and such shares are
included in the shares shown as being owned by "All directors and officers
as a group".
(7) Includes options to purchase a total of 112,382 shares.
(8) Includes options to purchase a total of 9,165 shares.
(9) Includes options to purchase a total of 4,999 shares. Certain of Mr.
Brooks' shares are owned by closely-held entities whose voting power is
controlled or shared by Mr. Brooks.
(10) Includes options to purchase a total of 4,166 shares.
(11) Includes options to purchase a total of 8,988 shares.
(12) Includes options to purchase a total of 9,165 shares.
(13) Includes options to purchase a total of 21,667 shares. Includes 40,350
shares owned by Melkus Partner Ltd.
(14) Mr. Murphy, a director of the Company, is a Vice President of Goldman,
Sachs & Co. ("GS"), the investment manager of GS Capital Partners, L.P.
("GSC"). GSC and various other investment partnerships affiliated with GS
hold the shares reported in footnote 4 above and Mr. Murphy disclaims
ownership of such shares except to the extent of his pecuniary interest in
the shares.
(15) Includes options to purchase a total of 12,502 shares. Includes 40,000
shares owned in the name of an irrevocable trust, beneficial ownership of
which Mr. Ortenzio disclaims.
(16) Includes options to purchase a total of 55,465 shares.
(17) Includes options to purchase a total of 319,719 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C. Edward Floyd, M.D., a director of the Company, is a practicing physician
and serves as a medical director and a member of the advisory board of a
hospital that the Company has owned since February 1, 1995. During fiscal 1996,
the Company paid Dr. Floyd approximately $108,400 for his role on the advisory
board and for services rendered pursuant to several fee-for-service agreements.
Each agreement has a one year term and may be renewed. Dr. Floyd's wife was
employed by the hospital as a bookkeeper until July 27, 1996 and received an
annual salary of $30,192.
The Company intends to build a new facility to replace the hospital and in
July 1995 acquired property at the site of the proposed facility from Dr. Floyd
and certain of his affiliates for approximately $2,800,000. In addition, during
fiscal 1996 the Company acquired for $150,000 an option to purchase a vascular
laboratory owned by Dr. Floyd. The purchase price for the laboratory will be
fair market value as determined by appraisals. During the option period, the
Company is leasing the vascular laboratory from Dr. Floyd for $8,000 per month.
In the judgment of the Company's Board of Directors, the terms of the
transactions described above are fair and reasonable and are not less favorable
to the Company than those that could have been obtained from independent third
parties.
During fiscal 1996, the Company made a gift of $150,000 to the University
of South Carolina and agreed to contribute $850,000 more over the next four
years. Dr. Floyd is Chairman of the Board of Trustees of such University.
7
<PAGE> 10
EXECUTIVE OFFICERS
The following table contains certain information concerning the Company's
executive officers.
<TABLE>
<CAPTION>
SERVED
NAME AGE SINCE POSITION
- --------------------------------- --- ------ -----------------------------------------------
<S> <C> <C> <C>
James E. Dalton, Jr.............. 54 1990 President, CEO and Director
Eugene Fleming................... 51 1996 Executive Vice President, COO
Roland P. Richardson............. 49 1990 Senior Vice President of Acquisitions and
Development
Christy F. Batts................. 45 1989 Vice President -- General Counsel and Secretary
Steve B. Hewett.................. 36 1996 Vice President and Treasurer (Chief Financial
Officer)
Terry E. Allison................. 40 1996 Vice President, Assistant Treasurer and
Controller (Chief Accounting Officer)
C. Thomas Neill.................. 52 1992 Vice President -- Corporate Services
Michael D. Wiley................. 50 1992 Vice President -- Corporate Relations
</TABLE>
Mr. Dalton became President, Chief Executive Officer and a director of the
Company as well as Chairman and Chief Executive Officer of Quorum Health
Resources, Inc. on May 1, 1990. Prior to joining the Company, he served as
Regional Vice President, Southwest Region for HealthTrust, Inc., division Vice
President of HCA, and Regional Vice President of HCA Management Company. He
serves on the Board of Directors of the Nashville Branch of the Federal Reserve
Bank of Atlanta and the Nashville Health Care Council. Mr. Dalton is a Fellow of
the American College of Healthcare Executives and is on the Board of Directors
and past Chairman of the Federation of American Health Systems.
Mr. Fleming joined the Company in July 1996 and is responsible for the
Company's business units. Prior to joining the Company, he was eastern group
president for Columbia/HCA and its predecessor, HCA, from 1993 through June
1996. Prior to 1993, Mr. Fleming served as chief executive officer of hospitals
in Florida and Missouri. Mr. Fleming is also a Fellow in the American College of
Healthcare Executives.
Mr. Richardson joined the Company at its inception in 1989. He is
responsible for all of Quorum's acquisition activities. He worked from 1973 to
1989 for HCA where his positions included serving as vice president of finance
and administration for HCA Management Company and district vice president with
multi-facility operational responsibility.
Ms. Batts joined the Company in 1989. As vice president, general counsel
and corporate secretary, she is responsible for coordinating all legal
activities at Quorum. Prior to joining the Company, Ms. Batts served as senior
counsel of operations with HCA. She is a member of the National Health Lawyers'
Association, the Tennessee Bar Association, the American Corporate Counsel
Association and the American Academy of Hospital Attorneys.
Mr. Hewett joined the Company as Vice President and Treasurer in July 1996.
He was most recently Senior Vice President and Manager of Healthcare Banking
Services at AmSouth Bank of Alabama where he had worked for at least the prior
five years.
Ms. Allison became Assistant Treasurer and Controller in 1996 after serving
as vice president of Internal Audit from 1993 to 1996. From 1978 to 1993, she
served a wide range of healthcare clients for Ernst & Young LLP. Ms. Allison is
a member of the American Institute of CPAs, the Tennessee Society of CPAs, the
Institute of Internal Auditors, the Audit Committee of the Federation of
American Health Systems, and the Healthcare Financial Management Association.
Mr. Neill has been Vice President-Corporate Services since January 1, 1992.
He is responsible for the Company's administrative operations, including human
resources, information systems, purchasing, government relations, and insurance
and risk management programs. Prior to joining the Company, he was affiliated
with HealthTrust, Inc., serving in administrative and human resource positions
since 1987. Mr. Neill's previous health care employment includes ten years with
HCA and General Care Corporation. He is on the
8
<PAGE> 11
board of governors of the Federation of American Health System and a member of
the house of delegates of the American Hospital Association.
Mr. Wiley joined the Company in 1989 and became vice president of Corporate
Relations in 1992. He is responsible for investor, analyst, media industry and
consumer communications. Prior to joining Quorum, he was director of marketing
for HCA and was director of marketing with HCA Management Company. Previous
positions include serving as vice president of marketing for both South Carolina
National Bank (Wachovia) and First National Bank of South Carolina. He is an
associate member of the Association for Investment Management and Research as
well as the Society of Financial Analysts, Inc. and a member of the National
Investor Relations Institute.
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation for
services in all capacities to the Company for the fiscal year ended June 30,
1996, and the two previous fiscal years of those persons who were, at June 30,
1996, the Company's Chief Executive Officer and the four other most highly
compensated executive officers who were serving as such on the last day of the
fiscal year (individually, an "NEO", and collectively, the "NEOs").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- -----------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER RESTRICTED LONG-TERM
ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND SALARY(1) BONUS COMPENSATION(2) AWARD(S) SARS PAYOUTS COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------ ---- --------- ------ --------------- ---------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Dalton, Jr. 1996 439,838 -0- -- -0- 373,142(4) -0- 7,698
President and CEO 1995 365,841 -0- -- -0- 12,000 -0- 4,987
1994 292,481 94,484 -- -0- 40,001 -0- 4,436
Robert D. Huseby 1996 295,247 -0- -- -0- 89,540(4) -0- 7,698
Former President of 1995 281,463 -0- -- -0- 13,000 -0- 4,232
Quorum Health 1994 243,610 67,423 -- -0- 40,001 -0- 4,940
Resources
Roland P. Richardson 1996 258,392 -0- -- -0- 166,722(4) -0- 7,405
Senior Vice 1995 204,848 -0- -- -0- 12,000 -0- 4,000
President -- 1994 180,877 49,382 -- -0- 40,001 -0- 4,752
Acquisitions and
Development
S. Frank Williams, Jr. 1996 252,506 -0- -- -0- 96,466(4) -0- 7,473
President -- Quorum 1995 211,407 -0- -- -0- 12,000 -0- 3,972
Health Services, Inc. 1994 177,232 50,129 -- -0- 40,001 -0- 5,022
C. Thomas Neill 1996 212,348 -0- -- -0- 71,769(4) -0- 7,167
Vice President -- 1995 193,932 -0- -- -0- 10,000 -0- 3,388
Corporate Services 1994 175,845 48,595 -- -0- 20,001 -0- 6,695
</TABLE>
- ---------------
(1) "Salary" includes each NEO's base salary plus amounts paid by the Company to
a cafeteria plan for the benefit of the NEO: Mr. Dalton $6,065; Mr. Huseby
$6,497; Mr. Richardson $6,309; Mr. Williams $6,256; and Mr. Neill $6,417.
(2) Perquisites for each NEO are in amounts which do not require disclosure.
(3) The aggregate amounts set forth under "All Other Compensation" are made up
of the following: (i) for matching 401(k) plan contributions made by the
Company: $3,750 for each of the NEOs; (ii) for Company's contributions to
the Company's Non-Qualified Retirement Plan: Mr. Dalton $3,538; Mr. Huseby
$3,538; Mr. Richardson $3,363; Mr. Williams $3,431; and Mr. Neill $3,006;
(iii) premiums in respect of life insurance policies paid by the Company
for the benefit of the NEOs in the following amounts: Mr. Dalton $410; Mr.
Huseby $410; Mr. Richardson $292; Mr. Williams $292; and Mr. Neill $410.
(4) Of the options indicated, the following represent each NEO's bonus for
fiscal 1996, which options were granted on August 27, 1996: Mr. Dalton
13,550 option shares; Mr. Huseby 7,322 option shares; Mr. Richardson 7,353
option shares; Mr. Williams 6,466 option shares; and Mr. Neill 5,325 option
shares. Such NEO elected to receive such bonus in stock options pursuant to
the Company's Discounted Stock Option program. See "Option/SAR Grants in
Last Fiscal Year."
10
<PAGE> 13
RESTATED STOCK OPTION PLAN
The table below provides information on grants of stock options pursuant to
the Company's Restated Stock Option Plan during the fiscal year ended June 30,
1996, to the NEOs, including stock options granted at the election of an NEO in
lieu of a portion of his bonus. The Company grants no stock appreciation rights
("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER POTENTIAL REALIZABLE VALUE
OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---------------------- ------------ -------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Dalton,
Jr.................. 100,000 4.5687% $ 21.50 9/1/00 594,005.36 1,312,596.50
133,333 6.0917% 21.50 9/1/05 1,802,826.76 4,568,716.96
125,000 3.7109% 23.50 4/1/06 1,847,377.97 4,681,618.48
1,259 0.0575% 24.88 4/16/06 19,699.44 49,922.26
------- ------- ------------ -------------
Total....... 359,592 16.4288% 4,263,909.53 10,612,854.20
======= ======= ============ =============
Bonus(1).... 13,550 2.9833% $ 18.94 8/27/94 300,668.94 630,779.56
Robert D. Huseby...... 50,000 2.2843% $ 21.50 9/1/00 297,002.68 656,298.26
17,940 0.8196% 21.50 9/1/05 242,570.95 614,722.40
6,818 0.3114% 22.00 12/7/05 94,331.68 239,054.99
7,460 0.3408% 24.88 3/26/06 116,725.86 295,606.25
------- ------- ------------ -------------
Total....... 82,218 3.7561% 750,631.17 1,805,881.89
======= ======= ============ =============
Bonus(1).... 7,322 1.6120% $ 18.94 8/27/06 162,472.17 340,853.72
Roland P.
Richardson.......... 50,000 2.2843% $ 21.50 9/1/00 297,002.68 656,293.25
6,027 0.2753% 21.50 9/1/05 81,492.48 206,517.94
3,342 0.1526% 24.50 3/4/06 51,493.17 130,494.03
100,000 4.5637% 23.50 4/1/06 1,477,902.37 3,745,294.78
------- ------- ------------ -------------
Total....... 159,369 7.2809% 1,907,890.80 4,738,605.00
======= ======= ============ =============
Bonus(1).... 7,353 1.6189% $ 18.94 8/27/06 163,160.05 342,296.81
S. Frank Williams,
Jr.................. 40,000 1.8275% $ 21.50 9/1/00 237,602.14 525,038.60
50,000 2.2863% 23.50 4/1/06 738,951.19 1,872,647.39
------- ------- ------------ -------------
Total....... 90,000 4.1118% 976,553.33 2,397,685.99
======= ======= ============ =============
Bonus(1).... 6,466 1.4236% $ 18.94 8/27/06 143,477.88 301,005.21
C. Thomas Neill....... 35,000 1.5990% $ 21.50 9/1/00 207,901.88 459,408.78
3,406 0.1555% 22.38 10/12/05 47,938.29 121,485.05
25,000 1.1421% 23.50 4/1/06 369,475.59 936,323.70
3,038 0.1387% 24.88 5/2/06 46,579.98 118,042.83
------- ------- ------------ -------------
Total....... 56,444 3.0353% 671,895.74 1,635,260.36
======= ======= ============ =============
Bonus(1).... 5,325 1.1724% $ 18.94 8/27/06 118,159.56 247,889.38
</TABLE>
- ---------------
(1) Pursuant to the Company's Discounted Stock Option program, these options
were granted to the NEO after the end of the fiscal year as his bonus for
fiscal 1996. The aggregate "spread" between the exercise price and the fair
market value of the Company's Common Stock ($25.25) on the date of grant of
such options (August 27, 1996) equals the NEO's bonus for fiscal 1996 that
would have otherwise been received in cash.
11
<PAGE> 14
STOCK EXERCISES IN FISCAL YEAR 1996
The table below provides information on exercises of options during the
fiscal year ended June 30, 1996, under the Restated Stock Option Plan by the
named executive officers reflected in the Summary Compensation Table and the
year-end value of unexercised options held by such officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
ACQUIRED VALUE OPTIONS/SARS AT SARS AT 1996 FISCAL
ON EXERCISE REALIZED 1996 FISCAL YEAR-END(#) YEAR-END($)(1)
----------- ---------- ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James E. Dalton, Jr........... 16,667 $ 383,341 37,167/411,093 781,074/2,430,973
Robert D. Huseby.............. 95,250 1,845,088 -0-/134,469 -0-/1,309,207
Roland P. Richardson.......... 8,834 134,541 -0-/210,870 -0-/1,498,114
S. Frank Williams, Jr......... -0- -0- 29,000/141,000 598,630/1,259,429
C. Thomas Neill............... 27,500 483,459 8,658/ 92,279 107,545/ 688,042
</TABLE>
- ---------------
(1) Options are classified as "in-the-money" if the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The value
shown represents the difference between the market price on June 30, 1996,
of $26.38 per share and the respective exercise prices of the options at
June 30, 1996. Such amounts may not necessarily be realized. Actual values
which may be realized, if any, upon the exercise of such options will be
based on the market price of the Common Stock at the time of any such
exercise and thus are dependent upon future performance of the Common
Stock.
EMPLOYMENT CONTRACTS
The Company and Mr. Dalton, its President, Chief Executive Officer and a
director, have an agreement under which Mr. Dalton receives a base salary and is
eligible to receive a bonus. Under the agreement, Mr. Dalton received options to
purchase 333,334 shares of Common Stock at an exercise price of $1.50 per share
and he has purchased all of such shares.
In the event the Company terminates Mr. Dalton's employment, he will be
entitled to receive the higher of: (i) the amounts called for under the
Company's standard severance policy as then in effect; and (ii) continuation of
his then-current base salary until the earlier of eighteen months or his
acceptance of other employment. Mr. Dalton has also executed a Severance
Agreement as described below under the heading "Change in Control Agreements."
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Severance Agreements with each of the NEOs as
well as certain other employees of the Company. The Severance Agreements provide
certain benefits upon termination of employment following a change in control of
the Company (as defined in the Severance Agreements and described below).
Pursuant to the Severance Agreements, if a covered executive's employment is
terminated within twelve months after the date of a change in control for any
reason other than death, disability, retirement or for cause, the executive is
entitled to severance pay and certain other benefits. The severance payments are
based on the executive's annual compensation, multiplied by a factor of two. The
Severance Agreements also provide for indemnification by the Company of the
executive for any excise taxes in the event that benefits paid pursuant to a
change in control trigger adverse tax consequences to the executive.
Under the Severance Agreements, a change in control occurs when: (a) any
person (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becomes the beneficial owner of 50% or more of
the combined voting power of the Company's then outstanding securities; (b) a
12
<PAGE> 15
majority of the individuals comprising the Company's Board of Directors have not
served in such capacity for the entire two-year period immediately preceding
such date; (c) the Company is combined (by merger, share exchange, consolidation
or otherwise) with another corporation and, as a result of such consolidation,
less than 50% of the outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former shareholders of the
Company; or (d) the Company sells, leases or otherwise transfers all or
substantially all of its properties or assets to another person or entity.
DIRECTOR'S COMPENSATION
The Company's non-management directors are paid $3,000 per quarter plus
$750 per meeting actually attended. In addition, the Company's Directors Stock
Option Plan provides for automatic annual grants to such directors of stock
options to acquire 3,334 shares of the Company's Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is composed of Russell L. Carson,
Joseph C. Hutts, and Rocco A. Ortenzio. None of these persons is an employee of
the Company.
SEVERANCE AGREEMENT WITH MR. HUSEBY
The Company and Mr. Huseby agreed to certain terms relating to Mr. Huseby's
resignation from the Company in 1996. The terms included agreeing to employ Mr.
Huseby as a full-time consultant, at his former monthly rate, from the date of
his resignation through October 2, 1996 and then as a part-time consultant at a
reduced rate through April 2, 1997. Subject to certain conditions, Mr. Huseby is
entitled to health insurance and life insurance during the time of service as a
consultant and is entitled to participate in the employee stock purchase plan
but is not entitled to vacation accrual or reload options. In addition, the
Company agreed to provide Mr. Huseby with a modified list of restricted
hospitals and clients who are subject to the non-compete restrictions pursuant
to Mr. Huseby's Non-Compete Agreement.
13
<PAGE> 16
COMPENSATION COMMITTEE REPORT
The following Compensation Committee Report is not deemed to be part of a
document filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be deemed
incorporated by reference in any documents filed under the Securities Act or
Exchange Act without the express consent of the persons named below.
The Compensation Committee (the "Committee") of the Company's Board of
Directors reviews and approves compensation levels for the Company's management
personnel, including the Named Executive Officers identified in the Summary
Compensation Table appearing elsewhere herein. The Committee is composed
entirely of non-employee directors. It is the responsibility of the Committee to
assure the Board that the Company's executive compensation programs are
reasonable and appropriate, meet their stated purpose and effectively serve the
interests of the Company's stockholders and the Company.
COMPENSATION PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICERS
The Committee believes that the primary objectives of the Company's
executive compensation policy should be:
- To attract and retain talented executives critical to both the short-term
and long-term success of the Company by providing compensation that is
competitive with compensation provided to executives of comparable
position at similar U.S. healthcare companies, while maintaining
compensation levels that are consistent with the Company's financial
objectives and operating performance.
- To reinforce strategic financial and operating performance objectives
through the use of appropriate annual incentive programs.
- To create mutuality of interest between executive officers and
stockholders by providing long-term incentives through the use of stock
options.
The Committee believes that the Company's executive compensation policy
should be reviewed annually in relation to the Company's financial performance,
annual budgeted financial goals and its position in the healthcare industry. The
compensation of certain individuals is reviewed annually by the Committee in
light of its executive compensation policy for that year.
The Committee believes that in addition to corporate performance, it is
appropriate to consider in setting and reviewing executive compensation the
level of experience and responsibilities of each executive as well as the
personal contributions a particular individual may make to the success of the
Company. Such factors as leadership skills, analytical skills and organizational
development are deemed to be important qualitative factors to take into account
in considering levels of compensation. No relative weight is assigned to these
qualitative factors, which are applied subjectively.
The Committee and the Board of Directors periodically discuss alternative
compensation arrangements, but believe that the current programs permit the
broadest range of participation in the success of the Company.
BASE SALARIES
The base salaries of the Company's NEOs are listed in the Summary
Compensation Table in this Proxy Statement. These and all other executive
officer salaries are evaluated annually. The Company participates in and reviews
the results of several national surveys that report on the compensation levels
and methods of compensation in various industries, including the healthcare
industry, the hospital industry and other industries of similar revenue size.
The Company reviews the Hay Healthcare Management Survey and such other surveys
as it deems relevant to determine appropriate levels of compensation for various
members of management, selecting which surveys to review for any particular
member of management based upon the duties he or she performs for the Company.
Generally, management salaries for the 1996 fiscal year were competitive with
those reflected in the surveys reviewed. Since the Company believes that its
competitors for
14
<PAGE> 17
executive talent are often more numerous than the entities included in its peer
group index (See "Stock Performance Graph"), its comparison of compensation
according to these surveys is generally more broadly based.
Based on survey results, past internal pay practices, and such subjective
factors as may be deemed relevant, management salaries are proposed by Company
management as part of the Company's annual budgeting process. The Committee
reviews, suggests revisions if appropriate, and approves the salaries proposed
for executive management personnel, including the NEOs, and the entire Board
approves the Company's budget.
ANNUAL INCENTIVE PROGRAM
Annual cash incentive awards are designed to give substantially all of the
Company's management employees an incentive to cause the Company and its
business units to exceed the Company's budgeted earnings before interest, income
tax expense, depreciation and amortization and before minority interest
("EBITDA"). The Incentive Program provides for cash bonuses to be paid to
approximately 415 employees if the EBITDA of the Company and certain of its
business units exceed, by certain specified amounts, the levels budgeted by the
Board of Directors for the Company and such business units. Generally, the
calculation of EBITDA for a fiscal year excludes the effect of acquisitions
consummated during that fiscal year. Each eligible employee is paid a bonus
equal to a certain percentage of his or her base salary, depending on the amount
by which the Company exceeds budgeted EBITDA. The NEOs are paid bonuses if the
Company's EBITDA exceeds budget, without regard to whether any particular
business unit has or has not exceeded its budgeted EBITDA. The maximum bonus
which any NEO, other than the Chief Executive Officer, is eligible to earn is an
amount equal to 41% of his or her base salary. The NEOs may choose to receive
0%, 50% or 100% of their bonus in nonqualified stock options granted under the
Company's Restated Stock Option Plan pursuant to the Company's Discounted Stock
Option Program. Such options have ten year terms and exercise prices equal to
75% of the fair market value of the Company's Common Stock on either the last
day of the fiscal year or their date of grant. The dollar value of the 25%
discount equals the dollar value of the amount of the bonus chosen to be paid in
options. Although the Company's actual EBITDA for fiscal 1996 did not exceed the
Company's budgeted EBITDA, the Compensation Committee concluded that the Company
had performed well in a difficult and continually evolving healthcare market and
that the current EBITDA-based incentive plan does not accurately reward such
performance. As a result, the Compensation Committee approved modifications to
the Incentive Program for fiscal 1997, including targets based on earnings per
share performance, and approved bonuses for fiscal 1996 for the employees
eligible to participate in the Incentive Program. Each of the NEOs elected to
receive stock option grants in lieu of cash bonus awards pursuant to the
Company's Discounted Stock Option Program. The NEOs received the following: Mr.
Dalton 13,550 option shares ($85,500.50); Mr. Huseby 7,322 option shares
($46,201.82); Mr. Richardson 7,353 option shares ($46,397.43); Mr. Williams
6,466 option shares ($40,800.46); and Mr. Neill 5,325 option shares
($33,600.75). See the "Option/SAR Grants in Last Fiscal Year" table elsewhere in
this Proxy Statement.
The Committee is empowered to authorize discretionary bonuses to executives
of the Company based on the superior performance of the executive's business
unit and/or the executive's contribution to the overall performance of the
Company. No such discretionary bonuses were paid to the NEOs for fiscal 1996.
LONG-TERM INCENTIVES
The Company's Restated Stock Option Plan is designed to provide long-term
incentives. Incentive stock options and non-qualified stock options are
available for grant under the Restated Stock Option Plan. Stock option grants
provide an incentive that focuses the executive's attention on managing the
Company from the perspective of an owner with an equity stake in the business.
These grants also help ensure that operating decisions are based on long-term
results that benefit the Company and ultimately the stockholders. The Company's
executive officers are periodically granted stock options under the stock option
plan on terms similar to those granted to other management employees. In
addition, the Company may grant options from time to time in connection with the
employment of new management personnel in order to make the Company's recruiting
efforts competitive.
15
<PAGE> 18
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Dalton, the Company's chief executive officer, is eligible to
participate in the same executive compensation plans available to other
executive officers that are described above. The chief executive officer's base
salary and incentive compensation are determined in accordance with the same
procedures used by the Company to set the compensation of other management
personnel. Specifically, base salary is determined based on analysis of
compensation surveys, past internal pay practices and relevant subjective
factors, while incentive compensation is based on the Company's overall
performance measured by the amount the actual EBITDA exceeds the budgeted
EBITDA. The Committee may also grant discretionary bonuses to Mr. Dalton in
order to reward him for the Company's performance vis-a-vis other companies in
the industry or to keep his overall compensation competitive with other
executive officers in companies of similar size in the healthcare industry.
Mr. Dalton's annual base salary for the 1996 fiscal year was $439,838. The
Company believes Mr. Dalton's current base salary to be in the range of the
average market salaries paid to chief executive officers of comparable
businesses based on The Hay Healthcare Management Survey and other survey and
proxy data from comparable healthcare companies. Under the annual incentive
program described above, the maximum bonus which Mr. Dalton is eligible to earn
is an amount equal to 49% of his base salary.
CERTAIN TAX REGULATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public companies for executive compensation in
excess of $1 million. The Compensation Committee expects to pay all compensation
earned by an executive officer, even if such compensation exceeds $1 million,
and to comply with the provisions of Section 162(m) in doing so.
THE FOREGOING REPORT IS SUBMITTED BY ALL THE CURRENT MEMBERS OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS ARE
RUSSELL L. CARSON, ROCCO A. ORTENZIO, AND JOSEPH C. HUTTS.
16
<PAGE> 19
STOCK PERFORMANCE GRAPH
The stock price performance graph depicted below is not deemed to be part
of a document filed with the Securities and Exchange Commission pursuant to the
Securities Act or the Exchange Act and is not to be deemed incorporated by
reference in any documents filed under the Securities Act or the Exchange Act,
without the express consent of the Company.
The graph below compares the cumulative total return of the Company's
Common Stock with securities of entities comprising the NASDAQ Index and a peer
group index. Cumulative return assumes $100 invested in the Company or
respective index on May 26, 1994, with dividend reinvestment through June 30,
1996. The peer group includes Columbia/HCA Healthcare Corporation, Health
Management Associates, Inc., Tenet Healthcare Corporation, OrNda Healthcorp and
Universal Health Services.
The graph presents information since the date of the Company's initial
public offering. To date, the Company had not directly tied executive
compensation to stock performance. The future impact of stock performance on
executive compensation will be determined by the Compensation Committee.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
- -----------------------------FISCAL YEAR ENDING--------------------------------
COMPANY 1994 1994 1995 1996
<S> <C> <C> <C> <C>
QUORUM HEALTH GROUP INC 100.00 102.94 119.12 155.15
PEER GROUP 100.00 93.09 106.04 139.11
BROAD MARKET 100.00 98.15 115.12 144.91
</TABLE>
THE PEER GROUP CHOSEN WAS:
Customer Selected Stock List
THE BROAD MARKET INDEX CHOSEN WAS:
NASDAQ MARKET INDEX
THE PEER GROUP IS MADE UP OF THE FOLLOWING SECURITIES:
COLUMBIA HCA HEALTHCARE
HEALTH MANAGMENT ASSOC
ORNDA HEALTHCORP
TENET HEALTHCARE CORP
UNIVERSAL HEALTH SVCS
SOURCE: MEDIA GENERAL FINANCIAL SERVICES
P.O. BOX 85333
RICHMOND, VA 23293
PHONE: 1-(800) 446-7922
FAX: 1-(804) 649-6097
17
<PAGE> 20
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Such executive
officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on the Company's review of the copies of Forms 3, 4 and 5
furnished to the Company, any amendments thereto, or written representations
from certain reporting persons that indicated that no Forms 5 were required for
those persons, the Company believes that during the 1996 fiscal year its
executive officers, directors and greater than 10% stockholders complied with
all applicable Section 16(a) filing requirements except that: (i) Joseph C.
Hutts filed one late Form 4, reporting receipt of a company stock option grant;
(ii) S. Douglas Smith filed one late Form 4, reporting one transaction by a
Trust for which he has voting control; (iii) Roland P. Richardson filed one
amendment to Form 4, reporting one transaction late; and (iv) Charles G. Moore
filed an amendment to his original Form 3, to correct the reporting of certain
holdings of Welsh, Carson, Anderson & Stowe entities, and an amendment to a Form
4 reporting late two transactions by the same Welsh, Carson, Anderson & Stowe
entities.
PROPOSALS OF STOCKHOLDERS FOR 1997 ANNUAL MEETING
Stockholders intending to submit proposals for presentation at the 1997
Annual Meeting of Stockholders of the Company and inclusion in the Proxy
Statement and form of proxy for such meeting should forward such proposals to
Christy F. Batts, Secretary, Quorum Health Group, Inc. Proposals must be in
writing and must be received by the Company prior to June 15, 1997. Proposals
should be sent to the Company by certified mail, return receipt requested.
AVAILABILITY OF 10-K
Upon the written request of any record holder or beneficial owner of the
Common Stock entitled to vote at the Annual Meeting, the Company, without
charge, will provide a copy of its Annual Report on Form 10-K for the year
ending June 30, 1996, including financial statements and financial statement
schedules, that was filed with the SEC. The request should be mailed to Christy
F. Batts, Secretary, Quorum Health Group, Inc. at the Company's principal
executive offices, 103 Continental Place, Brentwood, Tennessee 37027.
18
<PAGE> 21
APPENDIX A
PROXY QUORUM HEALTH GROUP, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 20, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF QUORUM HEALTH GROUP,
INC. FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS AND ANY ADJOURNMENTS THEREOF.
The undersigned hereby appoints James E. Dalton, Jr. and Christy F. Batts,
or either of them, as proxies, with power of substitution, to vote all shares of
the undersigned at the Annual Meeting of the Stockholders of Quorum Health
Group, Inc. to be held November 20, 1996 at 9:00 a.m. local time at the Holiday
Inn -- Brentwood at 760 Old Hickory Boulevard, Brentwood, Tennessee 37027, and
at any adjournment or postponement thereof, in accordance with the following
instructions:
(1) Election of directors
<TABLE>
<S> <C> <C>
/ / FOR all nominees listed below / / WITHHOLD Authority to vote for all / / ABSTAIN
(except as marked to the contrary below) nominees listed below.
</TABLE>
To withhold authority to vote for any individual nominee check the box to
vote "FOR" all nominees and strike a line through the nominee's name on the
list below.)
<TABLE>
<S> <C> <C>
Russell L. Carson Kenneth J. Melkus Jack O. Bovender, Jr.
James E. Dalton, Jr. Rocco A. Ortenzio C. Edward Floyd, M.D.
S. Douglas Smith Joseph C. Hutts
Sam A. Brooks, Jr. Thomas S. Murphy, Jr.
</TABLE>
(2) To ratify the selection of Ernst & Young LLP as the Company's independent
auditor for the 1997 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
(3) In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.
/ / FOR / / AGAINST / / ABSTAIN
The Shares represented hereby will be voted as specified. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION
OF DIRECTORS; FOR THE APPROVAL OF ERNST & YOUNG LLP AS INDEPENDENT AUDITOR AND,
IN THE DISCRETION OF THE PROXIES, ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
Please sign and date below and return promptly.
Dated:______________________,1996
_________________________________
Dated:______________________,1996
_________________________________
Signatures of Stockholder(s)
should correspond exactly with the
name printed hereon. Joint owners
should each sign personally.
Executors, administrators,
trustees, etc., should give full
title and authority.
