<PAGE> 1
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] 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)
Quorum Health Group, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 (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 10, 1997
---------------------
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
Monday, November 10, 1997, at 9:00 a.m. local time, for the following purposes:
1. to consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to increase the number of shares of Common
Stock, $.01 par value, which the Company is authorized to issue from
100,000,000 shares to 300,000,000 shares;
2. to consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to authorize the issuance of up to an
aggregate 10,000,000 shares of Preferred Stock, with such powers and
preferences, and such rights and limitations, as the Board of Directors may
designate from time to time;
3. to consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to (i) provide for the classification of the
Board of Directors into three classes serving staggered terms; (ii) provide
that directors may be removed only for cause and only with the approval of
the holders of at least two-thirds of the voting stock; (iii) eliminate the
ability of stockholders to act by written consent; and (iv) require a 75%
supermajority vote to amend any of the foregoing provisions, as more fully
described in the accompanying Proxy Statement;
4. to consider and vote upon a proposal to elect ten directors, three
of whom will be designated Class I Directors to serve for an initial term
of one year until the annual meeting of stockholders in 1998 and until
their respective successors are elected and qualified; three of whom will
be designated Class II Directors to serve for an initial term of two years
until the annual meeting of stockholders in 1999 and until their respective
successors are elected and qualified; and four of whom will be designated
Class III Directors to serve for an initial term of three years until the
annual meeting of stockholders in 2000 and until their respective
successors are elected and qualified, as more fully described in the
accompanying Proxy Statement;
5. to consider and vote upon a proposal to amend Article NINTH of the
Company's Certificate of Incorporation to (i) provide for indemnification
of the Company's officers, directors, employees and agents to the fullest
extent permitted by Delaware General Corporation Law, as currently provided
under the By-laws of the Company and (ii) require a 75% supermajority vote
to amend Article NINTH;
6. to approve the Quorum Health Group, Inc. 1997 Stock Option Plan;
7. to amend the Company's Employee Stock Purchase Plan to increase the
number of shares of Common Stock reserved for issuance from 3,000,000 to
3,750,000 shares;
8. to ratify the selection of Ernst & Young LLP as the Company's
independent auditor for the 1998 fiscal year; and
9. to transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE> 3
The Board of Directors has fixed the close of business on September 22,
1997, 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
Ashby Q. Burks, Secretary
Brentwood, Tennessee
October 10, 1997
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.
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QUORUM HEALTH GROUP, INC.
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 10, 1997
INTRODUCTION
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 Monday, November 10, 1997, 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, 1997, have been mailed on or about October 10, 1997, to all
stockholders of record as of September 22, 1997.
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 on a signed
proxy, such shares will be voted in favor of the nominees for election as
directors named below and for the other proposals referred to below. 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 22,
1997, as the record date for the Annual Meeting (the "Record Date"). The
Company's only outstanding class of voting securities is its common stock, $.01
par value per share (the "Common Stock"). On September 22, 1997, the Company had
74,269,087 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.
Unless otherwise noted, all share numbers in this Proxy Statement are
stated after giving effect to the Company's three-for-two stock split described
herein.
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1. PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION -- APPROVAL
OF INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
On October 1, 1997, the Board of Directors of the Company unanimously
approved resolutions declaring it advisable to amend the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock
from 100,000,000 shares to 300,000,000 shares. The full text of Article FOURTH,
as proposed to be amended in the Company's Amended and Restated Certificate of
Incorporation, is attached as Exhibit A to this Proxy Statement and is
incorporated herein by reference.
On August 19, 1997, the Board of Directors declared a three-for-two stock
split, effected in the form of a stock dividend, which was distributed to
stockholders of record on September 2, 1997 (the "Stock Split"). In connection
with the Stock Split, each holder of record on September 2, 1997 received one
additional share of Common Stock for every two shares held. In addition, the
number of shares of Common Stock reserved for issuance or subject to outstanding
options granted under the Company's employee stock plans increased by 50%. The
Stock Split was approved by the Company's Board of Directors with the intention
of benefitting stockholders by obtaining wider market distribution for the
Company's Common Stock, as well as improving the marketability of the Common
Stock.
As a result of the Stock Split, the number of shares of Common Stock
outstanding increased by 50%. As of the Record Date, 74,269,087 shares of Common
Stock were outstanding, and the following shares were reserved for issuance:
6,416,023 shares were subject to outstanding options granted under the Company's
Restated Stock Option Plan; 242,539 shares were subject to outstanding options
and an additional 188,703 shares were reserved under the Directors Stock Option
Plan, for a total of 431,242 shares obligated thereunder; 550,737 shares were
reserved for issuance under the Company's qualified Employee Stock Purchase
Plan, and 374,741 shares under its non-qualified Employee Stock Purchase Plan;
and 2,550 shares were reserved subject to the exercise of an outstanding warrant
issued by the Company. The Company has issued or is obligated to issue a total
of 82,044,380 shares. As the Company has only 100,000,000 authorized shares of
Common Stock, only 17,955,620 shares remain outside the Company's current
obligations. The proposed Amendment would increase the unobligated Common Stock
to 217,955,620 shares.
The Board of Directors believes that the adoption of the proposed Amendment
is advantageous to the Company and its stockholders. It would provide additional
authorized shares of Common Stock that could be used from time to time, without
further action or authorization by the stockholders (except as may be required
by law or the rules of the NASDAQ National Market System or other stock exchange
on which the Company's securities may then be listed), for issuance under the
Rights Plan (as defined below) and for other corporate purposes which the Board
may deem desirable, including, without limitation, stock splits, stock dividends
or other distributions, financings, acquisitions, stock grants, stock options
and employee benefit plans, including the Quorum Health Group, Inc. 1997 Stock
Option Plan which will be submitted for stockholder approval at the Annual
Meeting. In the event stockholder approval of this proposal is obtained, the
Company would have a total of 225,730,913 authorized and unissued shares
remaining available pursuant to its Certificate of Incorporation. These
additional authorized shares of Common Stock will restore the Company's
flexibility to issue Common Stock to a level the Board of Directors believes
advisable.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock now authorized. Adoption of the
proposed amendment and the issuance of Common Stock would not affect the rights
of holders of currently outstanding Common Stock, except for effects incidental
to increasing the number of shares of Common Stock outstanding. Holders of
Common Stock do not have preemptive rights to subscribe to additional securities
that may be issued by the Company, which means that current stockholders do not
have a prior right to purchase any new issue of capital stock of the Company in
order to maintain their proportionate ownership thereof. If the proposed
amendment is adopted, it will become effective upon the filing of the proposed
amendment with the Delaware Secretary of State.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE PROPOSED AMENDMENT
In addition to the foregoing corporate purposes, under certain
circumstances the Board of Directors could create impediments to, or delay
persons seeking to effect, a takeover or transfer of control of the Company by
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causing such additional authorized shares to be issued to a holder or holders
who might side with the Board in opposing a takeover bid that the Board of
Directors determines is not in the best interests of the Company and its
stockholders. Such an issuance could diminish the voting power of existing
stockholders who favor a change in control, and the ability to issue the shares
could discourage an attempt to acquire control of the Company and thus make more
difficult the removal of management. While it may be deemed to have potential
anti-takeover effects, the proposed amendment is not prompted by any specific
effort or takeover threat currently perceived by management or the Board of
Directors.
On April 16, 1997, the Board of Directors adopted a Rights Agreement (the
"Rights Plan") and issued under the Rights Plan, as a dividend to the holders of
Common Stock, rights to purchase Common Stock. The Rights Plan is designed to
protect stockholders against the adverse consequences of partial takeovers and
other abusive takeover tactics which the Board of Directors believes are not in
the best interests of the Company's stockholders by providing for certain rights
to acquire the Common Stock or the securities of an acquiring entity upon the
occurrence of certain events. These rights, should they become exercisable,
could possibly deter a potential takeover of the Company. A copy of the Rights
Plan was filed with the Securities and Exchange Commission on April 23, 1997, as
an exhibit to the Company's Registration Statement on Form 8-A. In the event the
rights become exercisable for Common Stock, the Company might be required to
issue a substantial number of new shares of Common Stock. Although under the
Rights Plan the Company is not now obligated (but must use its best efforts) to
reserve shares of Common Stock for issuance thereunder, a failure to have
sufficient shares available could result in a delay or failure of implementation
of the Rights Plan. An increase in the authorized number of shares of Common
Stock could therefore make a change in control of the Company more difficult by
facilitating the operation of the Rights Plan.
In addition, on April 16, 1997 the Board of Directors approved two
amendments to the By-laws of the Company. The first amendment requires
stockholders to provide the Company with advance notice of business to be
brought at a stockholders meeting or of a stockholder's intention to nominate
directors at the meeting. The second amendment provides that special meetings of
stockholders may be called only by the Board of Directors, the Chairman of the
Board or the Company's Chief Executive Officer. The full text of these
amendments was filed with the Securities and Exchange Commission on April 17,
1997, as part of the Company's filing on Form 8-K. Such amendments, along with
the adoption of the Rights Plan, cannot, and are not intended to, prevent a
purchase of all or a majority of the equity securities of the Company, nor are
they intended to deter bids for such securities. Rather, the Board believes that
these provisions will discourage disruptive tactics and encourage persons who
may seek to acquire control of the Company to initiate such an acquisition
through negotiations with the Board of Directors. The Board of Directors
believes that it will therefore be in a better position to protect the interests
of all the Company's stockholders.
ANTI-TAKEOVER EFFECTS OF OTHER PROPOSED AMENDMENTS
In addition to the foregoing proposed Amendment, on October 1, 1997, the
Board of Directors of the Company unanimously approved resolutions declaring it
advisable to amend the Company's Certificate of Incorporation to (i) authorize
the issuance of up to an aggregate 10,000,000 shares of Preferred Stock, with
such powers and preferences, and such rights and limitations, as the Board of
Directors may designate from time to time, as more fully described in Proposal
No. 2; and (ii) as more fully described in Proposal No. 3, provide (A) for the
classification of the Board of Directors into three classes serving staggered
terms; (B) that directors may be removed only for cause and only with the
approval of the holders of at least two-thirds of the voting stock; (C) for the
elimination of the ability of stockholders to act by written consent; and (D)
for a requirement of a 75% supermajority vote to amend any of the provisions
described in this clause (ii). Each of these proposals may have certain
anti-takeover effects, which, together with the Rights Plan and the By-law
amendments previously adopted by the Board of Directors, could create
impediments to, or delay persons seeking to effect, a takeover or transfer of
control of the Company. While they may be deemed to have potential anti-takeover
effects, the proposed amendments are not prompted by any specific effort or
takeover threat currently perceived by management or the Board of Directors. The
Board believes that these provisions will discourage disruptive tactics and
encourage persons who may seek to acquire control of the Company to initiate
such an acquisition through negotiations with the Board of Directors.
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EXISTING ANTI-TAKEOVER MEASURE -- SECTION 203 OF THE DELAWARE GENERAL
CORPORATION LAW
As discussed more fully below, Section 203 of the Delaware General
Corporation Law may be deemed to have an anti-takeover effect and should be
reviewed in evaluating this proposal.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Such section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person that is (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
VOTE REQUIRED FOR APPROVAL
The proposed Amendment to the Company's Certificate of Incorporation to
increase the authorized shares of Common Stock will be submitted to stockholders
for their approval at the Annual Meeting. Approval and adoption of the proposed
amendment to the Company's Certificate of Incorporation requires the vote of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION.
2. APPROVAL AND ADOPTION OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION AUTHORIZING THE ISSUANCE OF 10,000,000 SHARES OF A NEW CLASS OF
PREFERRED STOCK
At its meeting held on October 1, 1997, the Board of Directors of the
Company also approved resolutions declaring it advisable to amend Article FOURTH
of the Certificate of Incorporation to authorize the issuance of a new class of
preferred stock, and directing that the proposed amendment be submitted to
stockholders for their approval at the annual meeting to be held on November 10,
1997. The proposed amendment provides for the issuance of an aggregate
10,000,000 shares of Preferred Stock, $.01 par value, which would be of the type
commonly known as "blank-check" preferred stock. The full text of Article
FOURTH, as proposed to be amended in the Company's Amended and Restated
Certificate of Incorporation, is attached as Exhibit A to this Proxy Statement,
and the following description is qualified in its entirety by reference thereto.
The Board of Directors believes the proposed amendment to be desirable
because it would provide the Board flexibility in issuing shares and managing
the Company's capital structure by issuing additional equity, rather than debt,
when the Board deemed advantageous. The Preferred Stock could be issued in
connection with public offerings or private placements or other financing
transactions, acquisitions, stock dividends, employee stock plans and for other
general corporate purposes. In addition, the Preferred Stock could be issued in
connection with the Rights Plan described above, if the Board so determines. The
Board has no
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current plans, arrangements, agreements or understandings regarding the issuance
of any series of Preferred Stock, should the proposed amendment be approved and
adopted.
DESCRIPTION OF THE PREFERRED STOCK
The amendment would authorize the Board of Directors, from time to time, to
divide the Preferred Stock into series, to designate each series, and to
determine for each series its respective rights and preferences, including,
without limitation, any of the following: (i) the rate of dividends, and whether
dividends were cumulative or had a preference over the Common Stock in right of
payment; (ii) the terms and conditions upon which shares may be redeemed and the
redemption price; (iii) sinking fund provisions for the redemption of shares;
(iv) the amount payable in respect of each share upon a voluntary or involuntary
liquidation of the Company; (v) the terms and conditions upon which shares may
be converted into other securities of the Company, including Common Stock; (vi)
limitations and restrictions on payment of dividends or other distributions on,
or redemptions of, other classes of stock of the Company junior to such series,
including the Common Stock; (vii) conditions and restrictions on the creation of
indebtedness or the issuance of other senior classes of stock; and (viii) voting
rights.
Issuances of Preferred Stock could be made without further action of the
stockholders, unless such action were required by applicable law or the rules of
the NASDAQ National Market System or any other stock exchange on which the
Company's securities may then be listed or traded. Depending on the rights and
preferences designated for any particular series, issuances of Preferred Stock
could have the effect of diluting stockholders' equity, earnings per share and
voting rights attributable to the Common Stock.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE PROPOSED AMENDMENT
Although the Board of Directors has no current intention of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board of Directors will make any determination to issue such shares
based on its judgment at the time as to the best interests of the Company and
its stockholders. The Board of Directors, in so acting, could issue Preferred
Stock having terms that could discourage an acquisition attempt by which an
acquiror may be able to change the composition of the Board of Directors,
including a tender offer or other transaction that some, or a majority, of the
Company's stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock. In addition, under the Rights Plan, shares of
Preferred Stock (or any other security as determined by the Board of Directors)
may be issued to stockholders in lieu of Common Stock in the event of a
distribution under the Rights Plan. Accordingly, the adoption of the proposed
Amendment would facilitate the operation of the Rights Plan.
ANTI-TAKEOVER EFFECTS OF OTHER PROPOSED AMENDMENTS
In addition to the foregoing proposed Amendment, on October 1, 1997, the
Board of Directors of the Company unanimously approved resolutions declaring it
advisable to amend the Company's Certificate of Incorporation to (i) increase
the number of shares of Common Stock which the Company is authorized to issue
from 100,000,000 shares to 300,000,000 shares, as more fully described in
Proposal No 1; and (ii) as more fully described in Proposal No. 3, provide (A)
for the classification of the Board of Directors into three classes serving
staggered terms; (B) that directors may be removed only for cause and only with
the approval of the holders of at least two-thirds of the voting stock; (C) for
the elimination of the ability of stockholders to act by written consent; and
(C) for the requirement of a 75% supermajority vote to amend any of the
provisions contained in this clause (ii). Each of these proposals may have
certain anti-takeover effects, which, together with the Rights Plan and the
By-law amendments previously adopted by the Board of Directors, could create
impediments to, or delay persons seeking to effect, a takeover or transfer of
control of the Company. While they may be deemed to have potential anti-takeover
effects, the proposed amendments are not prompted by any specific effort or
takeover threat currently perceived by management. The Board believes that these
provisions will discourage disruptive tactics and encourage persons who may seek
to acquire control of the Company to initiate such an acquisi tion through
negotiations with the Board of Directors.
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VOTE REQUIRED FOR APPROVAL
The proposed Amendment to the Company's Certificate of Incorporation to
authorize the issuance of shares of a new class of Preferred Stock will be
submitted to stockholders for their approval at the Annual Meeting. Approval and
adoption of the proposed amendment to the Company's Certificate of Incorporation
requires the vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION.
3. PROPOSED AMENDMENT TO ARTICLE SIXTH
The Board of Directors of the Company proposes to amend the Company's
Certificate of Incorporation to effect the following additional changes:
CLASSIFIED BOARD -- to classify the Board into three classes of directors
serving staggered terms; REMOVAL OF DIRECTORS -- to provide that directors may
be removed only for cause and only with the approval of the holders of at least
two-thirds of the voting power of the Company's shares entitled to vote
generally in the election of directors at an annual meeting or special meeting
called for such purpose; STOCKHOLDERS' ACTION -- to require that stockholder
action be taken at an annual or special meeting of stockholders and to prohibit
stockholder action by written consent; and SUPERMAJORITY VOTING -- to increase
the stockholder vote required to alter, amend or repeal Article SIXTH of the
Certificate of Incorporation to at least 75% of the voting power of the
Company's shares entitled to vote. A copy of the proposed form of Amendment to
Article SIXTH in the Company's Amended and Restated Certificate of Incorporation
is attached to this Proxy Statement as Exhibit A and is incorporated herein by
reference.
The following description of the proposed Amendment to Article SIXTH is
qualified in its entirety by reference to the entire text of the proposed
amendment.
CLASSIFIED BOARD AMENDMENT
The Classified Board Amendment provides (i) for the classification of the
Board of Directors into three classes serving staggered terms, with each class
to be as nearly as equal in size as possible; and (ii) that, subject to the
requirements of Delaware law, any vacancy on the Board of Directors be filled
only by the remaining directors then in office, even if such directors
constitute less than a quorum.
If the Classified Board Amendment is adopted, the Company's directors would
be divided into three classes: Class I Directors, Class II Directors and Class
III Directors. Three Class I Directors will be elected for an initial one-year
term expiring at the 1998 Annual Meeting; three Class II Directors will be
elected for an initial term expiring at the 1999 Annual Meeting; and four Class
III Directors will be elected for an initial term expiring at the 2000 Annual
Meeting, in each case until their respective successors are duly elected and
qualified. Starting with the 1998 annual meeting and continuing for each
succeeding annual meeting, successors to the class of directors whose term
expires at the annual meeting shall be elected for three-year terms. In the
event the stockholders do not approve the Classified Board Amendment, the
directors elected at the annual meeting will serve until the next annual
meeting.
If at any time the size of the Board of Directors is changed, the increase
or decrease in the number of directors will be apportioned among the three
classes to make all classes as nearly equal in size as possible. As of the date
hereof, the Board of Directors has no plans, arrangements, commitments or
understandings with respect to increasing or decreasing the size of the Board of
Directors or of any class of directors, except as discussed herein.
Except as Delaware law may otherwise require, pursuant to the Classified
Board Amendment, any vacancies in the Board of Directors occurring for any
reason, including by reason of an increase in the number of directors or a
removal of a director for cause, will be filled only by the Board of Directors
acting by the
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affirmative vote of a majority of the remaining directors, even if less than a
quorum, and any director elected to fill such vacancy will serve for the balance
of the term of the director he or she succeeds.
REMOVAL OF DIRECTORS AMENDMENT
The Certificate of Incorporation and Delaware law provide that directors
may be removed, with or without cause, by the holders of a majority of shares
entitled to vote in the election of directors. However, Delaware law also
stipulates that, unless the certificate of incorporation provides otherwise,
directors serving on a classified board of directors may be removed only for
cause. The proposed amendments would specify that directors may be removed only
for cause and only by the affirmative vote of holders of two-thirds of the
voting power of the Company's shares entitled to vote generally in the election
of directors. The proposed amendments also provide that vacancies on the Board
of Directors, caused by such removal, will be filled only by vote of a majority
of directors then in office and any director elected to fill such vacancy will
serve for the balance of the term of the director he or she succeeds.
The provisions of the proposed amendments relating to the removal of
directors would preclude the holders of less than two-thirds of the voting power
of the Company's capital stock from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with their own nominees. Moreover, such voting
threshold would preclude the removal of a director, even if cause exists for
such director's removal and the majority of voting power is in favor of such
director's removal.
STOCKHOLDERS' ACTION AMENDMENT
Pursuant to Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders of a
corporation may be taken without a meeting and without a stockholder vote if a
written consent setting forth the action to be taken is signed by the holders of
shares of outstanding stock having the requisite number of votes that would be
necessary to authorize such action at a meeting of stockholders. The
Stockholders' Action Amendment will require that stockholder action be taken at
an annual or special meeting of stockholders and will prohibit stockholder
action by written consent.
The provision prohibiting stockholder action by written consent will give
all stockholders of the Company the opportunity to participate in determining
any proposed action and will prevent the holders of a majority of the voting
stock from using the written consent procedure to take stockholder action
without affording all stockholders an opportunity to participate. On the other
hand, the Stockholders' Action Amendment may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting of
stockholders.
SUPERMAJORITY AMENDMENT
The proposed Supermajority Amendment would require the affirmative vote of
the holders of at least 75% of the voting power of the Company's shares entitled
to vote for the alteration, amendment or repeal of, or the adoption of any
provision inconsistent with, Article SIXTH of the Certificate of Incorporation.
Without such feature, Article SIXTH could be altered, amended or repealed upon
the affirmative vote of the holders of a majority of the voting stock.
Adoption of the Supermajority Amendment requires the approval of a majority
of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting. Accordingly, in the event that the proposed Supermajority Amendment is
adopted by less than a 75% vote, stockholders having the same percentage of
voting power as those who voted in favor of its adoption will not have
sufficient voting power to alter, amend or repeal Article SIXTH at a later date.
The requirement of an increased stockholder vote to alter, amend or repeal the
amendments to the Certificate of Incorporation contained in this proposal is
designed to prevent a stockholder with a majority of the voting stock from
avoiding the effects of Article SIXTH by simply repealing them.
7
<PAGE> 11
GENERAL CONSIDERATIONS RELATED TO THE PROPOSED AMENDMENT TO ARTICLE SIXTH
In recent years, accumulations by third parties of substantial stock
positions in publicly held corporations frequently have been undertaken without
advance notice to or consultation with management or the board of directors. In
many instances, such third parties position themselves through stock ownership
to seek representation on a board of directors by a proxy contest or otherwise
in order to increase the likelihood that they will be able to implement proposed
transactions opposed by the corporation's management or board of directors. In
some cases, a third party may not truly be interested in taking over the
corporation, but uses the threat of a proxy contest or a bid to take over the
corporation, or both, as a means of obtaining for itself a specific benefit
which might not be available to all of the corporation's stockholders.
The Board of Directors believes that the threat of removal of the Company's
management in such a situation through a change in the composition of the Board
of Directors could severely compromise management's ability to negotiate
effectively with such a third party. Management could be deprived of the time
and information necessary to evaluate a particular takeover or other proposal,
to seek and study alternative proposals that might better serve the interest of
the Company's stockholders and, in an appropriate case, to help achieve a better
price in any proposed transaction involving the Company. If adopted, the
provisions establishing a classified board and limiting the removal of directors
will help assure that the Board of Directors, if confronted by a proposal from a
third party which has acquired a significant block of the Common Stock, will
have sufficient time to review the proposal and undertake the appropriate
actions.
The Board had begun addressing this concern when it adopted the Rights Plan
and certain amendments to the Company's By-laws in April 1997 (as more fully
described in Proposal No. 1). The effect of the Rights Plan (so long as the
Rights Plan remains in place) is to encourage potential acquirors to negotiate
with the Board prior to acquiring a large block of Common Stock and permit the
Board to ensure fair treatment for the Company's stockholders in the event of a
coercive offer for the Common Stock. The Board did not adopt the Rights Plan in
reaction to any known effort to acquire the Company's Common Stock. The
principal purpose of this proposal is to enhance the effectiveness of the Rights
Plan such that its provisions cannot be easily circumvented in a coercive
takeover situation and to enhance the likelihood of continuity and stability in
the composition of the Board and in the policies formulated by the Board. The
Board is not recommending this proposed Amendment in reaction to any known
effort to acquire the Company's Common Stock. Rather, the function of the Rights
Plan and the classification of the Board, as a whole, is to give the Board an
opportunity and sufficient time to evaluate an acquisition offer and determine
if it reflects the full value of the Company and is fair to all stockholders,
and if not, to reject the offer or to seek an alternative that meets such
criteria. The proposed classification of the Board would also enable the Board
to conduct such evaluation without the imminent threat of removal. Even in the
case of an all-cash offer to all stockholders, the Rights Plan and the proposed
classification of the Board collectively serve the further function of providing
leverage for the Board to facilitate a bidding process and to negotiate for a
better price for the stockholders.
Takeovers or changes in management of a corporation that are proposed and
effected without prior consultation and negotiation with its board of directors
are not necessarily detrimental to the corporation or its stockholders.
Deterrence of such acquisitions could tend to reduce temporary fluctuations in
the market price of the Company's shares, thereby denying stockholders certain
opportunities to sell their shares at temporarily higher market prices. Although
the Rights Plan and the classification of the Board are designed as protective
measures for the Company's stockholders, the Board would continue to have the
power to reject any offer, including those that may be at a premium above
prevailing market prices. Furthermore, a classified board would make it more
difficult for stockholders to change a majority of directors even if the reason
for such a change were dissatisfaction with the performance of the incumbent
directors, or in a case where the majority of the voting power believes that
such change would be desirable. After adoption of the proposed amendments,
persons who do not favor the policies of the Board of Directors would generally
require at least two annual meetings to replace a majority of the directors. The
Board of Directors believes, however, that the benefits of protecting the
ability of the Board of Directors to negotiate with a proponent of an unfriendly
or unsolicited proposal to take over or restructure the Company outweigh the
disadvantages of deterring such proposals. Furthermore, although there has been
no difficulty in the past with the continuity or stability of the Board of
Directors, the Board of Directors believes that the longer time period required
to elect a majority of a classified
8
<PAGE> 12
board will help to assure the continuity and stability of the Company's
operations and policies in the future. It is also the Board's view that the
existence of these provisions should not discourage anyone from proposing a
merger or other transaction at a price reflective of the true value of the
Company and which is in the best interest of all of its stockholders.
Other potential anti-takeover measures are available to management and the
Board of Directors under the laws of Delaware, where the Company is
incorporated, as described in Proposal No. 1 above. Under Delaware statutes, a
change in control may be delayed unless holders of a substantial percentage of
the outstanding voting securities approve the change of control transaction.
Although the Delaware statutes may protect stockholders against partial
takeovers and abusive takeover tactics, the effects of the statutes may
negatively impact stockholders desiring a change of control in the ways set
forth above.
The proposed provisions of the amendment to Article SIXTH are consistent
with the rules of the NASDAQ National Market System, upon which the Company's
Common Stock is listed and traded. This proposal is not being recommended in
response to any specific effort by a third party to obtain control of the
Company.
ANTI-TAKEOVER EFFECTS OF OTHER PROPOSED AMENDMENTS
In addition to the foregoing proposed Amendment, on October 1, 1997, the
Board of Directors of the Company unanimously approved resolutions declaring it
advisable to amend the Company's Certificate of Incorporation to (i) increase
the number of shares of Common Stock which the Company is authorized to issue
from 100,000,000 shares to 300,000,000 shares, as more fully described in
Proposal No. 1; and (ii) authorize the issuance of up to an aggregate 10,000,000
shares of Preferred Stock, with such powers and preferences, and such rights and
limitations, as the Board of Directors may designate from time to time, as more
fully described in Proposal No. 2. Each of these proposals may have certain
anti-takeover effects, which, together with the Rights Plan and the By-law
amendments previously adopted by the Board of Directors, could create
impediments to, or delay persons seeking to effect, a takeover or transfer of
control of the Company. While they may be deemed to have potential anti-takeover
effects, the proposed amendments are not prompted by any specific effort or
takeover threat currently perceived by management. The Board believes that these
provisions will discourage disruptive tactics and encourage persons who may seek
to acquire control of the Company to initiate such an acquisition through
negotiations with the Board of Directors.
VOTE REQUIRED FOR APPROVAL
The proposed Amendment to the Company's Certificate of Incorporation to
classify the Board of Directors and to give effect to certain related matters
will be submitted to stockholders for their approval at the Annual Meeting.
Approval and adoption of the proposed amendment to the Company's Certificate of
Incorporation requires the vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting.
At present, all the Company's directors are elected at each annual meeting
of stockholders for a one-year term. If this proposed Amendment is approved at
the Annual Meeting, the Class I directors would be elected for one year, the
Class II directors for two years and the Class III directors for three years. At
each annual meeting thereafter, the class of directors in the other two classes
would continue in office. The votes required for election would remain
unchanged.
CONFORMING AMENDMENTS TO BY-LAWS
The Board of Directors has unanimously approved amendments to the Company's
By-laws to comport with the proposed amendments to Article SIXTH of the
Certificate of Incorporation set forth above, to be effective upon the approval
of such proposed amendments.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION.
9
<PAGE> 13
4. ELECTION OF DIRECTORS
The terms of all current 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 for the terms set forth below, and in each
case, until their respective successors have been duly elected and shall
qualify. The directors will 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. The information relating to the ten
nominees set forth below has been furnished to the Company by the individuals
named. All of the nominees are presently directors of the Company. Subject to
the approval of the stockholders of the Classified Board Amendment, the
Company's Board will automatically, without further action by the stockholders,
be classified as set forth in the following table:
<TABLE>
<CAPTION>
CLASS TERM NAME OF DIRECTOR
- ----- ---- ----------------
<S> <C> <C>
Class I.............. Term expires at the 1998 Annual Meeting Joseph C. Hutts
C. Edward Floyd, M.D.
Colleen Conway Welch
Class II............. Term expires at the 1999 Annual Meeting Kenneth J. Melkus
Rocco A. Ortenzio
Thomas S. Murphy, Jr.
Class III............ Term expires at the 2000 Annual Meeting Russell L. Carson
James E. Dalton, Jr.
S. Douglas Smith
Sam A. Brooks
</TABLE>
Beginning with the Company's Annual Meeting in 1998, directors will be
elected to succeed those directors whose terms then expire, and each person
elected will serve for a three-year term.
Once a classified board is established, the Company's Certificate of
Incorporation and applicable Delaware law will operate to permit the
stockholders to remove directors from office only for cause, at a meeting of
stockholders called for that purpose, but only by the affirmative vote of at
least two-thirds of the voting power of all shares of the Company entitled to
vote generally in the election of directors, voting together as a single class.
It is the intention of the persons named in the enclosed proxy to vote the
shares covered by each proxy for the election of all the nominees named in the
table below. Although the Board does not anticipate that any nominees will be
unavailable for election, in the event of such occurrence, the proxies will be
voted for such substitute, if any, as the Board may designate. There is no
cumulative voting for the election of members of the Board.
10
<PAGE> 14
The following table sets forth information with respect to nominees:
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
<S> <C> <C> <C>
Russell L. Carson(1)(3)........ 54 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.
Mr. Carson serves on the Board of Directors of 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............ 55 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 Housecall Medical Resources, Inc., the
Nashville Branch of the Federal Reserve Bank of
Atlanta and the Nashville Health Care Council and on
the Board of Trustees of Randolph-Macon College. 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............... 59 1989 Mr. Smith is Adjunct Professor of Health Care
Management, Owen Graduate School of Management,
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., and is Chairman of the Board of Passport Health
Communication Co., Intermed, LLC and Executive
Learning, Inc.
Sam A. Brooks, Jr.(2).......... 58 1989 Mr. Brooks has been a director of the Company since
July 1989. Mr. Brooks is President and CEO of Renal
Care Group, a provider of dialysis and 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 owner and
operator of multi-specialty medical clinics.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
<S> <C> <C> <C>
Kenneth J. Melkus (2)(3)....... 51 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 consultant to Welsh, Carson, Anderson &
Stowe, and serves on the Boards of Directors of
OrthoLink, Inc., Cardiology Partners of America,
MedSynergies, Inc., Nora Holdings, Inc., and Emerald
Health Network. From 1985 until its 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).......... 64 1992 Mr. Ortenzio has been a director of the Company since
March 1992. He is Chairman and CEO of Select Medical
Corporation, which is developing a network of
post-acute healthcare facilities and services. He was
the co-founder, Chairman and Chief Executive Officer
of Continental Medical Systems, Inc. until its merger
with Horizon HealthCare Corporation. He was a
Consultant to Horizon/CMS Healthcare Corporation, a
leading post-acute healthcare provider in the United
States from 1995 to 1997. Mr. Ortenzio also serves on
the Board of Directors of PNC Bank and National
Surgery Centers, Inc.
Thomas S. Murphy, Jr........... 38 1993 Mr. Murphy has been a director of the Company since
December 1993. He is managing director of Goldman,
Sachs & Co., where he served as Vice President from
1990 -- 1997, after joining the firm in 1986. Mr.
Murphy is also a director of Bridge Information
Systems, Inc.
Joseph C. Hutts (1)(3)......... 56 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., an owner and operator of
multi-specialty medical clinics, 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.
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
<S> <C> <C> <C>
C. Edward Floyd, M.D........... 63 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 emeritus of the University of South
Carolina's Board of Trustees; he was its Chairman
from 1993 -- 1996 and its Vice-Chairman from
1989 -- 1993. He 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.
Colleen Conway Welch(2)........ 53 1997 Dr. Conway-Welch became a director of the Company in
April 1997. She is Dean and Professor of the
Vanderbilt University School of Nursing. She is
member of the board of directors of Funding First, a
member of the Healthcare Leadership Council Board of
Governors, the Tennessee State Board of Nursing, The
Governor's TennCare Operations Roundtable and a
founding member and president of Friends of the
National Institute for Nursing Research, National
Institute of Health. Other board memberships include
First Union Bank of Tennessee and American
Physicians' Network.
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
The Board held five meetings during the 1997 fiscal year and executed ten
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. 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 1997, the Compensation Committee held two meetings and
executed five unanimous written consent actions.
The Audit Committee is composed of Mr. Brooks, Ms. Welch 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
13
<PAGE> 17
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. The Audit
Committee also provides oversight for the Quorum Business Ethics Program, the
Company's compliance and ethics initiative. In this capacity, it reviews with
management compliance with the Business Ethics Program and ways to strengthen
the Program. During fiscal 1997, the Audit Committee held two meetings.
The Nominating Committee is composed of Mr. Carson, Mr. Melkus 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 stockholders' meeting, recommending persons to fill vacancies
and newly created positions on the Board between annual stockholders' meetings,
and recom mending changes concerning the responsibilities and composition of the
Board and its committees. During fiscal 1997, the Nominating Committee held two
meetings and executed one unanimous written consent action.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE NOMINEES LISTED ABOVE.
5. PROPOSED AMENDMENT TO ARTICLE NINTH OF THE COMPANY'S CERTIFICATE OF
INCORPORATION -- INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS OF THE CORPORATION
On October 1, 1997, the Board of Directors of the Company unanimously
approved resolutions declaring it advisable to amend Article NINTH of the
Company's Certificate of Incorporation to (i) provide for indemnification of the
Company's officers, directors, employees and agents to the fullest extent
permitted by Delaware General Corporation Law, as currently provided under the
By-laws of the Company, and (ii) to increase the stockholder vote required to
alter, amend or repeal Article NINTH of the Certificate of Incorporation to at
least 75% of the voting power of the Company's shares entitled to vote. The full
text of Article NINTH, as proposed to be amended in the Company's Amended and
Restated Certificate of Incorporation, is attached as Exhibit A to this Proxy
Statement and is incorporated herein by reference. The amendment would replace
the Article NINTH currently in the Certificate of Incorporation which relates to
certain restrictions placed on the Company prior to an initial public offering,
and which is no longer applicable to the Company.
The Company's By-laws currently provide that the Company's directors,
officers, employees and agents shall be indemnified to the fullest extent
possible under Delaware law. By providing for indemnification in the Certificate
of Incorporation rather than only in the By-laws, the indemnification provisions
may not be amended without stockholder approval.
Delaware law permits a corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believe to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. Delaware law further provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not appropriate)
and must reimburse a successful defendant for expenses, including attorney's
fees, actually and reasonably incurred, and permits a corporation to purchase
and maintain liability insurance for its directors and officers. Delaware law
provides that indemnification may not be made for any claim, issue or matter as
to which a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The proposed amendment provides that the Company shall, to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities and other matters referred to in or covered by said
section, and the indemnification provided for therein shall not be deemed
exclusive of any other rights to which those indemnified may be
14
<PAGE> 18
entitled under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Board of Directors believes that this amendment will assist the Company
in retaining the most qualified possible directors, officers, employees and
consultants. However, stockholders should be aware that indemnification
provisions in general could result in significant expense to the Company if the
Company were required to indemnify one or more directors or officers in respect
to claims against them. At present, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company as to which
indemnification would be permitted or required.
VOTE REQUIRED FOR APPROVAL
The proposed Amendment to Article NINTH of the Company's Certificate of
Incorporation will be submitted to stockholders for their approval at the Annual
Meeting. Approval and adoption of the proposed amendment to the Company's
Certificate of Incorporation requires the vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Annual Meeting.
Accordingly, in the event that the proposed Amendment to Article NINTH is
adopted by less than a 75% vote, stockholders having the same percentage of
voting power as those who voted in favor of its adoption will not have
sufficient voting power to alter, amend or repeal Article NINTH at a later date.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THIS PROPOSAL.
6. APPROVAL OF THE QUORUM HEALTH GROUP, INC. 1997 STOCK OPTION PLAN
At the 1997 Annual Meeting, stockholders will be asked to approve the
Quorum Health Group, Inc. 1997 Stock Option Plan (the "1997 Option Plan"). A
copy of the 1997 Option Plan is attached to this Proxy Statement as Exhibit B
and is incorporated herein by reference. The description below of the 1997
Option Plan is qualified in its entirety by reference to the complete text of
the 1997 Option Plan. Terms not defined herein shall have the meanings set forth
in the 1997 Option Plan.
DESCRIPTION OF PRINCIPAL FEATURES OF THE 1997 OPTION PLAN
The purpose of the 1997 Option Plan is to afford an incentive to executive
officers, other key employees and consultants of the Company and its
subsidiaries to acquire or increase a proprietary interest in the Company, to
become or continue as employees or consultants, to devote their best efforts on
behalf of the Company and to align the interests of such persons with the
Company's stockholders to promote the success of the Company's business. No
further shares remain available for stock option grants to employees under the
Company's current plan, the Restated Stock Option Plan. The Company desires to
establish a new stock option plan in order to be able to continue to grant stock
options to employees and to establish a plan that reflects recent changes in
Rule 16b-3 (as defined below).
The 1997 Option Plan is intended to satisfy the requirements of Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as from
time to time amended ("Rule 16b-3"), and to serve as a qualified
performance-based compensation program under Section 162(m) ("Section 162(m)")
of the Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m)
limits the deductibility of certain compensation in excess of $1 million per
year paid by a publicly traded corporation to its chief executive officer and
the four other executive officers named in the summary compensation table of the
corporation's proxy statement, if such officer is employed by the corporation at
the end of the corporation's taxable year. Compensation that qualifies as
"performance-based" compensation is, however, exempt from the $1 million
deductibility limitation. In order for compensation granted pursuant to the 1997
Option Plan to qualify for this exemption, among other things, the material
terms under which the compensation is to be paid must be disclosed to and
approved by stockholders in a separate vote prior to payment.
The 1997 Option Plan will be administered by the Compensation Committee of
the Board or such other committee established by the Board to administer the
1997 Option Plan, the members of which shall at all times satisfy the
requirements of Section 162(m), or any successor provision, and Rule 16b-3.
15
<PAGE> 19
The 1997 Option Plan authorizes the granting of "incentive stock options,"
within the meaning of Section 422 of the Code ("ISOs"), and nonqualified stock
options ("NQSOs" and, collectively with ISOs, "Options"), pursuant to the
applicable terms and conditions of the 1997 Option Plan and of the agreement
("Option Agreement") evidencing such grant. The aggregate fair market value of
the ISOs granted to any optionee under the 1997 Option Plan, or any similar
plan, that first become exercisable in any calendar year may not exceed
$100,000. Options may be granted to executive officers and other key employees
and consultants of the Company or its Subsidiaries, including officers and
directors who are employees, except as proscribed by the Exchange Act or the
Code. While any employee of the Company may be eligible for stock option grants
under the 1997 Option Plan, the Company anticipates that such option grants will
be awarded primarily to its executive officers and other key personnel. The
number and definition of such employees is subject to change from time to time,
and the Company has not identified a specific group to which the options will be
limited.
The aggregate number of shares of Common Stock reserved for issuance
pursuant to the 1997 Option Plan is, subject to adjustment as provided in the
1997 Option Plan, equal to (i) 3,000,000, plus (ii) shares of Common Stock
subject to grants under the Company's Restated Stock Option Plan (the "Old
Plan") as of the Effective Date which become available after the Effective Date
pursuant to Section 5(b) of the 1997 Option Plan, plus (iii) 12% of the number
of shares of Common Stock newly issued by the Company or delivered out of
treasury shares during the term of the 1997 Option Plan (excluding any issuance
or delivery in connection with exercises of grants under the 1997 Option Plan,
the Old Plan or any other compensation or benefit plan of the Company). Under
this formula, the aggregate number of shares of Common Stock initially reserved
for issuance pursuant to the 1997 Option Plan is, subject to adjustment as
provided in the 1997 Option Plan, equal to 3,000,000. Shares of Common Stock
reserved for grants of ISO's are limited to 3,000,000. No employee may be
granted Options in any one year to purchase more than 1,000,000 shares.
The Option exercise price per share may not be less than the fair market
value of a share of Common Stock on the date on which the Option is granted
unless, in the case of NQSOs, the Committee determines otherwise. To the extent
that grants of Options are made at an exercise price below market value on the
date of the grant, the compensation expense associated with such Option may not
qualify as "performance-based" under Section 162(m). Grants of Options at
discounted prices pursuant to the Company's Annual Incentive Program would not
be considered "performance-based" under Section 162(m) unless the Annual
Incentive Program satisfied the requirements of Section 162(m). The Annual
Incentive Program currently does not meet such requirements. Each Option
Agreement shall provide the exercise schedule for the Option as determined by
the Committee (which may include a requirement for achieving performance goals),
provided, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The exercise
period shall be ten years from the date of the grant of the Option unless
otherwise determined by the Committee, provided, however, that in the case of an
ISO, such exercise period shall not exceed ten years from the date of grant of
such Option. The exercise period shall be subject to early termination as
provided in the Option Agreement.
Options granted under the 1997 Option Plan will not be transferable other
than by will or by the laws of descent and distribution or to a Beneficiary upon
the death of a Grantee, and such Options that may be exercisable shall be
exercised during the lifetime of the Grantee only by the Grantee or his or her
guardian or legal representative; except that Options (other than ISOs) may be
transferred to one or more Beneficiaries or other transferees as provided in the
1997 Option Plan.
The Board of Directors may from time to time suspend, terminate, modify or
amend the 1997 Option Plan, but may not, without the approval of the Company's
stockholders, adopt any amendment for which stockholder approval is required
under applicable Delaware law or in order for the 1997 Option Plan to continue
to comply with Rule 16b-3 or Section 162(m).
The selection of the eligible individuals who will receive Options under
the 1997 Option Plan, upon approval of the 1997 Option Plan by stockholders, and
the size and type of Options is generally to be determined by the Committee in
its discretion. No Options have been made or granted under the 1997 Option
16
<PAGE> 20
Plan, nor are any such Options now determinable. Thus, it is not possible to
predict the benefits or amounts that will be received by or allocated to
particular individuals or groups of employees.
CERTAIN FEDERAL TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to Options under the
1997 Option Plan. This summary is not intended to be exhaustive and, among other
things, does not describe state, local or foreign income tax consequences.
Certain Federal Income Tax Consequences -- Incentive Stock Options
The Company understands the federal income tax consequences of ISOs to be
generally as follows: An employee receiving an ISO will not be in receipt of
taxable income upon the grant of the ISO or upon its timely exercise. Exercise
of an ISO will be timely if made during its term and if the optionee remains an
employee of the Company or its subsidiaries at all times during the period
beginning on the date of the grant of the ISO and ending on the date three
months before the date of exercise (or one year before the date of exercise in
the case of a disabled optionee). Exercise of an ISO will also be timely if made
at any time (provided it is exercisable by its terms) by the legal
representative of an optionee who dies (i) while in the employ of the Company or
its subsidiaries or (ii) within three months after termination of employment.
The 1997 Option Plan, however, limits the right of the legal representative of
any optionee to exercise an option to the one-year period following death. Upon
ultimate sale of the stock received upon such exercise, except as noted below,
the optionee will recognize capital gain or loss (if the stock is a capital
asset of the optionee) equal to the difference between the amount realized upon
such sale and the Option exercise price. The Company, under these circumstances,
will not be entitled to any federal income tax deduction in connection with
either the exercise of the ISO or the sale of such stock by the optionee.
If, however, the stock acquired pursuant to such exercise of an ISO is
disposed of by the optionee prior to the expiration of two years from the date
that such stock is transferred to the optionee upon exercise (a "disqualifying
disposition"), any gain realized by the optionee generally will be taxable at
the time of such disqualifying disposition as follows: (i) as ordinary income to
the extent of the difference between the Option exercise price and the lesser of
the fair market value of the stock on the date the ISO is exercised and the
amount realized on such disqualifying disposition and (ii) if the stock is a
capital asset of the optionee, as capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the fair market value
of the stock on the date that governs the determination of his or her ordinary
income. In such case, the Company may claim a federal income tax deduction at
the time of such disqualifying disposition for the amount taxable to the
optionee as ordinary income.
The amount by which the fair market value of the stock on the exercise date
of an ISO exceeds the Option exercise price will constitute an item of tax
adjustment for purposes of the "alternative minimum tax" set forth in the Code.
Certain Federal Income Tax Consequences -- Nonqualified Stock Options
In the case of NQSOs, the Company understands that the optionee will not
generally be taxed upon grant of any such option. Rather, at the time of
exercise of an NQSO, the optionee will, except as noted below, realize ordinary
income for federal tax purposes in an amount equal to the excess of the fair
market value of the shares purchased over the Option exercise price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the optionee realizes ordinary income. If stock so acquired is later
sold or exchanged, then the difference between the sales price and the fair
market value of such stock on the date of exercise of the Option is generally
taxable as capital gain or loss if the holding period requirements are met.
17
<PAGE> 21
VOTE REQUIRED FOR APPROVAL
The 1997 Option Plan will be submitted to stockholders for their approval
at the Annual Meeting. The affirmative vote of a majority of the votes present
and represented by proxy at the Annual Meeting is required for the approval of
the 1997 Option Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 1997 OPTION PLAN.
7. PROPOSED AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
On October 1, 1997, the Board of Directors unanimously approved an
amendment to the Company's tax-qualified Employee Stock Purchase Plan (the
"Stock Purchase Plan") to increase the number of shares reserved for purchase
under the Stock Purchase plan. The Stock Purchase Plan allows employees who are
employed at least twenty hours a week and for more than five months in a
calendar year to elect to cause up to 10% of their monthly wages (up to a
maximum of $25,000 per plan year) to be contributed to a custodial account to
purchase shares of Common Stock. The Stock Purchase Plan provides an opportunity
for eligible employees to share in the growth and prosperity of the Company by
acquiring a proprietary interest in the Company's Common Stock. A total of
3,000,000 shares of Common Stock were originally reserved for issuance under the
Stock Purchase Plan. Approximately 2400 employees currently participate in the
Stock Option Plan. Of such 3,000,000 shares, approximately 550,737 shares remain
available for purchase. The Company desires to amend the Stock Purchase Plan to
increase the number of shares available for purchase. Without such amendment,
the Company will have to suspend or terminate the Stock Purchase Plan after the
current plan year or shortly thereafter. A copy of the Stock Purchase Plan is
attached as Exhibit C to this Proxy Statement and incorporated herein by
reference.
Common Stock is purchased pursuant to the Stock Purchase Plan annually at a
price per share equal to the lesser of 85% of the fair market value of the
Common Stock on either the first or the last day of the plan year (the "Exercise
Price"). The fair market value is determined by reference to the closing market
price on the applicable date.
The authority to administer the Stock Purchase Plan includes the authority
(i) to interpret the Stock Purchase Plan and decide any matters arising
thereunder, and (ii) to adopt such rules and regulations, not inconsistent with
the provisions of the Stock Purchase Plan, as the Board may deem advisable to
carry out the purpose of the plan. The Stock Purchase Plan is to continue from
year to year, however, the Board of Directors may discontinue it at any time.
Under the Stock Purchase Plan, employees may not be granted in any calendar
year the right to purchase Common Stock in excess of a total fair market value
of $25,000, or be granted a right to purchase Common Stock if following such
grant the employee would beneficially own 5% or more of the total a voting power
or value of all classes of the Company's capital stock. Rights acquired under
the Stock Purchase Plan are not transferable during the participant's lifetime.
Upon termination of employment, other than by death or retirement, an
employee immediately ceases participation in the Stock Purchase Plan and the
Company will refund to the employee the balance of any contributions made to the
plan by the employee. Upon termination of employment due to death or retirement,
the employee or his estate may elect to be paid the balance of any contributions
made to the Stock Purchase Plan by the employee. If no such election is made,
such balance will be used to purchase Common Stock on behalf of the employee or
his estate in the normal course under the plan.
The Stock Purchase Plan is intended to qualify for favorable tax treatment
under Internal Revenue Code Section 423. Pursuant to that section, participants
in the Stock Purchase Plan generally do not recognize income for federal tax
purposes on the 15% discount from fair market value. If the recipient of Common
Stock under the Stock Purchase Plan disposes of shares before the end of certain
holding periods (essentially the latter of one year after the Exercise Date or
two years after the Grant Date), he or she will generally recognize ordinary
income in the year of disposition in an amount equal to the difference between
his or her purchase
18
<PAGE> 22
price and the fair market value of the Common Stock on the Exercise Date. If a
disposition does not occur until after the expiration of the holding periods,
the recipient will generally recognize ordinary income in the year of
disposition equal to the lesser of (a) 15% of the fair market value of the
Common Stock on the Grant Date or (b) the excess of the fair market value of
such Common Stock on the date of disposition over the price paid by the
recipient on the Exercise Date. The participant will recognize ordinary income
in the aforementioned instances even if the ordinary income recognized is
greater than the total gain realized on the disposition. The employee
participant increases his or her basis in the Common Stock received under the
Stock Purchase Plan by the amount he or she reports as ordinary income. The
difference between this increased basis and the disposition price (if any) is a
capital gain or loss. The Company generally will not be entitled to a tax
deduction if a participant disposes of stock received under the Stock Purchase
Plan prior to the expiration of the holding periods.
NEW PLAN BENEFITS
It is not possible at this time to determine the dollar value of benefits
available under the Amended Purchase Plan for fiscal year 1997 because neither
the participation level for the employees nor the Company's stock price is known
at this time. For informational purposes, the table below sets forth the
aggregate of the dollar values of the excess of the fair market values of the
stock on the last day of the Plan year over the purchase price of stock that
actually was paid during fiscal 1997 by the named executive officers, all
current executive officers as a group (the "Executive Group"), and all other
employees, including all current officers who are not executive officers, as a
group (the "Employee Group") under the Stock Purchase Plan. Directors who are
not employees are not eligible to participate in the Stock Purchase Plan.
EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($) NUMBER OF SHARES
- ----------------- --------------- ----------------
<S> <C> <C>
James E. Dalton, Jr..................................... $ 10,593 1,522
President and CEO
Eugene C. Fleming....................................... --0-- --0--
Executive Vice President/COO
Roland P. Richardson.................................... $ 9,187 1,320
Senior Vice President
C. Thomas Neill......................................... $ 10,593 1,522
Vice President
Christy F. Batts........................................ $ 6,124 880
Vice President
Steve B. Hewett......................................... --0-- --0--
Vice President/CFO
Executive Group......................................... $ 36,240 5,207
Employee Group.......................................... $1,923,800 276,408
</TABLE>
VOTE REQUIRED FOR APPROVAL
A majority of votes present and represented by proxy at the Annual Meeting
is required to amend the Stock Purchase Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
VOTE AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN.
8. RATIFICATION OF APPOINTMENT OF AUDITOR
The Board of Directors has appointed Ernst & Young LLP as independent
auditor of the Company for fiscal year 1998. 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
19
<PAGE> 23
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 UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THIS PROPOSAL.
GENERAL
OTHER MATTERS
The Board of Directors does not know of any matters that are to be
presented at the Annual Meeting other than those stated in the Notice of Annual
Meeting and referred to in this Proxy Statement. If any other matters should
properly come before the Meeting, it is intended that the proxies in the
accompanying form will be voted as the persons named therein may determine in
their discretion.
The Company's Annual Report to Stockholders for the fiscal year ended June
30, 1997 was mailed to stockholders on or about October 10, 1997.
20
<PAGE> 24
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The following table sets forth as of September 22, 1997, 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>
T. Rowe Price Associates, Inc(3)............................ 6,166,070 8.2%
100 E. Pratt Street
Baltimore, MD 21202
AIM Management Group, Inc(3)................................ 4,770,000 6.4%
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Nicholas Company, Inc(3).................................... 3,713,550 5.0%
700 North Water Street
Milwaukee, WS 53202
Russell L. Carson(4),(5).................................... 1,757,979 2.4%
James E. Dalton, Jr.(6)..................................... 776,865 1.1%
Christy F. Batts(7)......................................... 93,792 *
Sam A. Brooks, Jr.(8)....................................... 195,004 *
Eugene C. Fleming(9)........................................ 168,302 *
C. Edward Floyd, M.D.(10)................................... 16,823 *
Steve B. Hewett(11)......................................... 41,601 *
Joseph C. Hutts(12)......................................... 22,499 *
Kenneth J. Melkus(13)....................................... 99,467 *
Thomas S. Murphy, Jr.(14)................................... 22,499 *
C. Thomas Neill(15)......................................... 185,996 *
Rocco A. Ortenzio(16)....................................... 60,633 *
Roland P. Richardson(17).................................... 226,927 *
S. Douglas Smith(18)........................................ 608,860 *
Colleen Conway-Welch........................................ 1,500 *
All current directors and officers as a group (a total of 17
persons).................................................. 4,318,713 5.8%
</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 74,269,087 shares of Common Stock
outstanding on September 22, 1997, 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 22, 1997.
(3) The figures are based solely on information reported as of December 31,
1996, in Schedule 13G filings by the referenced entity, a registered
investment adviser ("Adviser"); the securities are owned by various
individual and institutional investors for which the Adviser serves as
investment adviser, with power to direct investments and/or power to vote
the securities. For purposes of the reporting requirements of the
Securities Act of 1934, the Adviser is deemed to be beneficial owner of
such securities; however, such Adviser expressly disclaims that it is, in
fact, the beneficial owner of such securities.
(4) Includes 1,744,754 shares of Common Stock and options to purchase a total
of 12,500 shares owned of record by Mr. Carson.
21
<PAGE> 25
(5) Mr. Carson, the Chairman of the Board of the Company, has voting power over
725 shares owned by WCA Management Corporation. 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".
(6) Includes options to purchase a total of 280,713 shares.
(7) Includes options to purchase a total of 16,410 shares.
(8) Includes options to purchase a total of 12,500 shares. Certain of Mr.
Brooks' shares are owned by closely-held entities whose voting power is
controlled or shared by Mr. Brooks.
(9) Includes options to purchase a total of 106,802 shares.
(10) Includes options to purchase a total of 13,748 shares.
(11) Includes options to purchase a total of 32,601 shares.
(12) Includes options to purchase 22,499 shares.
(13) Includes 60,525 shares owned by Melkus Partner Ltd.
(14) Includes options to purchase 22,499 shares.
(15) Includes options to purchase 74,315 shares.
(16) Includes options to purchase a total of 12,500 shares. Includes 30,000
shares owned in the name of an irrevocable trust, beneficial ownership of
which Mr. Ortenzio disclaims.
(17) Includes options to purchase 48,305 shares.
(18) Includes options to purchase 3,749 shares.
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.................... 55 1990 President, Chief Executive Officer and Director
Eugene Fleming......................... 52 1996 Executive Vice President, Chief Operating
Officer
Roland P. Richardson................... 50 1990 Senior Vice President of Acquisitions and
Development
Ashby Q. Burks......................... 40 1997 Vice President/General Counsel and Secretary
Steve B. Hewett........................ 37 1996 Vice President and Treasurer (Chief Financial
Officer)
Terry E. Allison....................... 41 1996 Vice President, Assistant Treasurer and
Controller (Chief Accounting Officer)
C. Thomas Neill........................ 53 1992 Vice President -- Corporate Services
Michael D. Wiley....................... 51 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.
Mr. Burks joined the Company as Vice President/General Counsel and
Secretary in April 1997. Prior to joining the Company, he was an independent
health care consultant from January 1996 through March 1997.
22
<PAGE> 26
He served as Vice President and Assistant General Counsel of Columbia/HCA from
April 1994 through December 1995. From 1984 through April 1994, he was Senior
Counsel for Columbia/HCA and its predecessor, Hospital Corporation of America.
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 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.
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 1997,
the Company paid Dr. Floyd approximately $117,000 in fees and benefits 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 is subject to
annual renewals by mutual agreement. Dr. Floyd's wife was employed by the
hospital as a bookkeeper until July 27, 1996 and received a salary of $2,895 for
the portion of the fiscal year she was employed.
The Company is building a new facility to replace the hospital and in July
1995 acquired property at the site of the new 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. In fiscal 1997 the Company completed the purchase
of the vascular laboratory for a price of approximately $450,000, including the
previously paid option payment. The purchase price for the laboratory was fair
market value as determined by appraisals. Prior to completing the purchase, the
Company leased the vascular laboratory from Dr. Floyd for $8,000 per month from
February 1995 to April 1997. The Company paid a total of $211,733 under such
lease. The Company also collects on behalf of Dr. Floyd the professional fees
generated for his services at the vascular laboratory. The Company retains as a
collection fee approximately 25% of the amounts collected. During fiscal 1997,
the Company's collection fee with respect to Dr. Floyd was approximately
$91,000.
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.
23
<PAGE> 27
During fiscal 1997, the Company made a gift of $150,000 to the University
of South Carolina pursuant to an agreement to contribute $1,000,000 over five
years. $700,000 in contributions remain to be made over the next three years.
Dr. Floyd is Chairman of the Board of Trustees of such University.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation for
services in all capacities to the Company for the fiscal year ended June 30,
1997, and the two previous fiscal years of those persons who were, at June 30,
1997, the Company's Chief Executive Officer, the four other most highly
compensated executive officers who were serving as such on the last day of the
fiscal year (individually, an "NEO", and collectively, the "NEOs"), and one
individual who would have been among the four other most highly compensated
executive officers had she not transferred to another position before the end of
the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------- ----------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER RESTRICTED LONG-TERM
ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND SALARY(1) BONUS COMPENSATION(2) AWARD(S) SARS PAYOUTS COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ---------------------------- ---- --------- ------- --------------- ---------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Dalton, Jr. 1997 531,696 -0- -- -0- 93,993(4) -0- 7,698
President and CEO 1996 439,838 -0- -- -0- 539,388 -0- 7,698
1995 365,841 -0- -- -0- 18,000 -0- 4,987
Eugene C. Fleming(5) 1997 363,288 -0- -- -0- 465,332(4) -0- 4,307
Executive Vice President/ 1996 -0- -0- -- -0- -0- -0- -0-
Chief Operating Officer 1995 -0- -0- -- -0- -0- -0- -0-
Roland P. Richardson 1997 296,578 58,005 -- 32,747(4) 7,579
Senior Vice President -- 1996 258,392 -0- -- -0- 239,053 -0- 7,405
Acquisitions and 1995 204,848 -0- -- -0- 18,000 -0- 4,000
Development
C. Thomas Neill 1997 231,596 -0- -- -0- 30,879(4) -0- 7,492
Vice President -- 1996 212,348 -0- -- -0- 99,666 -0- 7,167
Corporate Services 1995 193,932 -0- -- -0- 15,000 -0- 3,388
Christy F. Batts 1997 200,860 -0- -- -0- 21,410(4) -0- 11,184
Former Vice President/ 1996 186,075 -0- -- -0- 96,157 -0- 6,688
General Counsel 1995 170,230 -0- -- -0- 15,000 -0- 2,554
Steve B. Hewett(6) 1997 198,171 -0- -- -0- 112,851(4) -0- 3,489
Vice President (Chief 1996 -0- -0- -- -0- -0- -0- -0-
Financial Officer) 1995 -0- -0- -- -0- -0- -0- -0-
</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 $6,696; Mr. Fleming
$3,288; Mr. Richardson $6,578; Mr. Neill $6,896; Ms. Batts $4,020; and Mr.
Hewett $2,171.
(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 each for Mr. Dalton, Mr. Richardson, Mr. Neill, and Ms.
Batts; $4,200 for Mr. Fleming; and $2,450 for Mr. Hewett; (ii) for Company's
contributions to the Company's Non-Qualified Retirement Plan: Mr. Dalton
$3,758; Mr. Fleming, $--0--; Mr. Richardson 3,758; Mr. Neill $3,322; and Ms.
Batts $2,922; (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. Fleming $107; Mr. Richardson $292; Mr. Neill $410; Ms. Batts $292;
and Mr. Hewett $39; and (iv) for Ms. Batts, $4,220, the monetary value of a
gift given to her by the Company in appreciation for her tenure as General
Counsel.
(4) Of the options indicated, the following represent all or a portion of each
NEO's bonus for fiscal 1997, which options were granted on August 18, 1997:
Mr. Dalton 51,015 option shares; Mr. Fleming 31,802 option shares; Mr.
Richardson 10,257 option shares; Mr. Neill 15,879 option shares; Ms. Batts
13,910
24
<PAGE> 28
option shares and Mr. Hewett 13,851 option shares. Such NEO elected to
receive such bonus in stock options pursuant to the Company's Discounted
Stock Option program. See "Option/SAR Grants in Last Fiscal Year."
(5) NEO was not employed by Company prior to FY 1997.
(6) Ms. Batts served as Vice President/General Counsel until April 1, 1997, when
she transferred to the position of Vice President in charge of the Company's
Business Ethics Program.
RESTATED STOCK OPTION PLAN
The table below provides information on grants of stock options pursuant to
the Company's Restated Stock Option Plan during the fiscal year ended June 30,
1997, to the NEOs, including stock options granted at the election of an NEO in
lieu of all or a portion of his/her bonus for FY 1997. The Company grants no
stock appreciation rights ("SARs"). Bonus options granted in August, 1996, for
FY 1996 were reported in the 1996 proxy statement and do not appear in the
following table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER % OF TOTAL AT ASSUMED ANNUAL RATES
OF SECURITIES OPTIONS/SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ------------- -------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Dalton,
Jr.................. 5,478 0.2684 18.25 12/11/06 62,872.80 159,332.01
37,500 1.8378 20.75 04/30/07 489,358.63 1,240,130.85
------- ------- ------------ -------------
Total....... 42,978 2.1062 552,231.43 1,399,462.86
======= ======= ============ =============
Bonus(1).... 51,015 2.5002 16.97 08/18/07 1,014,677.59 2,128,400.87
Eugene C. Fleming..... 96,030 4.7064 0.67 07/01/06 2,673,058.04 4,294,508.95
300,000 14.7029 16.29 07/01/06 3,664,696.79 8,730,142.92
37,500 1.8378 20.75 04/30/07 489,358.63 1,240,130.85
Total....... 433,530 21.2471 6,827,113.46 14,264,787.72
======= ======= ============ =============
Bonus(1).... 31.802 1.5585 16.97 08/18/07 632,525.13 1,326,792.91
Roland P. Richardson.. 22,500 1.1027 20.75 04/30/07 293,615.18 744,078.51
======= ======= ============ =============
Bonus(1).... 10,257 0.5021 16.97 08/18/07 203,800.72 427,495.04
C. Thomas Neill....... 15,000 0.7351 20.75 04/30/07 195,743.45 496,052.34
======= ======= ============ =============
Bonus(1).... 15,879 0.7782 16.97 08/18/07 511,604.86 1,158,621.05
Christy F. Batts...... 7,500 0.3675 20.75 04/30/07 97,871.73 248,026.17
======= ======= ============ =============
Bonus....... 13,910 0.6817 16.97 08/18/07 276,657.02 580,319.35
Steve B. Hewett....... 22,854 1.1200 17.50 07/01/06 251,523.26 637,409.33
52,146 2.5556 17.50 07/01/06 573,900.94 1,454,377.65
24,000 1.1762 20.75 04/30/07 313,189.52 793,683.75
======= ======= ============ =============
Total....... 99,000 4.8518 1,138,613.72 2,885,470.73
Bonus....... 13,851 0.6788 16.97 275,493.47 577,878.67
</TABLE>
- ---------------
(1) Pursuant to the Company's Incentive Compensation Plan, these options were
granted to the NEO after the end of the fiscal year as part or all of
his/her bonus for fiscal 1997. The aggregate "spread" between the exercise
price and the fair market value of the Company's Common Stock ($22.63) on
the date of grant of such options (August 18, 1997) equals the NEO's bonus
or portion thereof for fiscal 1997 that would have otherwise been received
in cash.
25
<PAGE> 29
STOCK EXERCISES IN FISCAL YEAR 1997
The table below provides information on exercises of options during the
fiscal year ended June 30, 1997, under the Restated Stock Option Plan by the
named executive officers reflected in the Summary Compensation Table and the
year-end value of unexercised options held by such officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
ACQUIRED VALUE OPTIONS/SARS AT SARS AT 1996 FISCAL
ON EXERCISE REALIZED 1996 FISCAL YEAR-END(#) YEAR-END($)(1)
----------- --------- ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James E. Dalton, Jr............ 40,000 $ 630,008 137,199/558,493 1,664,648/5,266,327
Eugene C. Fleming.............. -0- -0- 99,007/334,523 1,121,502/3,480,053
Roland P. Richardson........... 55,837 528,748 -0-/293,996 -0-/2,917,029
C. Thomas Neill................ -0- -0- 36,791/129,614 469,942/1,317,120
Steve B. Hewett................ -0- -0- -0-/ 99,000 -0-/ 548,670
Christy F. Batts............... 44,238 529,731 -0-/119,303 -0-/1,276,733
</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, 1997,
of $23.83 per share and the respective exercise prices of the options at
June 30, 1997. 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.
Effective July 1, 1996, the Company entered into an employment agreement
(the "Employment Agreement") with Mr. Fleming, its Chief Operating Officer.
Under the Employment Agreement, Mr. Fleming receives a base salary and is
eligible to receive an annual bonus of up to 50% of such salary. Pursuant to the
Agreement, Mr. Fleming committed to purchase $1,000,000 in Common Stock on or
before July 1, 1996 and also received options to purchase 96,030 shares of
Common Stock at an exercise price of $0.67 per share which options vest 25%
annually and must be exercised within 90 days after the end of the Company's
fiscal year. Mr. Fleming has exercised the options which vested on June 30,
1997. Mr. Fleming also received options to purchase 300,000 shares of Common
Stock at an exercise price of $16.29 per share, which options also vest 25%
annually over a four year period. Upon a "change in control" (as detailed in the
Severance Agreement described below) all unvested options immediately vest.
Mr. Dalton and Mr. Fleming also executed Severance Agreements 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
26
<PAGE> 30
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
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 stockholders 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
$1500 per Board meeting actually attended and $750 per committee 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 5,001 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.
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.
27
<PAGE> 31
- 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 1997 fiscal year were competitive with
those reflected in the surveys reviewed. Since the Company believes that its
competitors for 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 the Company's executive
officers an incentive to cause the Company to meet or exceed the Company's
executive officers. The Incentive Program provides for cash bonuses to be paid
to executive officers and other management employees if the targeted earnings
per share ("EPS") of the Company meets or exceeds the EPS target set by the
Board of Directors for the Company. The maximum bonus which any NEO, other than
the Chief Executive Officer and Chief Operating 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 EPS for fiscal 1997 did not exceed the
28
<PAGE> 32
Company's budgeted EPS, the Compensation Committee concluded that the Company
had performed well in a difficult and continually evolving healthcare market. As
a result, the Compensation Committee approved bonuses for fiscal 1997 for the
employees eligible to participate in the Incentive Program. Each of the NEOs
except Mr. Richardson elected to receive stock option grants in lieu of 100% of
their cash bonus awards pursuant to the Company's Discounted Stock Option
Program; Mr. Richardson chose to receive 50% of his bonus in stock options and
50% in cash. The NEOs received the following: Mr. Dalton, 51,015 option shares
($288,750); Mr. Fleming, 31,802 option shares ($180,000); Mr. Neill, 15,879
option shares ($89,880); Ms. Batts, 13,910 option shares ($78,736) and Mr.
Hewett, 13,851 option shares ($78,400); and Mr. Richardson, 7,628 shares
($57,995) plus $58,005 in cash. 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 1997.
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.
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 1997 fiscal year was $531,696. 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 was eligible to earn
is an amount equal to 55% 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 excluding compensation which is "performance based," as
defined in Section 162(m). The Compensation Committee expects to pay all
compensation earned by an executive officer, even if such compensation exceeds
$1 million, even though such compensation may not be "performance based," under
the provisions of Section 162(m). The Company's Annual Incentive Program
currently does not satisfy such requirements.
29
<PAGE> 33
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.
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. In addition to solicitation of proxies by mail, directors,
officers and employees of the Company (who will receive no additional
compensation therefor) may solicit the return of proxies by telephone, telegram
or personal interview. Arrangements have also been made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in connection therewith.
Each holder of the Company's Common Stock who does not expect to be present
at the Annual Meeting or who plans to attend but who does not wish to vote in
person is urged to fill in, date and sign the proxy and return it promptly in
the enclosed return envelope.
30
<PAGE> 34
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,
1997. The peer group includes Columbia/HCA Healthcare Corporation, Health
Management Associates, Inc., Tenet Healthcare Corporation and Universal Health
Services. OrNda Healthcorp., which was included in the peer group for the
Company's 1996 Proxy Statement, has merged into Tenet Healthcare Corporation.
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>
MEASUREMENT PERIOD QUORUM HEALTH
(FISCAL YEAR COVERED) GROUP, INC. PEER GROUP BROAD MARKET
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1994 102.94 93.55 98.15
1995 119.12 106.07 115.12
1996 155.15 138.78 144.91
1997 210.29 163.47 174.56
</TABLE>
31
<PAGE> 35
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 1997 fiscal year its
executive officers, directors and greater than 10% stockholders complied with
all applicable Section 16(a) filing requirements except that: Russell L. Carson
filed an amendment to one Form 4, thereby reporting late the acquisition of 725
shares by an affiliate of Welsh, Carson, Anderson & Stowe; and Ken Melkus
inadvertently failed to sign one Form 4, thereby causing a late filing of the
signed form.
STOCKHOLDER PROPOSALS
Stockholders intending to submit proposals for presentation at the 1998
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
Ashby Q. Burks, Secretary, Quorum Health Group, Inc. Proposals must be in
writing and must be received by the Company prior to June 12, 1998. 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, 1997, including financial statements and financial statement
schedules, that was filed with the SEC. The request should be mailed to
Corporate Relations, Quorum Health Group, Inc. at the Company's principal
executive offices, 103 Continental Place, Brentwood, Tennessee 37027.
By Order of the Board of Directors
Ashby Q. Burks, Secretary
32
<PAGE> 36
EXHIBIT A
QUORUM HEALTH GROUP, INC.
Amended and Restated Certificate of Incorporation
<PAGE> 37
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
QUORUM HEALTH GROUP, INC.
- --------------------------------------------------------------------------------
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
QUORUM HEALTH GROUP, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
The name of the corporation is QUORUM HEALTH GROUP, INC. The
Corporation was originally incorporated under the name HMC Holdings Corp., and
the original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on July 14, 1989.
i. That the Board of Directors of the
Corporation, at a special meeting held on October 1,
1997, duly adopted resolutions setting forth a
proposed amendment and restatement of the
Certificate of Incorporation of said Corporation,
declaring said amendment and restatement to be
advisable and submitting the proposed amendment and
restatement to the stockholders of said Corporation
for consideration thereof.
ii. That pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware,
this Amended and Restated Certificate of
Incorporation restates and integrates and further
amends the provisions of the Certificate of
Incorporation of this Corporation and has been duly
adopted by the holders of a majority of the issued
and outstanding shares of voting capital stock of the
Corporation entitled to vote thereon, after first
having been proposed and declared advisable by the
Board of Directors of the Corporation, all in
accordance with the provisions of Sections 242 and
245 of the Delaware General Corporation Law.
<PAGE> 38
iii. That the text of the Amended and Restated Certificate
of Incorporation as heretofore amended or
supplemented is hereby restated and further amended
to read in its entirety as follows:
FIRST. The name of the corporation is
QUORUM HEALTH GROUP, INC.
SECOND. The address of the Corporation's registered office in
the State of Delaware is 1013 Centre Road in the City of Wilmington,
County of New Castle. The name of its registered agent at such address
is Corporation Service Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock
that the Corporation shall have authority to issue is [310,000,000]
shares, consisting of (a) [10,000,000] shares of Preferred Stock, $.01
par value (the "Preferred Stock"), and (b) [300,000,000] shares of
Common Stock, $.01 par value (the "Common Stock"). All cross-references
in each subdivision of this Article Fourth refer to other paragraphs in
such subdivision unless otherwise indicated.
The following is a statement of the designations, and
the powers, preferences and rights, and the qualifications, limitations
or restrictions thereof, in respect of each class of stock of the
Corporation:
1.
PREFERRED STOCK
i. Issuance. The Preferred Stock may be issued from
time to time in one or more series of any number of
shares, provided that the aggregate number of shares
issued and not canceled of any and all such series
shall not exceed [10,000,000] shares.
ii. Authority of the Board of Directors to Authorize
Series. Authority is hereby vested in the Board of
Directors from time to time to authorize the issuance
of one or more series of Preferred Stock, and in
connection with the creation of such series to fix by
resolution or resolutions providing for the issue of
shares thereof
<PAGE> 39
the designations, powers, preferences and relative,
participating, optional or other special rights, and
the qualifications, limitations or restrictions
thereof, of such series in respect of the matters set
forth as follows:
(1) The maximum number of shares to constitute
such series and the distinctive designation
thereof and the stated value thereof if
different than the par value thereof;
(2) The dividend rate, if any, on the shares
of such series, the conditions and dates
upon which such dividends shall be payable,
the preference or relation which such
dividends shall bear to the dividends
payable on any other class or classes or on
any other series of capital stock, and
whether such dividends shall be cumulative
or non-cumulative;
(3) Whether the shares of such series shall be
subject to redemption by the Corporation,
and, if made subject to redemption, the
times, prices and other terms and conditions
of such redemption;
(4) Whether or not the shares of such series
shall be subject to the operation of a
retirement or sinking fund, and, if so, the
extent to and manner in which any such
retirement or sinking fund shall be applied
to the purchase or redemption of the shares
of such series for retirement or to other
corporate purposes and the terms and
provisions relative to the operation
thereof;
(5) The rights of the holders of shares of
such series upon the liquidation,
dissolution or winding up of the
Corporation;
(6) Whether or not the shares of such series
shall be convertible into, or exchangeable
for, shares of stock of any other class or
classes, or of any other series of the same
class, and if so convertible or
exchangeable, the price or prices or the
rate or rates of conversion or exchange and
the
<PAGE> 40
method, if any, of adjusting the same and
any other terms or conditions of conversion
or exchange;
(7) The limitations and restrictions, if any,
to be effective while any shares of such
series are out standing upon the payment of
dividends or the making of other
distributions on, and upon the purchase,
redemption or other acquisition by the
Corporation of, the Common Stock or any
other class or classes of stock of the
Corporation ranking junior to the shares of
such series either as to dividends or upon
liquidation, dissolution or winding up;
(8) The conditions or restrictions, if any,
upon the creation of indebtedness of the
Corporation or upon the issue of any
additional stock (including additional
shares of such series or of any other series
or of any other class) ranking on a parity
with or prior to the shares of such series
either as to dividends or upon liquidation,
dissolution or winding up;
(9) Whether the shares of such series shall
have voting rights, in addition to any
voting rights provided by law, and, if so,
the terms of such voting rights; and
(10) Any other powers, preferences and
relative, participating, optional or other
special rights and any qualifications,
limitations or restrictions thereof as shall
not be inconsistent with this
Article Fourth.
iii. Shares of Each Series Identical. All shares
of any one series of Preferred Stock shall be
identical with each other in all respects, except
that shares of any one series issued at different
times may differ as to the dates from which
dividends, if any, thereon shall be cumulative. All
series shall rank equally and be identical in all
respects, except as permitted by the provisions of
this Article Fourth.
iv. Liquidation. Upon any liquidation,
dissolution or
<PAGE> 41
winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to
holders of Preferred Stock of the full amounts to
which they shall respectively be entitled as stated
and expressed herein, the holders of the shares of
Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common
Stock, to be paid at the rate fixed in the resolution
or resolutions adopted by the Board of Directors
providing for the issue of such series with respect
to such series, plus (if dividends on shares of such
series of Preferred Stock shall be cumulative) an
amount equal to all dividends (whether or not earned
or declared) accumulated to the date of final
distribution to such holders, and no more, before any
amount shall be paid to the holders of any shares of
Common Stock. In the event that the assets of the
Corporation are insufficient to permit full payment
to the holders of the Preferred Stock as herein
provided, then the assets shall be distributed pro
rata to the holders of the Preferred Stock in
accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon
were paid in full, taking into account any priorities
among series that may have been established by the
Board of Directors pursuant to paragraph 2 of this
Section. Subject to such preferential rights, the
holders of the Common Stock shall receive all
remaining assets of the Corporation in accordance
with paragraph II(4) hereof. A consolidation or
merger of the Corporation with or into any other
corporation, or the sale of all or substantially all
of the assets of the Corporation shall not be deemed
a liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph 4.
v. Voting Rights. Except as shall be otherwise
stated and expressed in the resolution or resolutions
of the Board of Directors providing for the issue of
any series and except as otherwise required by the
laws of the State of Delaware, the holders of shares
of Preferred Stock shall have, with respect to such
shares, no right or power to vote on any question or
in any proceeding or to be represented at, or to
receive notice of, any meeting of stockholders.
<PAGE> 42
2.
COMMON STOCK
All shares of Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.
i. Dividends. Subject to the provisions of law and
the rights of the Preferred Stock and any other class
or series of stock then outstanding having a
preference as to dividends over the Common Stock,
dividends may be paid on the Common Stock at such
times and in such amounts as the Board of Directors
shall determine. When and as dividends are declared
upon the Common Stock, whether payable in cash, in
property or in shares of stock of the Corporation,
the holders of Common Stock shall be entitled to
share equally, shares for share, in such dividends.
ii. Voting Rights. Each holder of Common Stock shall
be entitled to one vote per share.
iii. Preferred Stock. The Common Stock is subject to
all the powers, rights, privileges, preferences and
priori ties of the Preferred Stock as are stated and
expressed herein and as shall be stated and expressed
in any resolution or resolutions of the Board of
Directors pursuant to authority expressly granted to
and vested in it by the provisions of this Article
Fourth.
iv. Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment shall have
been made to holders of Preferred Stock of any
preferential amounts to which they shall respectively
be entitled as stated and expressed in any resolution
or resolutions of the Board of Directors pursuant to
authority expressly granted to and vested in it by
the provisions of this Article Fourth, the holders of
Common Stock shall be entitled, to the exclusion of
the holders of Preferred Stock, to share ratably
according to the number of shares of Common Stock
held by them in all remaining assets of the
Corporation available for distribution to its
stockholders.
<PAGE> 43
FIFTH. The Board of Directors of the Corporation is
expressly authorized to adopt, amend or repeal By-Laws of the
Corporation.
SIXTH. The following provisions are inserted for the
management of the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of
the powers of the Corporation and of its directors and stockholders:
(a) The number of directors of the
Corporation shall be as from time to time fixed
by, or in the manner provided in, the By-Laws of
the Corporation. Elections of directors need not
be by written ballot except and to the extent
provided in the ByLaws of the Corporation.
(b) Subject to the rights of the holders of
any class or series of Preferred Stock, any
action required or permitted to be taken at any
annual or special meeting of stockholders may be
taken only upon the vote of the stockholders at
an annual or special meeting duly called and may
not be taken by written consent of the
stockholders.
(c) Effective with the annual meeting of
stockholders to be held in 1997, the directors
shall be classified, with respect to the time
for which they severally hold office, into three
classes, Class I, Class II, and Class III, which
shall be as nearly equal in number as possible,
and shall be adjusted from time to time in the
manner specified in the By-Laws of the
Corporation to maintain such proportionality.
Each initial director in Class I shall hold
office for a term expiring at the 1998 annual
meeting of stockholders, each initial director
in Class II shall hold office for a term
expiring at the 1999 annual meeting of
stockholders and each initial director in Class
III shall hold office for a term
<PAGE> 44
expiring at the 2000 annual meeting of
stockholders. At each succeeding annual meeting
of stockholders beginning in 1998, successors to
the class of directors whose term expires at
that annual meeting shall be elected for a three
year term.
(d) Subject to the rights, if any, of the
holders of any series of Preferred Stock then
outstanding, newly created directorships
resulting from any increase in the authorized
number of directors or any vacancies in the
Board of Directors resulting from death,
resignation, disqualification or removal may be
filled only by a majority vote of the directors
then in office, though less than a quorum, and
directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders
at which the term of office of the class to
which they have been elected expires or, in the
case of newly created directorships, shall hold
office until such time as determined by the
directors electing such new directors.
(e) Except as may otherwise be provided in
this Amended and Restated Certificate of
Incorporation or the By-Laws of the Corporation
relating to the rights of the holders of any
Preferred Stock, voting separately by class or
series, to elect directors under specified
circumstances, any director or directors may be
removed from office at any time, but only for
cause and only by the affirmative vote, at any
regular meeting or special meeting of the stock
holders, of not less than sixty-six and two-
thirds percent (66 2/3%) of the total number of
votes of the then outstanding shares of capital
stock of the Corporation entitled to vote
generally in the election of directors, voting
together as a single class, but only if notice
of such proposal is contained in the notice of
such meeting.
<PAGE> 45
(f) Notwithstanding any other provisions of
this Amended and Restated Certificate of
Incorporation or the By-Laws of the Corporation,
the affirmative vote, at any regular meeting or
special meeting of the stockholders, of not less
than seventy-five percent (75%) of the total
number of votes of the then outstanding shares
of capital stock of the Corporation entitled to
vote, voting together as a single class, shall
be required to amend or repeal, or to adopt any
provision inconsistent with the purpose or
intent of, this Article Sixth. Notice of any
such proposed amendment or repeal shall be con
tained in the notice of the meeting at which it
is to be considered.
(g) In the event of any increase or decrease
in the authorized number of directors, the newly
created or eliminated directorships resulting
from such increase or decrease shall be
apportioned by the Board of Directors among the
three classes of directors so as to maintain
such classes as nearly equal as possible. No
decrease in the number of directors constituting
the Board of Directors shall shorten the term of
any incumbent director.
(h) In addition to the powers and authority
hereinbefore or by statute expressly conferred
upon them, the Board of Directors are hereby
empowered to exercise all such powers and do all
such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to
the provisions of the statutes of Delaware, this
Amended and Restated Certificate of
Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall
invalidate any prior act of the Board of
Directors which would have been valid if such
By-Laws had not
<PAGE> 46
been adopted.
SEVENTH. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any
class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any
creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the
provisions of Section 291 of the General Corporation Law of
the State of Delaware or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the General
Corporation Law of the State of Delaware order a meeting of
the creditors or class of creditors, and/or of the stock
holders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as
the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement
and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all
the creditors or class of creditors, and/or on all the stock
holders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
EIGHTH. No person shall be personally liable to the
Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that
nothing in this Article Eighth shall eliminate or limit the
liability of any director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State
of Delaware or (iv) for any transaction from which the
director derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a
<PAGE> 47
director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
NINTH. (a) The Corporation shall, to the fullest
extent permitted by Section 145 of the General Corporation Law
of the State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and
all of the expenses, liabilities and other matters referred to
in or covered by said section, and the indemnification pro
vided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any
By-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of
such a person.
(b) Notwithstanding any other provisions of
this Amended and Restated Certificate of Incorporation or the
ByLaws of the Corporation, the affirmative vote, at any
regular meeting or special meeting of the stockholders, of not
less than seventy-five percent (75%) of the total number of
votes of the then outstanding shares of capital stock of the
Corporation entitled to vote, voting together as a single
class, shall be required to amend or repeal, or to adopt any
provision inconsistent with the purpose or intent of, this
Article Ninth. Notice of any such proposed amendment or repeal
shall be contained in the notice of the meeting at which it is
to be considered.
<PAGE> 48
EXHIBIT B
QUORUM HEALTH GROUP, INC.
1997 Stock Option Plan
<PAGE> 49
QUORUM HEALTH GROUP, INC.
1997 STOCK OPTION PLAN
1. Purpose; Types of Awards, Construction
The purpose of the Quorum Health Group, Inc. 1997 Stock Option Plan (the "Plan")
is to afford an incentive to executive officers, other key employees and
consultants of Quorum Health Group, Inc. (the "Company"), or any subsidiary of
the Company which now exists or hereafter is organized or acquired by the
Company, to acquire or increase a proprietary interest in the Company, to become
or continue as employees or consultants, to devote their best efforts on behalf
of the Company and to align the interests of such persons with the Company's
stockholders to promote the success of the Company's business. The provisions of
the Plan are intended to satisfy the requirements of Section 16(b) of the
Securities Exchange Act of 1934, and shall be interpreted in a manner consistent
with the requirements thereof, as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
2. Definitions.
As used in this Plan, the following words and phrases shall have the meanings
indicated:
(a) "Acceleration Date" shall have the meaning set forth in
Section 9.
(b) "Beneficiary" shall have the meaning set forth in Section 17.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Committee" shall mean the Compensation Committee of the
Board or such other committee established by the Board to
administer the Plan, the members of which shall at all times
satisfy the requirements of Section 162(m) of the Code, or any
successor provision, and Rule 16b-3.
(f) "Common Stock" shall mean shares of common stock, par
value $.01 per share, of the Company.
(g) "Company" shall mean Quorum Health Group, Inc., a corporation
<PAGE> 50
organized under the laws of the State of Delaware, or any
successor corporation.
(h) "Effective Date" shall have the meaning set forth in Section
18.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(j) "Fair Market Value" per share as of a particular date
shall mean (i) the closing sales price per share of Common Stock
on the national securities exchange on which the Common Stock is
principally traded for the last preceding date on which there was
a sale of such Common Stock on such exchange, or (ii) if the
shares of Common Stock are then traded in an over-the-counter
market, the average of the closing bid and asked prices for
the shares of Common Stock in such over-the-counter market for
the last preceding date on which there was a sale of such
Common Stock in such market, or (iii) if the shares of Common
Stock are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the
Committee, in its sole discretion, shall determine.
(k) "Grantee" shall mean a person who receives a grant of Options
under the Plan.
(l) "Incentive Stock Option" shall mean any option intended to
be, and designated as, an incentive stock option within the
meaning of Section 422 of the Code.
(m) "Insider" shall mean a Grantee who is subject to the
reporting requirements of Section 16(a) of the Exchange Act.
(n) "Option" or "Options" shall mean a grant to a Grantee of
an option or options to purchase shares of Common Stock. Options
granted by the Committee pursuant to the Plan shall constitute
either Incentive Stock Options ("ISO") or Non-qualified Stock
Options ("NQSO").
(o) "Option Agreement" shall mean an agreement entered into
between the Company and a Grantee in connection with a grant
under the Plan.
<PAGE> 51
(p) "Option Price" shall mean the exercise price of the shares
of Common Stock covered by an Option.
(q) "Parent" shall mean any company (other than the Company)
in an unbroken chain of companies ending with the Company if, at
the time of granting an Option, each of the companies other than
the Company owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of
the other companies in such chain.
(r) "Plan" means this Quorum Health Group, Inc. 1997 Stock Option
Plan, as amended from time to time.
(s) "Rule 16b-3" shall mean Rule 16b-3, as from time to time
in effect, promulgated by the Securities and Exchange Commission
under Section 16 of the Exchange Act, including any successor to
such Rule.
(t) "Subsidiary" shall mean any company (other than the Company) in
an unbroken chain of companies beginning with the Company if, at
the time of granting an Option, each of the companies other than
the last company in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other companies in such chain.
(u) "Ten Percent Stockholder" shall mean a Grantee who, at the
time an Incentive Stock Option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall have the
authority in its discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the powers
and authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without limitation, the
authority to grant Options; to determine which Options shall constitute
Incentive Stock Options and which Options shall constitute Nonqualified Stock
Options; to determine the purchase price of the shares of Common Stock covered
by each Option
<PAGE> 52
and the method and medium of payment therefor; to determine the persons to whom,
and the time or times at which Options shall be granted; to determine the number
of shares of Common Stock to be covered by each Option; to interpret the Plan;
to prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Option Agreements (which need not be
identical) and to cancel or suspend awards, as necessary; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee or
any person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Grantees of
any Options granted under this Plan.
The Board shall fill all vacancies, however caused, in the Committee. The Board
may from time to time appoint additional members to the Committee, and may at
any time remove one or more Committee members and substitute others. One member
of the Committee shall be selected by the Board as chairman. The Committee shall
hold its meetings at such times and places as it shall deem advisable. All
determinations of the Committee shall be made by a majority of its members
either present in person or participating by conference telephone at a meeting
or by written consent. The Committee may appoint a secretary and make such rules
and regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings.
The Board, the Committee and each member thereof shall be entitled to, in good
faith, rely or act upon any report or other information furnished to him or her
by any executive officer, other officer or employee of the Company or a
subsidiary, the Company's independent auditors, consultants or any other agents
assisting in the administration of the Plan. All expenses and liabilities
incurred by the Board, the Committee or any member thereof in the administration
of the Plan shall be borne by the Company. The Board or the Committee may employ
attorneys, consultants, accountants or other persons in connection with the
administration of the Plan. Members of the Committee and any officer or employee
of the Company or subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan and shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.
<PAGE> 53
4. Eligibility.
Options may be granted to executive officers and other key employees and
consultants of the Company or its Subsidiaries, including officers and directors
who are employees, except as prescribed by the Exchange Act or the Code. In
determining the persons to whom awards shall be granted and the number of shares
to be covered by each award, the Committee shall take into account the duties of
the respective persons, their present and potential contributions to the success
of the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. Stock.
(a) Shares Available for Grants. The maximum number of shares
of Common Stock reserved for which Options may be granted
under the Plan shall be, subject to adjustment as provided in
Section 9 hereof, (i) 3,000,000, plus (ii) shares of Common Stock
subject to grants under the Company's Restated Stock Option Plan
(the "Old Plan") as of the Effective Date which become
available after the Effective Date pursuant to Section 5(b),
plus (iii) 12% of the number of shares of Common Stock newly
issued by the Company or delivered out of treasury shares during
the term of the Plan (excluding any issuance or delivery in
connection with exercises of grants under the Plan, the Old Plan
or any other compensation or benefit plan of the Corporation).
Such shares may,in whole or in part, be authorized but unissued
shares or shares that shall have been or may be reacquired by
the Company. Notwithstanding the foregoing clauses (ii), (iii)
and (iv), only 3,000,000 shares of Common Stock shall be
available for grants of ISO's. The maximum number of shares with
respect to which awards may be granted during any calendar year
to any individual shall be 1,000,000.
(b) Availability of Shares Not Delivered Under Grants. Shares
of Common Stock subject to a grant under the Plan or the Old Plan
that is canceled, expired, forfeited, settled in cash or
otherwise terminated without a delivery of shares of Common Stock
in whole or in part to the Participant, including (i) the number
of shares withheld in payment of any exercise or purchase
<PAGE> 54
price of a grant or taxes relating to a grant, and (ii) the
number of shares of Common Stock surrendered in payment of any
exercise or purchase price of a grant or taxes relating to any
grant, will again be available for grants under the Plan, except
that if any such shares could not again be available for grants
to a particular Participant under any applicable law or
regulation, such shares shall be available exclusively for grants
to Participants who are not subject to such limitation.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by an Option
Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve. Each Option shall be subject to the
following terms and conditions, except to the extent otherwise specifically
provided in such Option Agreement:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically state
that the Option constitutes an Incentive Stock Option or
Nonqualified Stock Option.
(c) Option Price. Each Option Agreement shall state the Option
Price, which, in the case of an Incentive Stock Option, shall not
be less than one hundred percent (100%) of the Fair Market Value
of the shares of Common Stock covered by the Option on the date
of grant and which, in any case, shall not be less than the par
value of such shares. The Option Price shall be subject to
adjustment as provided in Section 9 hereof. The date as of which
the Committee adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted.
(d) Medium and Time of Payment. The Option Price shall be paid
in full, at the time of exercise, in cash or in shares of Common
Stock having a Fair Market Value equal to such Option Price or in
a combination of cash and Common Stock or in such other manner as
the Committee shall determine including, without limitation,
cashless exercise procedures, whether by withholding shares or
through a broker-dealer.
(e) Term and Exercisability of Options. Each Option Agreement
shall provide the exercise schedule for the Option as determined
by the Committee (which may include a requirement for achieving
performance goals), provided, that, the Committee shall have the
authority to accelerate the exercisability of any outstanding
Option at such time and under such circumstances as it, in its
sole discretion, deems appropriate. The exercise
<PAGE> 55
period will be ten (10) years from the date of the grant of the
Option unless otherwise determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such
exercise period shall not exceed ten (10) years from the date of
grant of such Option. The exercise period shall be subject to
earlier termination as determined by the Committee. An Option may
be exercised, as to any or all full shares of Common Stock as to
which the Option has become exercisable, by written notice
delivered in person or by mail to the Secretary of the Company,
specifying the number of shares of Common Stock with respect to
which the Option is being exercised.
(f) Other Provisions. The Option Agreements evidencing awards under
the Plan shall contain such other terms and conditions not
inconsistent with the Plan as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to constitute Incentive
Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in Section
6 hereof.
(a) Value of Shares. The aggregate Fair Market Value (determined as
of the date of the Incentive Stock Option is granted) of the
shares of Common Stock with respect to which Incentive Stock
Options granted under this Plan and all other option plans of any
subsidiary become exercisable for the first time by any Grantee
during any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the shares of Common Stock on the date of grant
of such Incentive Stock Option, and (ii) the exercise period
shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
(c) Code Requirements. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the
provisions of Section 422A of the Code and any applicable
regulations thereunder. Notwithstanding anything in the Plan to
the contrary, the Committee shall have the power to make grants
of Incentive Stock
<PAGE> 56
Options subject to such additional or less restrictive
requirements under the Code as may be required or permitted under
Section 422A. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so
as to disqualify either the Plan or any Incentive Stock Option
under Section 422A of the Code, unless the Grantee has first
consented to the change that will result in such
disqualification.
9. Effect of Certain Changes.
(a) In the event of any extraordinary dividend, stock dividend,
recapitalization, reclassification, merger, consolidation, stock
split, warrant or rights issuance, or combination or exchange of
such shares, or other similar transactions, the number of shares
of Common Stock available for Options, the number of such shares
covered by outstanding Options, and the price per share of
Options shall be equitably adjusted by the Committee to reflect
such event and preserve the value of such Options; provided,
however, that any fractional shares resulting from such
adjustment may be eliminated or settled for cash or otherwise as
the Committee determines in its sole discretion.
(b) If while any Options remain outstanding under the Plan, any of
the following events shall occur (which events shall constitute a
"Change in Control of the Company")---
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding voting securities.
(ii) during any period of not more than two consecutive
years, not including any period prior to the adoption of this
Plan, individuals who at the beginning of such period
constitute the Board, and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in clause (i), (iii), or (iv) of this Section 9(b)) whose
election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the
<PAGE> 57
Company (or other similar transactions) with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or more of
the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding
immediately after such merger or consolidation; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale, lease or other transfer by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect);
then from and after the date on which any such Change in
Control shall have occurred (the "Acceleration Date"), the
Option covered by such Agreement shall be exercisable or
otherwise nonforfeitable in full, whether or not otherwise
exercisable or forfeitable.
(c) In the event of a change in the Common Stock of the Company as
presently constituted that is limited to a change of all of
its authorized shares of Common Stock into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be
the Common Stock within the meaning of the Plan.
10. Period During Which Options May be Granted.
Options may be granted pursuant to the Plan from time to time within a period of
ten (10) years from the date the Plan is approved by the Company's Stockholders.
11. Transferability of Options.
No Option shall be pledged, hypothecated or otherwise encumbered or subject to
any lien, obligation or liability of a Grantee to any party (other than the
Company or a subsidiary), or assigned or transferred by such Grantee otherwise
than by will or the laws of descent and distribution or to a Beneficiary upon
the death of a Grantee, and such Options that may be exercisable shall be
exercised during the lifetime of the Grantee only by the Grantee or his or her
guardian or legal representative; except that Options (other than ISOs) may be
transferred to one or more Beneficiaries or other transferees during the
lifetime of the Grantee and may be exercised by such transferees in accordance
with the terms of such Option but only if and to the extent such transfers are
permitted by the Committee pursuant to the express terms of an Option Agreement
(subject to any terms and
<PAGE> 58
conditions which the Committee may impose thereon). A Beneficiary, transferee,
or other person claiming any rights under the Plan from or through any Grantee
shall be subject to all terms and conditions of the Plan and any Option
Agreement applicable to such Grantee, except as otherwise determined by the
Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
12. Payment of Withholding Taxes.
If the Committee shall so require, as a condition of exercise of an Option, each
Grantee shall agree that no later than the date of such exercise, the Grantee
will pay to the Company or make arrangements satisfactory to the Committee
regarding payment of any federal, state or local taxes of any kind required by
law to be withheld upon such exercise. Alternatively, the Committee may provide
that a Grantee may elect, to the extent permitted or required by law, to have
the Company deduct federal, state and local taxes of any kind required by law to
be withheld upon such exercise from any payment of any kind due to the Grantee.
Without limitation, at the discretion of the Committee, the withholding
obligation may be satisfied by the withholding or delivery of shares of Common
Stock.
13. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend, terminate, modify or
amend the Plan; provided, however, that an amendment which requires stockholder
approval in order for the Plan to continue to comply with Rule 16b-3 or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders. Except as provided in
Section 9(a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted without the written
consent of the Grantee.
14. Rights as a Shareholder.
A grantee or a transferee of an award shall have no rights as a shareholder with
respect to any shares covered by the award until the date of the issuance of a
stock certificate to him for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution of other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 9(a)
hereof.
15. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement entered into pursuant
hereto shall confer upon any Grantee the right to continue in the employ of, or
in a consultant relationship with, the Company or any Subsidiary or to be
entitled to any remuneration or benefits not set forth in the Plan
<PAGE> 59
or such Agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary to terminate such Grantee's employment. Awards
granted under the Plan shall not be affected by any change in duties or position
of a Grantee as long as such Grantee continued to be employed by, or in a
consultant relationship with, the Company or any Subsidiary.
16. Beneficiary.
A Grantee may file with the Committee a written designation of a beneficiary (a
"Beneficiary") on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Grantee, the executor or administrator of the Grantee's estate
shall be deemed to be the Grantee's beneficiary.
17. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Delaware.
18. Effective Date and Duration of the Plan.
This Plan shall be effective as of the date it is ratified by the stockholders
of the Company, and shall terminate on the later of (a) the tenth anniversary of
such date or (b) the last expiration of awards granted hereunder.
<PAGE> 60
EXHIBIT C
QUORUM HEALTH GROUP, INC.
Employee Stock Purchase Plan
<PAGE> 61
QUORUM HEALTH GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
Quorum Health Group, Inc., a corporation with principal offices located
in Nashville, Tennessee (hereafter referred to as the "Sponsoring Employer" or
as an "Employer"), has adopted the following Employee Stock Purchase Plan for
the benefit of eligible Employees.
The number of shares of Common Stock currently reserved for issuance
under the Plan is 3,000,000 shares.
The purpose of this Plan is to provide an opportunity for eligible
Employees of an Employer to share in the growth and prosperity of the Sponsoring
Employer by acquiring a proprietary interest in the Sponsoring Employer through
acquisition of shares of the Sponsoring Employer's Common Stock.
The Company has received a ruling from the Internal Revenue Service to
the effect that the Plan constitutes an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code as amended and regarding certain
related matters.
ARTICLE I
TITLE
Section 1.01 This Plan shall be known as the Quorum Health Group, Inc.
Employee Stock Purchase Plan (hereafter referred to as the "Plan").
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below, unless a different meaning is plainly required by the context:
Section 2.01 The term "Anniversary Date" shall mean each March 1 on
and after March 1, 1992.
Section 2.02 The term "Board of Directors" shall mean the Board of
Directors of the Sponsoring Employer.
Section 2.03 The term "Continuous Service" shall mean the number of
full years and completed months of continuous employment with the Employer from
his last hiring date to his date of severance of employment for any reason.
Continuous Service shall not be broken by and shall be credited for absences due
to vacation, temporary sickness or injury.
<PAGE> 62
This document constitutes part of a prospectus covering securities
that have been registered under the Securities Act of 1933.
Section 2.04 The term "Contribution Account" (or "Account") shall
mean the account established on behalf of a Member to which shall be credited
the amount of the Member's contribution and any interest earned thereon and
debited with funds used therefrom to acquire Sponsoring Employer Stock, pursuant
to Article IV.
Section 2.05 The term "Custodial Agreement" shall mean the
agreement(s), including any amendments thereto, entered into between the
Employer and the Custodian to carry out the applicable provisions of this Plan
as to the purchase of the Sponsoring Employer Stock.
Section 2.06 The term "Custodian" shall mean Third National Bank in
Nashville, Tennessee, or any successor custodian designated under the Custodial
Agreement.
Section 2.07 The "Effective Date" shall be March 1, 1992
Section 2.08 The term "Employee" shall mean each current or future
employee of an Employer whose customary employment is at least twenty (20) hours
a week and more than five (5) months in a calendar year.
Section 2.09 The term "Employer" shall mean the Sponsoring Employer,
its successors and assigns, and certain designated consolidated subsidiaries of
the Sponsoring Employer.
Section 2.10 The term "Exercise Date" shall mean the last day of each
Plan Year.
Section 2.11 The "Grant Date" shall mean the first day of each Plan
Year.
Section 2.12 The "Issue Price" under this Plan shall mean the per
share price of the Sponsoring Employer Stock for each Plan Year to be charged to
participating Members at the Exercise Date. The Issue Price for a Plan Year
shall be the lesser of two prices: (1) eighty-five percent (85%) of the fair
market value of the stock on the Grant Date, or (2) eighty-five percent (85%) of
the fair market value of the stock on the Exercise Date.
Section 2.13 The term "Member" shall mean any Employee of an Employer
who has met the conditions and provisions for becoming a Member as provided in
Article III hereof.
Section 2.14 The term "Member's Contribution Rate" shall be an exact
number of dollars selected by the Member to contribute as regular payroll
deductions to be credited to his Account as
<PAGE> 63
provided in Section 3.04 hereof.
Section 2.15 The term "Normal Monthly Pay" shall be computed by
annualizing the individual's hourly base pay and his regular scheduled hours of
work as of the first day of the month immediately preceding a Plan Year and
dividing by twelve. For a salaried employee the "Normal Monthly Pay" shall be
his regular monthly base salary as of the first day of the month immediately
preceding a Plan Year.
Section 2.16 The term "Plan Year" shall mean a twelve (12) month
period beginning on the first day of March and ending on the last day of
February in the following calendar year.
Section 2.17 The term "Sponsoring Employer" shall mean Quorum Health
Group, Inc., a Delaware corporation with principal offices located in Nashville,
Tennessee, the Plan sponsor for all purposes.
Section 2.18 The term "Sponsoring Employer Stock" shall mean those
shares of Sponsoring Employer's Stock which pursuant to Section 4.01 are
reserved for issuance under this Plan.
Section 2.19 Any words used herein in the masculine shall be
construed in the feminine where they would so apply. Words in the singular shall
be construed as though the plural in all cases where they would so apply.
ARTICLE III
MEMBERSHIP IN THE PLAN
Section 3.01 Each Employee shall become eligible to be a Member upon
being employed by an Employer no less than three months immediately preceding
the next Anniversary Date.
Section 3.02 Upon becoming a Member, said member shall be bound by
the terms of this Plan and any amendments hereto. All employees granted rights
as Members under the Plan shall have the same rights and privileges.
Section 3.03 Each Employee who becomes eligible to be a Member shall
be furnished a summary of the Plan and an enrollment form. If such Employee
elects to become a Member hereunder, such Employee shall complete such form and
file it with the Sponsoring Employer no later than fifteen days prior to the
next Anniversary Date. The completed enrollment form shall indicate the Member's
Contribution Rate. Any Employee who does not elect to participate in any given
Plan Year may elect to participate on any future Anniversary Date so long as he
continues to meet the eligibility requirements of Section 3.01.
<PAGE> 64
Section 3.04 In order to participate in this Plan and be granted
rights hereunder, an Employee must authorize the Employer to deduct the Member's
Contribution Rate from his paycheck. Such Contribution Rate must be an exact
number of dollars which may not exceed 10% of the Employee's Normal Monthly Pay
as of February 1 prior to the beginning of the Plan Year, but may not be less
than $10 per month or $5 per biweekly pay period as applicable. The
authorization for such deductions shall be in writing on such forms as provided
by the Sponsoring Employer. Such deductions shall begin as of the first pay
period on or after the first day of the Plan Year. Member contributions will not
be permitted to begin at any time other than the beginning of a Plan Year.
Section 3.05 The Member's Contribution Rate, once established, shall
remain in effect for all Plan Years unless changed by the Member in writing on
such forms as provided by the Sponsoring Employer and filed with the Sponsoring
Employer at least fifteen (15) days prior to the next Anniversary Date.
Section 3.06 At any time during the Plan Year, a Member may notify
the Sponsoring Employer he wishes to discontinue his contributions to the Plan.
This notice shall be in writing and on such forms as provided by the Sponsoring
Employer and shall become effective as of a date not more than thirty (30) days
following its receipt by the Sponsoring Employer. In the event no election to
withdraw is made by such Member under Section 3.07, the balance accumulated in
the Member's Account shall be used to purchase shares of the Sponsoring
Employer's stock in accordance with Section 4.03 hereof.
Section 3.07 Any Member may elect to withdraw the balance in his
Account at any time during the Plan Year. However, if the Account balance is
withdrawn during the Plan Year, no further payroll deductions will be permitted
during that Plan Year.
ARTICLE IV
ISSUANCE OF STOCK
Section 4.01 The Sponsoring Employer shall reserve 3,000,000 shares
of its Common Stock for issuance upon the exercise of the rights granted
hereunder. These shares may be either authorized and unissued shares, issued
shares held in or acquired for the treasury of the Sponsoring Employer, or
shares of stock reacquired by the Sponsoring Employer upon purchase in the open
market or otherwise.
Section 4.02 All payroll deductions withheld from the compensation of
a Member pursuant to this Plan shall be deposited by the Sponsoring Employer
with the Custodian pursuant to the terms of the Custodial Agreement. The
Sponsoring Employer shall direct the Custodian to: (i) establish a Custodial
Account for each Member and to credit such Account with all payroll deductions
of that Member; (ii) invest all such monies in accordance with its instructions;
and (iii) allocate the earnings
<PAGE> 65
on such monies to the Account of each Member on a monthly basis pro rata to the
respective balances of each Member's Account.
Section 4.03 Subject to Sections 4.04 and 4.05, the balance of each
Member's Account on the Exercise Date of each Plan Year shall be used by the
Custodian to purchase the maximum number of whole shares of Sponsoring Employer
Stock determined by dividing the Issue Price into the amount in the Member's
Account. Any money remaining in a Member's Account may be returned to the Member
if requested. If such return is not requested, the balance will remain in the
Account to be used in the next Plan Year along with new contributions in the new
Plan Year. Rights granted under this Plan shall be subject to such amendment or
modification as the Sponsoring Employer shall deem necessary to comply with any
applicable law or regulation, and shall contain such other provisions as the
Sponsoring Employer shall from time to time approve and deem necessary.
Section 4.04 In no event may a Member (i) be granted a right under
this Plan and any other such Employee Stock Purchase Plan of any Quorum
Employer, during a calendar year, to purchase Employer Stock having a total
fair market value (as of the Grant Date) of more than twenty-five thousand
dollars ($25,000), (ii) receive a right to purchase such stock if he would
beneficially own, immediately after the right is granted, five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Sponsoring Employer, or (iii) transfer or otherwise alienate any
right granted to him under this Plan.
Section 4.05 If the total number of shares to be purchased under this
Plan by all Members exceeds the number of shares authorized under this Plan, a
pro rata allocation of the available shares will be made among all Members
authorizing such payroll deductions based on the amount of their respective
Accounts on the last day of the Plan Year.
Section 4.06 The Sponsoring Employer Stock certificates purchased
through the exercise of the rights granted hereunder shall be issued and sent to
Members as soon as practical after the date of such exercise. Exhibit A attached
hereto and made a part hereof sets forth certain rights and voting requirements
which apply to holders of the Sponsoring Employer's Stock when such stock is
issued.
Section 4.07 Any Employee whose employment with an Employer is
terminated for any reason except death and retirement during the Plan Year shall
cease being a Member immediately. The balance of the Member's Account shall be
paid to such Member, or his legal representative, as soon as practical after his
termination. Any rights granted to such member under this Plan shall be deemed
null and void.
Section 4.08 If a Member shall die during a Plan Year, no further
contributions on behalf of the deceased Member shall be made. The Executor or
Administrator of the deceased Member may
<PAGE> 66
elect to withdraw the balance in said Member's Account by notifying the
Sponsoring Employer in writing prior to the last day of the Plan Year. In the
event no election to withdraw has been made, the balance accumulated in the
deceased Member's Account shall be used to purchase shares of the Sponsoring
Employer's Stock in accordance with Section 4.03 hereof and any remainder
refunded to the deceased Member's estate.
Section 4.09 If a Member shall retire during a Plan Year, no further
contributions shall be made to the retired Member's Account on or after his date
of retirement. The Member may elect to withdraw the balance in his Account by
notifying the Sponsoring Employer in writing prior to the last day of the Plan
Year. In the event no election to withdraw has been made, the balance
accumulated in the retired Member's Account as of the Exercise Date shall be
used to purchase shares of the Sponsoring Employer's Stock in accordance with
Section 4.03 hereof and any remainder refunded to the retired Member.
Section 4.10 If a Member or former Member disposes of a share of
Sponsoring Employer Stock acquired under this Plan prior to two (2) years after
the Grant Date of such share, or prior to one (1) year after the Exercise Date
of such share, then the Member or former Member must notify the Sponsoring
Employer immediately of such disposition in writing.
ARTICLE V
MISCELLANEOUS
Section 5.01 The Sponsoring Employer or individual(s) delegated such
authority by the Sponsoring Employer shall administer the Plan and keep records
of individual Member benefits. The Sponsoring Employer shall interpret the Plan
and shall determine all questions arising in the administration, interpretation
and application of the Plan, and all such determinations by the Sponsoring
Employer shall be conclusive and binding on all persons.
Section 5.02 Each Member, former Member, or any other person who
shall claim a right or benefit under this Plan, shall be entitled only to look
to the Sponsoring Employer for such benefit.
Section 5.03 The Board of Directors or its Compensation Committee may
at any time or from time to time, amend the Plan in any respect, except that
amendments to the Plan to (i) increase the number of shares reserved under the
Plan other than as provided in Section 5.12 hereof, (ii) reduce the Issue Price
per share as defined herein, or (iii) make the Plan available to any person who
is not an eligible Employee, may only be made by the Board of Directors, subject
to shareholder approval.
Section 5.04 The Sponsoring Employer will pay the administrative
expenses of this Plan.
<PAGE> 67
Section 5.05 Any rules, regulations, or procedures that may be
necessary for the proper administration or functioning of this Plan that are not
covered in this Plan shall be promulgated and adopted by the President (or
designee) of the Sponsoring Employer.
Section 5.06 Any headings or subheadings in this Plan are inserted
for convenience of reference only and are to be ignored in the construction of
any provisions hereof.
Section 5.07 This Plan shall be construed in accordance with the laws
of the State of Tennessee.
Section 5.08 A misstatement in the age, length of Continuous Service,
date or employment or any other such matter, shall be corrected when it becomes
known that any such misstatement of fact has occurred.
Section 5.09 The rights granted hereunder are not subject to
assignment or alienation. If a Member attempts such assignment, transfer or
alienation, the Sponsoring Employer shall disregard that action.
Section 5.10 This Plan will not be deemed to constitute a contract
between any Employer and any Member or to be a consideration of an inducement
for the employment of any Member or Employee. Nothing contained in this Plan
shall be deemed to give any Member or Employee the right to be retained in the
service of an Employer or to interfere with the right of an Employer to
discharge any Member or Employee at any time regardless of the effect which such
discharge shall have upon him as a Member of the Plan.
Section 5.11 No liability whatever shall attach to or be incurred by
any past, present or future stockholders, officers or directors, as such, of any
Employer, under or by reason of any of the terms, conditions or agreements
contained in this Plan or implied therefrom, and any and all liabilities of and
any and all rights and claims against the Employer, or any shareholder, officer
or director as such whether arising at common law or in equity or created by
statute or constitution or otherwise, pertaining to this Plan, are hereby
expressly waived and released by every Member, as a part of the consideration
for any benefits under this Plan.
Section 5.12 The aggregate number of shares of Sponsoring Employer
Stock reserved for purchase under the Plan as provided in Section 4.01 hereof,
and the calculation of the Issue Price per share as provided in Section 2.12
hereof shall be appropriately adjusted to reflect any increases or decreases in
the number of issued shares of Sponsoring Employer Stock resulting from a
subdivision or consolidation of shares or other capital adjustment or other
similar increase or decrease in such shares of Sponsoring Employer Stock.
<PAGE> 68
Section 5.13 The Sponsoring Employer's obligation to sell and deliver
stock under the Plan is at all times subject to all approvals of any
governmental authorities required in connection with the authorization,
issuance, sale or delivery of such stock.
Section 5.14 Notwithstanding any other provisions of the Plan, in
order for the Plan to be qualified under Section 423 of the Internal Revenue
Code of 1986 as amended, it must be approved by the stockholders of the
Sponsoring Employer during the period commencing twelve (12) months prior to and
ending twelve (12) months after it is adopted.
PROPOSED AMENDMENT TO
EMPLOYEE STOCK OPTION PLAN
The Employee Stock Purchase Plan of Quorum Health Group, Inc. Is hereby
amended by deleting Section 4.01 in its entirety and replacing it with the
following, and by making any other conforming changes wherever the number of
shares reserved is referenced within the plan document:
Section 4.01 The Sponsoring Employer shall reserve 3,750,000 shares
of its Common Stock for issuance upon the exercise of the rights granted
hereunder. These shares may be either authorized and unissued shares, issued
shares held in or acquired for the treasury of the Sponsoring Employer, or
shares of stock reacquired by the Sponsoring Employer upon purchase in the open
market or otherwise.
<PAGE> 69
APPENDIX A
PROXY QUORUM HEALTH GROUP, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 10, 1997
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 Ashby Q. Burks, 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 10, 1997, 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. The proposal to amend the Company's Certificate of Incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue from 100,000,000 shares to 300,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The proposal to amend the Company's Certificate of Incorporation to
authorize the issuance of an aggregate [10,000,000] shares of Preferred Stock,
with such powers and preferences, and such rights and limitations, as the Board
of Directors may designate from time to time.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The proposal to amend the Company's Certificate of Incorporation to (i)
provide for the classification of the Board of Directors into three classes
serving staggered terms; (ii) provide that directors may be removed only for
cause and only with the approval of the holders of at least two-thirds of the
voting stock; (iii) eliminate the ability of stockholders to act by written
consent; and (iv) require a 75% supermajority vote to amend any of the foregoing
provisions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Election of directors.
<TABLE>
<S> <C> <C> <C> <C>
[ ] FOR ALL NOMINEES LISTED BELOW (except as marked [ ] WITHHOLD AUTHORITY to vote for all nominees [ ]
to the contrary below). listed below.
<CAPTION>
<S> <C>
[ ] ABSTAIN
</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.
Russell L. Carson, James E. Dalton, Jr., S. Douglas Smith, Sam A. Brooks, Jr.,
Kenneth J. Melkus,
Rocco A. Ortenzio, Joseph C. Hutts, Thomas S. Murphy, Jr., Colleen Conway Welch,
C. Edward Floyd, M.D.
(continued and to be signed on reverse side)
(continued from other side)
5. The proposal to amend Article NINTH of the Company's Certificate of
Incorporation to (i) provide for indemnification of the Company's officers,
directors, employees and agents to the fullest extent permitted by the Delaware
General Corporation Law, as currently provided under the By-laws of the Company,
and (ii) require a 75% supermajority vote to amend Article NINTH.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. The proposal to approve the Quorum Health Group, Inc. 1997 Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. The proposal to amend the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance from
3,000,000 to 3,750,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. To ratify the selection of Ernst & Young LLP as the Company's independent
auditor for the 1998 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
9. In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED
"FOR" ALL NOMINEES IN PROPOSAL NO. 4 AND "FOR" PROPOSALS NO. 1, NO. 2, NO. 3,
NO. 5, NO. 6, NO. 7, NO. 8 AND NO. 9. The proxies are authorized to vote as they
may determine in their discretion upon such other business as may properly come
before the meeting.
Please sign and date below and return promptly.
Dated:
-------------------------------, 1997
Dated:
-------------------------------, 1997
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.
