<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
COLUMBIA/HCA HEALTHCARE CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
COLUMBIA/HCA HEALTHCARE CORPORATION
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1996
Notice is hereby given that the Annual Meeting of Stockholders of
Columbia/HCA Healthcare Corporation, a Delaware corporation (the "Company"),
will be held at the Company's offices at One Park Plaza, Nashville, Tennessee,
on Thursday, May 9, 1996 at 1:30 p.m., Central Daylight Time, for the follow-
ing purposes:
(1) To elect three directors to serve until the Annual Meeting of Stock-
holders in 1999, or until their successors shall have been duly elected and
qualified;
(2) To consider and approve an amendment to the Columbia Hospital Corpo-
ration 1992 Stock and Incentive Plan which would increase the number of au-
thorized shares thereunder from 20,000,000 shares to 40,000,000 shares, and
certain other amendments; and
(3) To transact such other business as may properly come before the meet-
ing.
Stockholders of record at the close of business on March 15, 1996, are enti-
tled to notice of and to vote at the Annual Meeting. A complete list of the
stockholders entitled to vote at the Annual Meeting will be available for ex-
amination by any stockholder at the Company's executive offices, during ordi-
nary business hours, for a period of at least ten days prior to the Annual
Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN AS PROMPTLY AS POSSIBLE THE ENCLOSED PROXY IN THE ACCOMPANYING RE-
PLY ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND
VOTE IN PERSON.
By Order of the Board of Directors,
/s/ John M. Franck II
John M. Franck II
Secretary
Nashville, Tennessee
April 3, 1996
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1996
----------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors (the "Board")
of Columbia/HCA Healthcare Corporation, a Delaware corporation (the "Compa-
ny"), for use at the Annual Meeting of Stockholders of the Company (the "An-
nual Meeting") to be held on the date, at the time and place and for the pur-
poses set forth in the accompanying Notice of Annual Meeting of Stockholders.
The Company's principal executive offices are located at One Park Plaza, Nash-
ville, Tennessee 37203, and its telephone number is (615) 327-9551. Stockhold-
ers of record at the close of business on March 15, 1996 are entitled to no-
tice of and to vote at the Annual Meeting. This Proxy Statement and the accom-
panying proxy are first being mailed to stockholders on or about April 3,
1996.
THE ANNUAL MEETING
VOTING AT THE ANNUAL MEETING
On March 15, 1996, there were 433,354,931 shares of the Company's voting
common stock, $.01 par value (the "Common Stock"), issued and outstanding
which were held by approximately 18,900 holders of record. Each share of Com-
mon Stock entitles the holder thereof to one vote on all matters submitted to
a vote of stockholders. The Common Stock is the only class of capital stock of
the Company having general voting rights.
The presence in person or by proxy of the holders of a majority of the out-
standing shares of Common Stock will constitute a quorum. The affirmative vote
of a plurality of the shares represented at the Annual Meeting, in person or
by proxy, will be necessary for the election of directors. The affirmative
vote of a majority of the shares represented at the Annual Meeting, in person
or by proxy, will be necessary (a) to approve the amendments to the Columbia
Hospital Corporation 1992 Stock and Incentive Plan (the "1992 Plan") and (b)
for the taking of all other actions which may properly come before the Annual
Meeting.
PROXIES AND PROXY SOLICITATION
All shares of Common Stock represented by properly executed proxies will be
voted at the Annual Meeting in accordance with the directions marked on the
proxies, unless such proxies have previously been revoked. If no directions
are indicated on such proxies, they will be voted "For" (a) the election of
each nominee named below under "Election of Directors" and (b) the approval of
the amendments to the 1992 Plan. If any other matters are properly presented
at the Annual Meeting for action, which is not presently anticipated, the
proxy holders will vote the proxies (which confer discretionary authority upon
such holders to vote on such matters) in accordance with their best judgment.
Any stockholder present (including broker non-votes) at the Annual Meeting,
but who abstains from voting, shall be counted for purposes of determining
whether a quorum exists. With respect to all matters other than the election
of directors, an abstention (or
<PAGE>
broker non-vote) has the same effect as a vote against the proposal. Each
proxy executed and returned by a stockholder may be revoked at any time before
it is voted by timely submission of written notice of revocation or by submis-
sion of a duly executed proxy bearing a later date (in either case directed to
the Secretary of the Company) or, if a stockholder is present at the Annual
Meeting, he or she may elect to revoke his or her proxy and vote his or her
shares personally.
The cost of soliciting proxies will be borne by the Company. In addition,
Corporate Investor Communications, Inc., a proxy soliciting firm, has been re-
tained by the Company to assist in the solicitation at a cost of approximately
$8,500, plus out-of-pocket expenses. Certain directors, officers and other em-
ployees of the Company, not specially employed for this purpose, may also so-
licit proxies, without additional remuneration therefor, by personal inter-
view, mail, telephone, facsimile or telegram. The Company will also request
brokers and other fiduciaries to forward proxy soliciting material to the ben-
eficial owners of shares of the Common Stock which are held of record by such
brokers and fiduciaries and will reimburse such persons for their reasonable
out-of-pocket expenses.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 15, 1996, certain information
concerning shares of the Common Stock held by (a) each stockholder owning ben-
eficially at least 5% of the outstanding Common Stock, (b) each director or
nominee for director of the Company, (c) each executive officer of the Company
named in the "Summary Compensation Table" and (d) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL OR NUMBER IN GROUP SHARES(1)(2) PERCENT
------------------------------------- ------------ -------
<S> <C> <C>
The Columbia/HCA Healthcare Corporation Stock Bonus
Plan.................................................. 23,904,920(3) 5.5
FMR Corp. and Edward C. Johnson 3d..................... 34,277,218(3)(4) 7.9
Magdalena Averhoff, M.D................................ 6,289(5) *
Thomas F. Frist, Jr., M.D. ............................ 11,656,601(6) 2.7
Charles J. Kane........................................ 83,243(7) *
Sr. Judith Ann Karam, CSA, R.Ph........................ 0 *
John W. Landrum........................................ 185,147(8) *
T. Michael Long........................................ 947,451(9) *
Donald S. MacNaughton.................................. 245,117(10) *
R. Clayton McWhorter................................... 696,854 *
Rodman W. Moorhead, III................................ 11,373(11) *
Carl E. Reichardt...................................... 109,867(12) *
Frank S. Royal, M.D.................................... 76,509(13) *
Richard L. Scott....................................... 6,225,761(14) 1.4
Robert D. Walter....................................... 33,164(15) *
William T. Young....................................... 698,957(16) *
Donald E. Steen........................................ 159,159(17) *
David T. Vandewater.................................... 339,946(18) *
All directors and executive officers as a group (30
persons)............................................ 22,915,928(19) 5.3
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise indicated, each stockholder shown on the table has sole
voting and investment power with respect to the shares beneficially
owned. The number of shares shown does not include the interest of cer-
tain persons in shares held by family members in their own right.
(2) Each named person or group is deemed to be the beneficial owner of secu-
rities which may be acquired within 60 days through the exercise or con-
version of options, warrants and
2
<PAGE>
rights, if any, and such securities are deemed to be outstanding for the
purpose of computing the percentage beneficially owned by such person or
group. Such securities are not deemed to be outstanding for the purpose of
computing the percentage of class beneficially owned by any other person
or group. Accordingly, the indicated number of shares includes shares is-
suable upon conversion of convertible securities or upon exercise of op-
tions (including employee stock options) held by such person or group.
(3) The addresses of the persons known to the Company to be the beneficial
owners of more than five percent of the outstanding Common Stock are as
follows: The Columbia/HCA Healthcare Corporation Stock Bonus Plan--One
Park Plaza, Nashville, Tennessee 37203; and FMR Corp. and Edward C. John-
son 3d--82 Devonshire Street, Boston, Massachusetts 02109.
(4) Based on a Schedule 13G jointly filed by FMR Corp. ("FMR"), Edward C.
Johnson 3d ("Mr. Johnson"), Chairman of FMR, Abigail P. Johnson, a direc-
tor of FMR and Fidelity Management & Research Company ("Fidelity Manage-
ment") on February 14, 1996. The 34,277,218 shares of the Common Stock
shown as beneficially owned by FMR as of December 31, 1995 include (i)
31,015,116 shares beneficially owned by Fidelity Management, a wholly-
owned subsidiary of FMR, as an investment adviser to various registered
investment companies that own such shares (the "Fidelity Funds"), (ii)
3,075,577 shares beneficially owned by Fidelity Management Trust Company
("Fidelity Trust"), a wholly-owned subsidiary of FMR, as a result of
serving as investment manager of institutional accounts, (iii) 46,208
shares owned directly by Mr. Johnson or in trusts for the benefit of Mr.
Johnson or a member of his family and (iv) 161,425 shares beneficially
owned by Fidelity International Limited ("Fidelity International"), an
investment adviser of which Mr. Johnson is also Chairman and a member of
a controlling group, but which is managed independently from FMR. Accord-
ing to the Schedule 13G, (a) FMR and Mr. Johnson each has sole investment
power, but neither has sole voting power, over the shares owned by the
Fidelity Funds, (b) FMR and Mr. Johnson each has sole investment power
over certain of, has sole voting power over certain of, and has no voting
power over the remainder of, the shares owned by the institutional ac-
counts managed by Fidelity Trust and (c) Mr. Johnson has sole voting and
investment power over certain of, has shared voting and investment power
over certain of, and has no voting or investment power over the remainder
of, the shares owned directly by him or in family trusts.
(5) Includes 6,289 shares issuable upon exercise of options.
(6) Includes 26,250 shares issuable upon exercise of options. Includes
2,790,608 shares with respect to which Dr. Frist has sole voting and in-
vestment power, 7,768,723 shares with respect to which Dr. Frist has
shared voting and investment power and 1,071,020 shares held by a trust
of which he is an income beneficiary but holds no voting or investment
power.
(7) Includes 2,603 shares issuable upon exercise of options.
(8) Includes 1,289 shares issuable upon exercise of options.
(9) Includes 400,000 shares issuable upon exercise of a warrant issued to,
and 541,162 shares which are held by, The 1818 Fund, L.P. Mr. Long is a
co-manager of The 1818 Fund, L.P. and disclaims beneficial ownership of
such shares. Also includes 6,289 shares issuable upon exercise of op-
tions.
(10) Includes 1,805 shares issuable upon exercise of options.
(11) Includes 4,289 shares issuable upon exercise of options.
(12) Includes 2,603 shares issuable upon exercise of options.
(13) Includes 2,603 shares issuable upon exercise of options.
(14) Includes 147,500 shares issuable upon exercise of options. Mr. Scott has
shared voting and investment power with respect to 79,761 shares held by
a charitable foundation.
(15) Includes 4,289 shares issuable upon exercise of options.
(16) Includes 4,289 shares issuable upon exercise of options. Includes 635,446
shares with respect to which Mr. Young has sole voting and investment
power and 59,222 shares with respect to which Mr. Young has shared voting
and investment power. Excludes 81,993 shares held
3
<PAGE>
by educational and other non-profit institutions of which Mr. Young serves
as a member of the governing boards.
(17) Includes 127,743 shares issuable upon exercise of options.
(18) Includes 114,584 shares issuable upon exercise of options, 65,812 shares
of which Mr. Vandewater is trustee and has sole voting and investment
power and 16,438 shares held by a charitable foundation in which Mr.
Vandewater has shared voting and investment power.
(19) Includes shares issuable upon exercise of options to purchase 1,067,531
shares of Common Stock and 400,000 shares issuable upon exercise of a
warrant.
ELECTION OF DIRECTORS
In accordance with the Restated Certificate of Incorporation of the Company,
directors of the Company are divided into three classes, such classes being as
nearly equal in number as possible. The term of office of each class is three
years. The Board of Directors is presently comprised of 16 members, consisting
of five members whose term of office expires in 1996 (Class III Directors),
six members whose term of office expires in 1997 (Class I Directors) and five
members whose term of office expires in 1998 (Class II Directors). The Board
of Directors, after discussing the matter at two meetings, determined that a
reduction in the size of the Board would be appropriate. Therefore, the Nomi-
nating Committee selected three nominees for election as Class III Directors.
J. David Grissom, Richard W. Hanselman and Carl F. Pollard, current directors
of the Company, will not be standing for re-election. In addition, as dis-
cussed below, Charles J. Kane and John W. Landrum each have agreed to resign
effective June 30, 1996.
At the Annual Meeting it is proposed that the nominees listed below be
elected as Class III members of the Board of Directors. Each such director
shall be elected to serve in such capacity until the Annual Meeting of Stock-
holders in 1999 or until his or her respective successor is duly elected and
qualified.
INFORMATION CONCERNING DIRECTORS
Information concerning the three nominees proposed by the Board of Directors
for election as Class III Directors along with information concerning the
present Class I and Class II Directors, whose terms of office will continue
after the Annual Meeting, is set forth below.
In the event that any of the named nominees for director becomes unable or
unwilling to accept nomination or election, the person or persons voting the
proxy will vote for the election in his or her stead of such person as the
Nominating Committee may recommend. Unless otherwise instructed on the proxy,
the proxy holders will vote the proxies received by them FOR the election of
the nominees shown below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE OFFICES WITH THE COMPANY SINCE
---- --- ------------------------ --------
<C> <C> <S> <C>
NOMINEES
CLASS III--PRESENT TERM EXPIRES 1996
Thomas F. Frist, Jr., M.D.......... 57 Vice Chairman of the 1994
Board, Columbia/HCA
Healthcare Corporation
Sister Judith Ann Karam, CSA, R.Ph. 49 Major Superior, Sisters Nominee
of Charity of St.
Augustine
Richard L. Scott................... 43 President and Chief 1990
Executive Officer,
Columbia/HCA
Healthcare Corporation
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE OFFICES WITH THE COMPANY SINCE
---- --- ------------------------ --------
<C> <C> <S> <C>
DIRECTORS CONTINUING IN OFFICE
CLASS I--PRESENT TERM EXPIRES 1997
Magdalena Averhoff, M.D. . 45 Practicing Physician 1992
Charles J. Kane........... 76 Retired Chairman of the Board, 1994
Third National Corporation
John W. Landrum........... 74 Owner, Springlake Farms 1993
R. Clayton McWhorter...... 62 Chairman of the Board, 1995
Columbia/HCA Healthcare
Corporation
Frank S. Royal, M.D....... 56 Practicing Physician 1994
Robert D. Walter.......... 50 Chairman of the Board and Chief 1993
Executive Officer, Cardinal
Health, Inc.
CLASS II--PRESENT TERM EXPIRES 1998
T. Michael Long........... 52 Partner, Brown Brothers Harriman 1991
& Co.
Donald S. MacNaughton..... 78 Retired Chairman of the Executive 1995
Committee, Healthtrust, Inc.
Rodman W. Moorhead, III... 52 Senior Managing Director, E. M. 1993
Warburg, Pincus & Co., Inc.
Carl E. Reichardt......... 64 Retired Chairman of the Board and 1994
Chief Executive Officer, Wells
Fargo & Company
William T. Young.......... 78 Chairman of the Board, W. T. 1993
Young, Inc.
</TABLE>
Magdalena Averhoff, M.D. is a physician specializing in gastroenterology
practicing in Miami, Florida. Dr. Averhoff has practiced medicine in Miami for
more than five years.
Thomas F. Frist, Jr., M.D. has been Vice Chairman of the Board of the Com-
pany since April 1995. From February 1994 to April 1995, he was Chairman of
the Board of the Company. Dr. Frist was Chairman of the Board, President and
Chief Executive Officer of HCA-Hospital Corporation of America ("HCA") from
September 1987 to February 1994. Dr. Frist, a founder of the predecessor of
HCA, was previously Chairman and Chief Executive Officer of such predecessor
from August 1985 until September 1987, and in September 1987 he was also named
President. Dr. Frist is past Chairman of the Board of Governors of United Way
of America, is a member of the Board of Trustees of Vanderbilt University and
is Chairman of the HCA Foundation Board.
Charles J. Kane is the retired Chairman of the Board of Third National Cor-
poration (a bank holding company) and was the Senior Chairman and Chief Execu-
tive Officer of Third National Bank in Nashville from 1983 until 1985 and
President and Chief Executive Officer of Third National Bank in Nashville from
1975 to 1983. Mr. Kane is an emeritus director of Third National Bank in Nash-
ville and of American General Corporation.
Sister Judith Ann Karam, CSA, R. Ph. has been Major Superior of the Sisters
of Charity of St. Augustine since August 1993. From 1989 to August 1993, she
served on the Congregational leadership team as Councilor for Temporal Affairs
and Treasurer. She was also Project Director for Regina Health Center, a
skilled nursing and assisted living facility which opened in July 1993. Sister
Karam has a background in hospital administration and is a fellow in the Amer-
ican College of Healthcare Executives.
5
<PAGE>
John W. Landrum is the owner of Springlake Farms, a farm operations and real
estate management company in Harrodsburg, Kentucky.
T. Michael Long is a partner with Brown Brothers Harriman & Co., a private
banking firm, where he has been employed for more than five years. Mr. Long is
also a director of Ekco Group, Inc., Neuvo Energy Company and Gulf Canada Re-
sources, Ltd.
Donald S. MacNaughton served as Chairman of the Executive Committee of
Healthtrust, Inc.--The Hospital Company ("Healthtrust") from 1987 to April
1995. He retired as an employee of Healthtrust in 1991. Mr. MacNaughton joined
Hospital Corporation of America (HCA's predecessor) in 1978 as Chairman and
Chief Executive Officer. He continued to serve as Chief Executive Officer of
Hospital Corporation of America until 1982, Chairman of the Board until 1985
and as Chairman of the Executive Committee until 1987. Prior to 1978, Mr. Mac-
Naughton was Chairman and Chief Executive Officer of The Prudential Insurance
Company of America, where he served in various management capacities for 23
years, including nine years as Chairman and Chief Executive Officer. Mr. Mac-
Naughton is a member of The Business Council and a member of the Board of Di-
rectors of Financial Securities Advisors, Inc.
R. Clayton McWhorter has been Chairman of the Board of the Company since
April 1995. Mr. McWhorter intends to resign as Chairman following the Annual
Meeting. Mr. McWhorter was Chairman and Chief Executive Officer of Healthtrust
from 1987 to April 1995 and was President of Healthtrust from 1991 to April
1995. Mr. McWhorter served as President and Chief Operating Officer of Hospi-
tal Corporation of America (HCA's predecessor) from 1985 to 1987, and as a Di-
rector of Hospital Corporation of America from 1983 to 1987. Mr. McWhorter is
a director of SunTrust Bank in Nashville and Ingram Industries, Inc. and is a
member of the Board of the Foundation for State Legislatures. He is past Pres-
ident and Chairman of the Federation of American Health Systems, a past member
of the Board of Trustees of the American Hospital Association, and a past
Trustee of the Committee for Economic Development.
Rodman W. Moorhead, III has been employed since 1973 by E.M. Warburg, Pincus
& Co., Inc., a specialized financial services firm, where he currently serves
as Senior Managing Director. He is also a director of Cambridge NeuroScience,
Inc., Nexstar, Inc., and Value Health, Inc.
Carl E. Reichardt served as the Chairman of the Board and Chief Executive
Officer of Wells Fargo & Company (a bank holding company) and of its subsidi-
ary, Wells Fargo Bank, N.A. from 1983 to December 1994. Mr. Reichardt is cur-
rently a director of Wells Fargo & Company, ConAgra, Inc., Ford Motor Company,
Newhall Management Corporation, which is the managing general partner of the
Newhall Land & Farming Company (a California limited partnership), Pacific Gas
& Electric Co., McKesson Corporation and SunAmerica, Inc.
Frank S. Royal, M.D. has been a practicing physician in Richmond, Virginia
for over 20 years. He is Past President/Former Board Chairman of the National
Medical Association. He also serves as a member of the Boards of Directors of
Crestar Financial Corporation (a bank holding company), Chesapeake Corpora-
tion, CSX Corporation and Dominion Resources and is on the Boards of Trustees
of Meharry Medical College (Chairman of the Board), Virginia Union University
(Chairman of the Board) and Richmond Metropolitan YMCA.
Richard L. Scott has been President and Chief Executive Officer of the Com-
pany since September 1993. Mr. Scott will assume the role of Chairman of the
Board following the Annual Meeting. Mr. Scott was Chairman of the Board and
Chief Executive Officer of the Company or its predecessor entities from Octo-
ber 1987 until September 1, 1993. Mr. Scott was a founder of the
6
<PAGE>
Company and its predecessor entities. Mr. Scott serves on the Board of Direc-
tors of Banc One Corporation.
Robert D. Walter is Chairman of the Board and Chief Executive Officer of
Cardinal Health, Inc., a pharmaceutical distribution company, where he has
been employed for more than five years. Mr. Walter serves on the Board of Di-
rectors of Banc One Corporation and Westinghouse Electric Corporation.
William T. Young is Chairman of the Board of W.T. Young, Inc., Lexington,
Kentucky, an investment holding company and owner of Overbrook Farm, a thor-
oughbred horse racing and breeding operation. He is former Chairman of Royal
Crown Cola Company, and former director and chairman of the Executive Commit-
tee of Humana Inc. Mr. Young is Chairman of Transylvania University and is
Chairman of Shakertown at Pleasant Hill Kentucky, Inc.
The Board of Directors of the Company has adopted a mandatory retirement
policy for members of the Company's Board of Directors, with the policy being
effective as of July 1, 1994. Pursuant to the policy, no person may be nomi-
nated to a term of office on the Board of Directors if he or she has attained
the age of 70 before the first day of the proposed term of office. The policy
does not apply to certain present directors of the Company. Donald S. Mac-
Naughton and William T. Young have been "grandfathered" from the provision.
Charles J. Kane and John W. Landrum each have agreed to resign effective June
30, 1996. The Board of Directors will then have the power under the Company's
Restated Certificate of Incorporation to appoint successors to fill out the
remainder of Messrs. Kane and Landrum's terms, or to reduce the size of the
Board of Directors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1995, the Company's Board of Directors held four meetings. Also,
there are five committees of the Board of Directors which assist the Board in
discharging its responsibilities. These committees, their members and func-
tions are discussed below.
Each incumbent director attended during 1995 at least 75% of the aggregate
of the total number of meetings of the Board of Directors and the total number
of meetings held by all committees on which the individual director served.
The Audit Committee is presently comprised of three directors: Carl E.
Reichardt (Chairman), Magdalena Averhoff, M.D. and Donald S. MacNaughton, none
of whom are officers or employees of the Company. The functions of this Com-
mittee include review of the programs of the Company's internal auditors, the
results of their audits, and the adequacy of the Company's system of internal
controls and accounting practices. In addition, the Committee reviews the
scope of the annual audit by the Company's independent auditors prior to its
commencement and reviews the types of services for which the Company retains
independent auditors. In 1995, this Committee met three times.
The Compensation Committee is presently comprised of four directors: William
T. Young (Chairman), Charles J. Kane, Frank S. Royal, M.D. and Robert D. Wal-
ter, none of whom are officers or employees of the Company. Responsibilities
of this Committee include approval of compensation arrangements for executive
management, review of compensation plans relating to officers, grants of op-
tions and other benefits under the Company's employee benefit plans and gen-
eral review of the Company's employee compensation policies. In 1995, this
Committee met one time.
The Executive Committee is presently comprised of three directors: Thomas F.
Frist, Jr., M.D., R. Clayton McWhorter and Richard L. Scott. This Committee
has the authority to exercise all of the powers of the full Board of Direc-
tors, with certain exceptions relating to major corporate
7
<PAGE>
matters. This Committee is available to review with members of management cer-
tain areas of the Company's operations and to act when it is impractical to
assemble the entire Board for a meeting. In 1995, this Committee did not meet.
The Investment Committee is presently comprised of three directors: T.
Michael Long (Chairman), John W. Landrum and Rodman W. Moorhead, III, none of
whom are officers or employees of the Company. The functions of this Committee
are to establish guidelines for and to analyze the investment performance de-
cisions of the various funds, assets and portfolios of the Company. In 1995,
this Committee met one time.
The Nominating Committee is presently comprised of four directors: Richard
L. Scott (Chairman), Thomas F. Frist, Jr., M.D., John W. Landrum and William
T. Young. Until September 1, 1996, this Committee will have the exclusive
power to nominate persons on behalf of the Board of Directors to serve as di-
rectors of the Company. The Nominating Committee will consider nominees for
the Board of Directors recommended by stockholders. Directors are selected on
the basis of their demonstrated broad knowledge, experience and ability in
their chosen endeavors and, most importantly, on the basis of their ability to
represent the interests of the stockholders. Recommendations by stockholders
for such nominees, which must include biographical information and the pro-
posed nominee's written consent to nomination, must be made in writing to the
Secretary of the Company not less than 60 days nor more than 90 days prior to
the scheduled date of the meeting (or, if less than 70 days' notice or prior
public disclosure of the date of the meeting is given, the 10th day following
the earlier of (i) the day such notice was mailed or (ii) the day such public
disclosure was made). In 1995, this Committee did not meet.
In connection with the formation of joint ventures with the Sisters of Char-
ity of St. Augustine Health System, Inc. (the "Sisters of Charity") concerning
four hospitals, the Company agreed to nominate for election to the Board of
Directors a nominee selected by the Sisters of Charity that is acceptable to
the Company. The Company's obligation is a six-year commitment and expires un-
der certain circumstances. The Nominating Committee has agreed to nominate
Sister Judith Ann Karam, CSA, R.Ph. as a Class III director.
Directors are elected by a plurality of the votes cast by the holders of the
shares present in person or represented by proxy at a meeting at which a quo-
rum is present. "Plurality" means that the individuals who receive the largest
number of votes cast are elected as directors up to the maximum number of di-
rectors to be chosen at the meeting. Consequently, any shares not voted
(whether by withholding authority or broker non-vote) have no impact in the
election of directors, except to the extent the failure to vote for the indi-
vidual results in another individual receiving a larger number of votes.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a regis-
tered class of the Company's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and pro-
vide the Company with copies of such reports. Based solely on its review of
the copies of such forms received by it, or written representations from cer-
tain reporting persons that no Forms 5 were required for those persons, the
Company believes that, during the past fiscal year all filing requirements ap-
plicable to its officers, directors, and greater than ten-percent stockholders
were complied with, with the exception that two directors filed untimely re-
ports on transactions in the Company's Common Stock as follows: Darla D.
Moore, one report regarding eight transactions that took place in her spouse's
account while out of the country; and Thomas F. Frist, Jr., M.D., two reports
regarding two inadvertent investments in a professionally managed (investment)
account. The transactions were subsequently reported on Form 5.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's
Chief Executive Officer and each of the Company's four other most highly com-
pensated executive officers, based on salary and bonus earned during 1995.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ---------------------- -----------
OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK SARS LTIP COMPENSATION
POSITIONS YEAR SALARY ($) BONUS ($)(1) ($)(2) AWARDS ($)(3) (#)(4) PAYOUTS ($) ($)(5)
------------------ ------ ---------- ------------ ------------- ------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Scott........ 1995 858,000 - 356,805 870,000 150,000 - 9,039
President and Chief 1994 599,000 520,000 107,272 - 150,000 - 9,240
Executive Officer 1993 371,000 350,000 - - 60,000 - 5,396
David T. Vandewater..... 1995 533,000 204,000 164,751 273,000 100,000 - 8,945
Chief Operating Officer 1994 425,000 360,000 - 2,404,000(6) 125,000 - 9,240
1993 318,000 300,000 - 3,004,000(7) 50,000 - 5,396
Thomas F. Frist,
Jr., M.D............... 1995 419,000 - 82,966 363,000 100,000 - 15,009
Vice Chairman of the 1994 633,000 500,000 - - - - 7,500
Board(8) 1993 - - - - - - -
Donald E. Steen......... 1995 507,000 21,000 - 83,000 40,000 - 11,146
President-- 1994 165,000 223,000 - - - - -
Western Group(9) 1993 - - - - - - -
R. Clayton McWhorter.... 1995 453,000 203,000 2,452,000(11) - - - 8,442
Chairman of 1994 - - - - - - -
the Board(10) 1993 - - - - - - -
</TABLE>
- --------
(1) Reflects bonus earned during the fiscal year. In some instances all or a
portion of the bonus was paid during the following fiscal year. The exec-
utive officers have the option to take all or part of their bonus in
shares of restricted stock at a 25% discount from the fair market value
on the date of grant, which is reflected in the Restricted Stock Awards
column.
(2) Except as noted in the table, perquisites and other personal benefits did
not exceed the lesser of either $50,000 or 10% of the total of annual
salary and bonus for the named executive officer. Other compensation con-
sists principally of relocation expenses and, to a lesser extent, Company
provided transportation.
(3) Except as noted, represents the fair market value on the date of grant of
shares of restricted stock granted in lieu of all or a portion of a cash
bonus.
(4) Options to acquire shares of the Common Stock.
(5) Consists of the Company contributions to the Company's Savings and In-
vestment Plan, Money Purchase Plan and Stock Bonus Plan.
(6) On September 15, 1994, Mr. Vandewater received 57,249 restricted shares
of the Common Stock (50% vesting on September 15, 1995 and 50% vesting on
September 15, 1996) pursuant to the 1992 Stock and Incentive Plan. On
such date, the value of such shares was $2,404,458, which the Company is
recording as compensation expense upon vesting.
(7) On October 11, 1993, Mr. Vandewater received 109,237 shares of the Common
Stock, in a transfer from Richard L. Scott, the President and Chief Exec-
utive Officer of the Company. On such date, the value of such shares was
$3,004,018, which the Company recorded as compensation expense. The
shares were transferred to Mr. Vandewater as an incentive for his contin-
ued commitment to the Company.
(8) Dr. Frist's employment by the Company commenced February 10, 1994.
(9) Mr. Steen's employment by the Company commenced September 16, 1994.
(10) Mr. McWhorter's employment by the Company commenced April 24, 1995.
(11) Includes $2,400,000 paid in lieu of severance payments.
9
<PAGE>
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table provides information related to options granted to the
named executive officers during fiscal 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
- --------------------------------------------------------------------- -----------------------
% OF TOTAL
OPTIONS/ OPTIONS/SARS
SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)(2) FISCAL YEAR ($/SH)(3) DATE(4) 0% 5% ($) 10% ($)
- ---- -------- ------------ ----------- ---------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Scott........ 150,000 2.3% 40.125 2/9/05 - 3,785,160 9,592,337
David T. Vandewater..... 100,000 1.5% 40.125 2/9/05 - 2,523,440 6,394,892
Thomas F. Frist, Jr.,
M.D.................... 100,000 1.5% 40.125 2/9/05 - 2,523,440 6,394,892
Donald E. Steen......... 40,000 0.6% 40.125 2/9/05 - 1,009,376 2,557,957
R. Clayton McWhorter.... - - - - - - -
</TABLE>
- --------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on the Common Stock over the term of the options.
These amounts do not take into account provisions of the options relating
to termination of the option following termination of employment,
nontransferability or vesting over periods of up to five years.
(2) Options to acquire shares of the Common Stock. Each executive officer re-
ceived a single grant of options during the fiscal year.
(3) The option exercise price may be paid in shares of the Common Stock owned
by the executive officer, in cash, or a combination of the foregoing.
(4) The ten-year options become exercisable with respect to 25% of the shares
covered thereby on the second, third, fourth and fifth anniversary dates
following the date of grant. The exercise price was equal to the fair mar-
ket value of the Common Stock on the date of grant.
OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during the 1995 fiscal year and the number and value
of options held at fiscal year end. The Company has not issued stock apprecia-
tion rights or warrants to its executive officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)(2)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#)(1) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Scott........ - - 77,500 332,500 2,534,375 4,465,625
David T. Vandewater..... - - 100,834 254,166 2,038,557 3,383,318
Thomas F. Frist, Jr.,
M.D.................... - - 26,250 126,250 825,825 1,888,325
Donald E. Steen......... - - 127,743 40,000 3,144,046 425,000
R. Clayton McWhorter.... 520,067 11,031,917 359,171 - 8,936,394 -
</TABLE>
- --------
(1) Except as noted in the table, the named executive officers did not exer-
cise any stock options during 1995.
(2) The closing price for the Common Stock as reported by the New York Stock
Exchange, Inc. on December 29, 1995 was $50.75. Value is calculated on the
basis of the difference between the option exercise price and $50.75 mul-
tiplied by the number of shares of Common Stock underlying the option.
10
<PAGE>
DIRECTORS' COMPENSATION
Prior to September 1, 1993, the Company's policy for compensating directors
who were not employees of the Company was to pay each director $1,250 for each
regular Board of Directors meeting which was attended. In addition, the Colum-
bia Hospital Corporation Outside Directors Nonqualified Stock Option Plan (the
"Directors Plan") was adopted by the Board of Directors on November 12, 1992,
which provided for the grant of an initial option for 3,000 shares of the Com-
mon Stock upon election to the Board of Directors (or adoption of the plan),
with the subsequent grant for 2,000 shares each year thereafter that the di-
rector served on the Board (following the Annual Meeting of Stockholders). The
policy for compensating directors was revised on September 9, 1993 and Febru-
ary 10, 1994, in connection with the addition of new directors from Galen
Health Care, Inc. ("Galen") and HCA. The current policy provides that outside
directors are paid an annual retainer of $26,000 for serving on the Board of
Directors, a fee of $1,000 per Board meeting attended and reimbursement of ex-
penses incurred relating to attendance at meetings. In addition, committee
chairpersons receive $1,000 per committee meeting attended, and all other com-
mittee members receive a fee of $500 per committee meeting attended, in both
cases payable only with respect to committee meetings which are not held in
conjunction with a meeting of the Board of Directors. On February 10, 1994,
the Directors Plan was amended to provide that new directors will receive an
initial option to acquire shares of Common Stock (exercisable at the shares'
fair market value on the date of grant of the option) having an aggregate ex-
ercise price equal to two times the outside director's annual retainer fee
then in effect, but in no event more than 3,000 shares. Following each suc-
ceeding annual meeting, each outside director who continues in office will re-
ceive an option to acquire shares of the Common Stock (exercisable at the
shares' fair market value on the date of grant of the option) having an aggre-
gate exercise price equal to the outside director's annual retainer fee then
in effect, but in no event more than 2,000 shares. Finally, for directors who
were former directors of Galen, the Company matches, on an annual basis, up to
$20,000 in charitable contributions, and such directors are eligible to par-
ticipate in the Company's self-funded medical and dental plans.
EMPLOYMENT AND SEVERANCE PAY AGREEMENTS
Medical Care America, Inc., a wholly-owned subsidiary of the Company, en-
tered into an employment agreement with Donald E. Steen on November 15, 1993.
The employment agreement has an initial term through November 15, 1996. The
base salary for Mr. Steen was $507,000 in 1995. Bonuses must be recommended
and approved by the Board of Directors of the subsidiary. The agreement also
provides for severance payments based on Mr. Steen's base salary at the time
of termination plus a bonus (payable monthly on a pro rata basis) at a rate
equal to the average annual bonuses paid to Mr. Steen for the two calendar
years preceding termination for a period of 24 months following termination or
until November 15, 1996, whichever is earlier. Mr. Steen's employment agree-
ment may only be terminated if approved by the affirmative vote of 75% of the
Board of Directors of the subsidiary. The employment agreement of Mr. Steen
provides for automatic renewal for two years, unless either the Company or the
employee gives at least 60 days prior written notice of non-renewal.
The Company entered into a two-year employment agreement with R. Clayton Mc-
Whorter commencing April 24, 1995 and ending April 24, 1997. Under the employ-
ment agreement, Mr. McWhorter is currently entitled to an annual base salary
of $600,000, subject to increases by the Compensation Committee, and is eligi-
ble to participate in all executive compensation and employee benefit plans or
programs applicable to senior management employees of the Company, including
such incentive bonuses as the Compensation Committee may determine from time
to time. Under the employment agreement, Mr. McWhorter's employment may be
terminated by the Company for cause, in which event the Company's obligation
to pay Mr. McWhorter's salary after termination would cease. In the event Mr.
McWhorter becomes disabled or dies during the term
11
<PAGE>
of the employment agreement, the Company could terminate his employment and
pay to him or his estate, as the case may be, disability or death benefits,
equal to his salary then in effect, until the later of (i) April 24, 1997 or
(ii) one year from the date of such termination. In addition, the Company paid
Mr. McWhorter $2,400,000 and accelerated the vesting on 20,115 shares of re-
stricted stock on July 1, 1995, to terminate a severance protection agreement
that Mr. McWhorter had with Healthtrust, Inc. -- The Hospital Company. The
payment was in lieu of any other severance or termination payment to which Mr.
McWhorter would otherwise be entitled.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives are made by the Com-
pensation Committee (the "Compensation Committee") of the Company's Board of
Directors. Each member of the Compensation Committee is a non-employee direc-
tor. No member of the Compensation Committee is a current or former employee
or officer of the Company or any of its affiliates. Responsibilities of the
Compensation Committee include approval of compensation arrangements for exec-
utive management, review of compensation plans relating to officers, grants of
options and other benefits under the Company's employee benefit plans and gen-
eral review of the Company's employee compensation policy. Pursuant to certain
rules of the Securities and Exchange Commission designed to enhance disclosure
of corporate policies toward executive compensation, set forth below is a re-
port submitted by the Compensation Committee.
COMPENSATION PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICERS
The Compensation Committee believes the most effective executive compensa-
tion program aligns the interests of stockholders and executives. The
Company's primary objective is to provide quality health care while enhancing
long-term stockholder value. The Compensation Committee is committed to a
strong, positive link between the Company's strategic business goals and its
compensation and benefit goals. The Company does not generally have contrac-
tual agreements of employment with executive officers. The Company provides
its executive officers with a minimal number of perquisites.
The Company's executive compensation program is consistent with the
Company's overall compensation philosophy for all management levels. The Com-
pensation Committee believes that the greater the number of employees aligned
with the overall Company objectives, the greater the common focus and ultimate
success on both a short-term and long-term basis. To support this philosophy,
substantially all of the Company's employees will be afforded the opportunity
to participate in one or more of the Company's stock-based compensation plans.
The Company's executive compensation program has been designed to support
the objective of creating stockholder value by:
. Directly aligning the interests of executives with the long-term inter-
ests of stockholders by making stock appreciation over the long run the
cornerstone of executive compensation through award opportunities that
can result in the ownership of substantial amounts of the Common Stock.
. Providing compensation opportunities that create an environment that at-
tracts and retains talented executives on a long-term basis.
. Emphasizing pay for performance by having a meaningful portion of execu-
tive compensation "at-risk".
. Appropriately balancing the Company's short-term and long-term business
and financial and strategic goals.
12
<PAGE>
At present, the Company's executive compensation program is comprised of
three components: base salary, annual cash incentive (bonus) and long-term in-
centive opportunity in the form of non-qualified stock options. The Company
also has a program which allows the officers of the Company (including the ex-
ecutive officers) to use all or a portion of their annual cash incentive bonus
to purchase shares of restricted stock of the Company at a 25% discount from
the fair market value of the Company's Common Stock on the date of grant. Two
of the three components of the Company's executive compensation (the annual
incentive bonus and the long-term stock-based incentive) are directly related
to actual individual business unit and overall Company performance, as ex-
plained below. In addition, the greater the person's responsibility in his po-
sition with the Company, the greater the mix of compensation shifts to reli-
ance on the value of the Common Stock through the grant of stock options. The
annual executive pay targets (base salary plus incentives) are designed to be
market competitive with U.S. corporations having similar revenues (or at the
same relative size if a business unit is applicable) when (but only when) the
Company or the individual business units meet or exceed their operating tar-
gets.
BASE SALARY
The base salaries of the Company's five highest paid executives are listed
in the Summary Compensation Table found under "Executive Compensation" in this
Proxy Statement. These salaries are evaluated annually. In determining appro-
priate salary levels and salary increases, the Compensation Committee consid-
ers level of responsibility, individual performance, internal equity and ex-
ternal pay practices. In this latter regard, the Compensation Committee at-
tempts to set base salaries of all executive officers at a level which is be-
low the "market" rate, as determined from information gathered by the Company
from independent compensation consulting firms.
The Compensation Committee increased the base salaries of the named execu-
tive officers during the last fiscal year based upon an evaluation of each ex-
ecutive's performance. The base salary of Thomas F. Frist, Jr., M.D. was re-
duced to reflect a change in his role with the Company. The Compensation Com-
mittee considered the success of the executive officers in developing and exe-
cuting the Company's strategic plans, developing management employees and ex-
ercising leadership. The Compensation Committee also considered the Company's
recent growth in assets and revenues. Based upon information provided by man-
agement, the Compensation Committee believes that executive officer base sala-
ries for 1995 were in line with the average salaries paid by other comparable
healthcare companies, including the companies included in the Standard &
Poor's Hospital Management Composite Index (the "Hospital Index").
ANNUAL INCENTIVES
Annual incentive (bonus) award opportunities at the Company are designed to:
. Focus management attention on key operational goals deemed important for
the upcoming fiscal year.
. Support the Company's strategic goal for consistent growth by highlight-
ing corporate and business unit earnings as the main performance measure
affecting incentive bonus payments.
. Tie management's interests to the stockholders' interests by condition-
ing the targeted bonus on the attainment of earnings per share goals.
The amounts individual executives may earn under the incentive plan is de-
pendent upon the individual's position, responsibility and ability to impact
the Company's financial success. Annual bonuses are designed to provide com-
petitive incentive pay only for meeting or exceeding budgeted financial per-
formance.
13
<PAGE>
The Columbia/HCA Healthcare Corporation Annual Incentive Plan (the "Incen-
tive Plan") determines bonus levels. The Incentive Plan provides for targeted
bonuses equal to 80% of base salaries for the Vice Chairman, the Chief Execu-
tive Officer and the Chief Operating Officer, and 50% of base salaries for
other executive officers, contingent in all cases upon the Company's achieve-
ment of certain earnings per share criteria. Generally, the targeted bonus
amount is comprised of two components, an earnings per share component and a
discretionary component. In 1995, the earnings per share component comprised
75% of the target bonus, and was contingent upon the Company meeting its bud-
geted earnings per share level. The discretionary component comprised 25% of
the target bonus, and was determined by the Compensation Committee based upon
the executive's accomplishment of certain goals and objectives. The bonuses
for the Vice Chairman, the Chief Executive Officer and the Chief Operating Of-
ficer were dependent upon the Company meeting its budgeted earnings per share
level. The maximum bonus for executive officers under the Incentive Plan is
the target bonus.
In 1995, the Compensation Committee awarded all executive officers a bonus
of 90% of the earnings per share component. The Company did not achieve its
earnings per share goal of $2.95 per share; its earnings per share were $2.90.
Because the Company's earnings per share increased 21% in 1995 over 1994, how-
ever, the Compensation Committee made a partial award of the earnings per
share component. The award also acknowledges that the $2.95 goal was a
"stretch" goal. The Compensation Committee has amended the Incentive Plan to
reduce the earnings per share component from 75% to 50%, and increase the dis-
cretionary component from 25% to 50%.
The Columbia/HCA Healthcare Corporation 1995 Management Stock Purchase Plan
(the "Management Plan") allows the officers of the Company (including the ex-
ecutive officers) to use all or a portion of their annual cash incentive bonus
to purchase shares of restricted stock of the Company at a 25% discount from
the fair market value of the Company's Common Stock on the date of grant. The
restricted period for restricted shares granted under the Management Plan will
generally be three years from the date of grant. If employment is terminated
during the restricted period, then, subject to certain exceptions, the partic-
ipant will receive a cash payment equal to the lesser in value of (i) the re-
stricted shares at their then-current fair market value or (ii) the aggregate
amount of the annual cash bonus applied to the receipt of all restricted
shares held by the participant. Any additional value is forfeited.
LONG-TERM INCENTIVES
The Company's only current long-term incentive compensation is non-qualified
stock options which are directly related to improvement in long-term stock-
holder value.
Stock option grants provide an incentive that focuses the executive's atten-
tion 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.
Specifically, the option grants to executive officers provide the right to
purchase shares of Common Stock at the fair market value on the date of grant.
Usually, each stock option becomes vested and exercisable only over a period
of time, generally one to five years, usually with no options vesting until at
least one year after grant. The number of shares covered by each grant re-
flects the executive's level of responsibility and past and anticipated con-
tributions to the Company.
Options to purchase 390,000 shares of the Common Stock were granted to the
named executive officers in 1995 with an exercise price equal to the fair mar-
ket value of the underlying Common Stock on the date of grant. The options
vest cumulatively in four annual installments of 25%
14
<PAGE>
beginning on the second anniversary date of the grant and expire ten years af-
ter the date of grant. The Compensation Committee granted this number of op-
tions based on its judgment that this number is appropriate considering the
executive officers' actual and potential contribution to the Company. The as-
sessment of actual and potential contribution was based on the Compensation
Committee's evaluation of each executive officer's ability, skills, efforts
and leadership. In determining the number of options to grant to the named ex-
ecutive officers, the Compensation Committee did not consider outstanding
stock options, but did consider the other items of compensation.
CHIEF EXECUTIVE OFFICER COMPENSATION
Securities and Exchange Commission regulations require all corporate Compen-
sation Committees to disclose the bases for the compensation of a corpora-
tion's chief executive officer relative to such corporation's performance.
Richard L. Scott, an original founder of the Company in 1987, is eligible to
participate in the same executive compensation plans available to the other
senior executive officers which are described above. The Compensation Commit-
tee's general approach in setting Mr. Scott's target annual compensation is to
seek to be competitive with other large U.S. corporations with similar reve-
nues, but also to have a large percentage of his target compensation based
upon specific corporate-wide operating performance criteria.
Consistent with the executive compensation policy and components described
above, the Compensation Committee determined the salary, bonus and stock op-
tions received by Richard L. Scott, the President and Chief Executive Officer
of the Company, for services rendered in 1995. Mr. Scott's base salary was set
at $900,000. Based on information provided by management, the Compensation
Committee believes that this base salary was comparable to the base salaries
paid to chief executive officers of other publicly held healthcare companies,
including those companies included in the Hospital Index. Mr. Scott also
earned a $648,000 bonus, which he elected to convert into restricted stock
pursuant to the Management Plan. The Compensation Committee awarded Mr. Scott
90% of his eligible bonus due to the 21% increase in earnings per share in
1995 over 1994. Since the Company did not achieve its performance-based tar-
get, however, the bonus granted to Mr. Scott may not be deductible by the Com-
pany. The Compensation Committee was aware of the probable tax treatment at
the time it made the award. Mr. Scott also received options to purchase
125,000 shares of the Common Stock. The Compensation Committee determined the
number of options granted to Mr. Scott based on its subjective evaluation of
Mr. Scott's abilities, skills, efforts and leadership. Based on information
provided by management and derived from publicly available data, the Compensa-
tion Committee believes that the number of options granted to Mr. Scott is
comparable to the number of options granted to the chief executive officers of
other healthcare companies, including those in the Hospital Index.
EXECUTIVE COMPENSATION TAX DEDUCTIBILITY
The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act"), generally
provided that, commencing in 1994, compensation paid by publicly-held corpora-
tions to the chief executive officer and the four most highly paid senior ex-
ecutive officers in excess of $1 million per year per executive will be de-
ductible by the Company only if paid pursuant to qualifying performance-based
compensation plans approved by the stockholders of the Company. Compensation
as defined by the Budget Act includes, among other things, base salary, incen-
tive compensation and gains on stock option transactions. The Company estab-
lishes individual compensation based primarily upon Company performance and
competitive considerations. As a result, executive compensation may exceed $1
million in a given year. The Company believes it has performed the necessary
steps to qualify the Company's performance-based compensation plans for tax
deductibility.
15
<PAGE>
The foregoing report is submitted by all of the members of the Compensation
Committee of the Company's Board of Directors whose members are as follows:
William T. Young (Chairman)
Charles J. Kane
Frank S. Royal, M.D.
Robert D. Walter
The foregoing report of the Compensation Committee shall not be deemed in-
corporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company specif-
ically incorporates this information by reference, and shall not otherwise be
deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the members of the Compensation Committee were responsi-
ble for determining executive compensation and stock option grants to execu-
tive officers. The following directors currently serve on the Compensation
Committee: William T. Young, Charles J. Kane, Frank S. Royal, M.D. and Robert
D. Walter. Richard L. Scott, the President and Chief Executive Officer of the
Company, submitted recommendations to the Compensation Committee concerning
key executive officer compensation, but did not participate in deliberations
regarding the compensation of such key executive officers.
On November 12, 1992, the Board of Directors of the Company adopted the Co-
lumbia Hospital Corporation Outside Directors Nonqualified Stock Option Plan
(the "Directors Plan"), which provides for option grants to non-employee di-
rectors, including those directors that serve on the Compensation Committee.
The stockholders of the Company approved the adoption of the Directors Plan on
May 20, 1993. See "Directors' Compensation" above.
Mr. Robert D. Walter, the Chairman, Chief Executive Officer and a principal
stockholder of Cardinal Health, Inc., became a member of the Board of
Directors of the Company on September 1, 1993. Mr. Walter is a member of the
Compensation Committee. Cardinal Health, Inc. supplies therapeutic plasma
products to certain of the Company's subsidiaries. During the year ended
December 31, 1995, the Company's subsidiaries purchased approximately $530,000
in supplies from Cardinal Health, Inc., which accounted for less than 1/10 of
1% of Cardinal Health, Inc.'s revenues for the same period.
16
<PAGE>
COMPANY STOCK PERFORMANCE
The following Performance Graph shall not be deemed incorporated by reference
by any general statement incorporating by reference the Proxy Statement into
any filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this in-
formation by reference, and shall not otherwise be deemed filed under such
Acts.
The graph below compares the cumulative total stockholder return on the
Company's Common Stock for the past five years, with the cumulative total re-
turn of companies on the Standard & Poor's 500 Index (S&P 500 Index) and the
Standard & Poor's Hospital Management Index (S&P Hospital Index) over the same
period (assuming the investment of $100 in the Company's Common Stock, the S&P
500 Index and the S&P Hospital Index on December 31, 1990 and reinvestment of
all dividends).
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPARISON OF CUMULATIVE TOTAL RETURNS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Columbia/HCA S&P 500 Index S&P Hospital Index
<S> <C> <C> <C>
12/31/90 100.00 100.00 100.00
12/31/91 144.68 130.48 88.51
12/31/92 180.85 140.46 68.82
12/31/93 282.46 154.62 103.73
12/31/94 311.94 156.66 110.21
12/31/95 434.90 215.54 154.00
</TABLE>
17
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CERTAIN TRANSACTIONS
T. Michael Long, co-manager of The 1818 Fund, L.P. (the "Fund"), became a
member of the Board of Directors of the Company on March 18, 1991, in connec-
tion with the Fund's purchase of a $40 million principal amount 9% Subordi-
nated Mandatory Convertible Note due June 30, 1999 (the "9% Note"). The 9%
Note was converted into Common Stock at a conversion price of $18.50 per share
in two separate transactions on June 16 and July 1, 1994. The Company also is-
sued a warrant to purchase 400,000 shares of Common Stock (the "Warrant") to
the Fund. The Warrant is exercisable at any time prior to March 31, 1998, at
an exercise price of $20.00 per share, subject to adjustment to prevent dilu-
tion in the event of stock splits, recapitalizations and reorganizations. The
Fund was also granted certain incidental and demand registration rights by the
Company with respect to the shares of Common Stock issuable upon conversion of
the 9% Note and exercise of the Warrant (the "Registrable Securities"). As a
result, the Fund is entitled to notice of any registration statement filed by
the Company on Form S-1, S-2, or S-3 with respect to the registration of
shares of Common Stock (other than registration of shares to be issued in ex-
change for partnership interests), and the Company is required, subject to
certain limitations, to use its best efforts to include the Registrable Secu-
rities in such registration at the Company's expense. The registration rights
granted to the Fund may, in certain transactions, adversely affect the market
price of the Common Stock and limit the Company's ability to raise capital
through the public markets.
See "Compensation Committee Interlocks and Insider Participation" concerning
certain other transactions between the Company and certain executive officers,
directors and principal stockholders of the Company.
SELECTION OF AUDITORS
As a result of the merger involving the Company and HCA, management re-
quested proposals on March 3, 1994 from two independent public accounting
firms, Coopers & Lybrand (the Company's then current independent accountants)
and Ernst & Young LLP (formerly the independent accountants for HCA), to pro-
vide audit services in connection with the Company's consolidated financial
statements. The Audit Committee of the Board of Directors, upon review of the
proposals and discussions with each firm, recommended the selection of Ernst &
Young LLP to the Board of Directors. The Board of Directors selected Ernst &
Young LLP as the Company's principal independent accountants.
The Company did not contact Ernst & Young LLP during its two prior fiscal
years, or any subsequent interim period regarding (a) the application of ac-
counting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's consoli-
dated financial statements, or (b) any matter that was the subject of a dis-
agreement. Prior to its engagement, Ernst & Young LLP was neither asked for
nor had it expressed any opinion on any accounting issues concerning the Com-
pany.
There were no disagreements with Coopers & Lybrand during the fiscal year
ended December 31, 1993, or any subsequent interim period, on any matters in-
volving accounting principles or practices, financial statement disclosure or
auditing scope or procedures. The report of Coopers & Lybrand for the fiscal
year ended December 31, 1993, or any subsequent interim period, did not con-
tain an adverse opinion, disclaimer of opinion, qualification, or modification
as to uncertainty, audit scope or accounting principles.
The Board of Directors, in accordance with the recommendation of its Audit
Committee, the members of which are not employees of the Company, has ap-
pointed Ernst & Young LLP, as
18
<PAGE>
independent auditors to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1996. Ernst & Young LLP has
served as the Company's independent auditors since 1994. Representatives of
Ernst & Young LLP will be present at the Annual Meeting and will be afforded
the opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
AMENDMENTS TO THE COLUMBIA HOSPITAL CORPORATION
1992 STOCK AND INCENTIVE PLAN
The Columbia Hospital Corporation 1992 Stock and Incentive Plan (the "1992
Plan") was adopted by the Company's Board of Directors on March 3, 1992 and
approved by the stockholders on May 28, 1992. The 1992 Plan was amended effec-
tive May 12, 1994 to increase the number of authorized shares thereunder from
2,000,000 shares to 20,000,000 shares. The Board of Directors has determined
that it is in the best interests of the Company to amend the 1992 Plan (a) by
increasing the number of authorized shares thereunder from 20,000,000 shares
to 40,000,000 shares and (b) to change the name of the 1992 Plan to the
Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan. The 1992
Plan is intended to facilitate stock ownership and increase the interest of
employees in the growth and performance of the Company.
The 1992 Plan is administered by the Compensation Committee. The Compensa-
tion Committee, by action of a majority of its members, has the authority to
establish rules for administering and interpreting the 1992 Plan. The Board of
Directors is authorized to terminate, amend or modify the 1992 Plan, except
that stockholder approval is required for any amendment which would increase
the number of shares available, decrease the minimum option price, extend the
maximum option term, or materially modify the eligibility requirements for
participation in the 1992 Plan.
All full or part-time employees of the Company, its subsidiaries and its af-
filiated partnerships are eligible to be participants in the 1992 Plan. At De-
cember 31, 1995, the Company had approximately 240,000 employees. In addition,
consultants and independent contractors providing valuable services to the
Company, its subsidiaries and its affiliated partnerships are eligible to re-
ceive nonqualified stock options under the 1992 Plan. The Compensation Commit-
tee has the authority to select individuals to whom awards are granted and the
timing of such awards. No person may be granted options during the life of the
1992 Plan in respect to more than an aggregate of 10% of the shares of Common
Stock authorized from time to time under the 1992 Plan.
Subject to adjustment as described below, a maximum of 40,000,000 shares of
the Common Stock would be available for distribution under the 1992 Plan, as-
suming the stockholders approve the proposed amendments to the 1992 Plan. If
awards lapse, expire, terminate, or are cancelled prior to the issuance of
shares, such shares will be available for new awards. The total number of
shares which may be awarded is subject to adjustment to reflect capital
changes. As of February 29, 1996, the 1992 Plan authorized 20,000,000 shares
for issuance. On such date, there were options outstanding to purchase approx-
imately 15,848,000 shares of the Common Stock, leaving only approximately
2,565,000 shares of the Common Stock available for awards under the 1992 Plan.
The Board of Directors of the Company believes that the additional shares
should provide sufficient shares under the 1992 Plan for at least three years.
The 1992 Plan permits the granting of all or any of the following types of
awards: (1) stock options, including both incentive stock options ("ISOs") (as
defined under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code")) and options which do not qualify for special tax treatment
("nonqualified stock options"); and (2) restricted stock. The vesting of any
award granted under the 1992 Plan may be conditioned upon the meeting of spec-
ified performance crite-
19
<PAGE>
ria selected by the Compensation Committee. No award granted under the 1992
Plan may be assigned, transferred, pledged or otherwise encumbered by a par-
ticipant, other than by will or by the laws of descent and distribution. Each
award will be exercisable during the participant's lifetime only by the par-
ticipant, or if permissible under applicable law, by the participant's guard-
ian or legal representative.
The purchase price per share of stock purchasable under any nonqualified
stock option granted pursuant to the 1992 Plan will be determined by the Com-
pensation Committee, but shall not be less than 50% of the fair market value
of the stock on the date of the grant of such option. The Compensation Commit-
tee has not granted any discounted stock options. The purchase price per share
of stock purchasable under any ISO will also be determined by the Compensation
Committee but shall not be less than 100% of the fair market value on the date
of the grant. The term of each option shall be fixed by the Compensation Com-
mittee and the options may be exercised at such time or times as determined by
the Compensation Committee, but no ISOs will be exercisable after the expira-
tion of ten years from the date the option is granted and no nonqualified op-
tions will be exercisable after the expiration of 15 years from the date the
option is granted. The fair market value of ISOs first exercisable in any one
year as to any participant may not exceed $100,000.
Options may be exercised by paying the purchase price and withholding taxes,
if any, either in cash or, at the discretion of the Compensation Committee, in
the stock of the Company or a combination of cash and stock of the Company.
The Compensation Committee may, in its discretion, allow the optionee to de-
liver a notice of exercise and sale of shares by a brokerage firm. The Commit-
tee may include a provision in an option permitting the grant of a new option
when payment of the exercise price upon exercise of an option is made in
shares of Common Stock (an accelerated ownership option). If the participant's
employment with the Company ceases during the term of an option because of se-
rious misconduct, the option will terminate as of the date of the misconduct.
If termination is due to the death or disability of a participant while in the
employ of the Company, or the death of a participant within three months of
termination of employment by the participant, the optionee, or his or her ben-
eficiary, personal representative or guardian may exercise the option at any
time, within a period determined by the Compensation Committee (not to exceed
five years), to the extent of the full number of shares which the participant
was entitled to purchase on the date of termination. If termination is for any
reason other than the employee's serious misconduct, death or disability (such
as, for example, retirement), the Compensation Committee will determine the
appropriate period following termination in which the option may be exercised,
provided such period will not exceed five years.
The grant of an option under the 1992 Plan will not result in taxable income
at the time of grant for the optionee or the Company. The optionee will not
have taxable income upon exercising an ISO (except that the alternative mini-
mum tax may apply), and the Company will receive no deduction when an ISO is
exercised. Upon exercising a nonqualified stock option, the optionee will rec-
ognize ordinary income in the amount by which the fair market value on the
date of exercise exceeds the option price; the Company will be entitled to a
deduction for the same amount. The tax treatment to an optionee of a disposi-
tion of shares acquired through the exercise of an option is dependent upon
the length of time the shares have been held and on whether such shares were
acquired by exercising an ISO or a nonqualified stock option. Generally, there
will not be a tax consequence to the Company in connection with the disposi-
tion of shares acquired under an option, except that the Company may be enti-
tled to a deduction in the case of a disposition of shares under an ISO before
the applicable ISO holding periods have been satisfied.
At the time of an award of restricted stock under the 1992 Plan, a restric-
tion period will be established for each participant. During the restricted
period, the restricted stock may not be transferred, encumbered or sold, un-
less the Compensation Committee may otherwise determine.
20
<PAGE>
The participant, as owner of such shares, will have the rights of a stockhold-
er, including the right to receive cash dividends and the right to vote.
Recipients of restricted stock are not required to provide consideration
other than the rendering of services. Except as otherwise may be determined by
the Committee, all shares are forfeited unless the participant remains in the
continuous employment of the Company for the entire restricted period with re-
spect to which the shares were granted.
Stockholder approval of the amendments to the 1992 Plan is being sought in
order to qualify the plan under Rule 16b-3 promulgated by the Securities and
Exchange Commission as a stockholder approved plan. Once approved, grants of
options will not be treated as purchases for purposes of the Section 16(b)
short-swing profit rules. Management believes that the approval of the amend-
ments to the 1992 Plan does not conflict with or impede the policy behind the
short-swing profit provisions of the securities laws.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
AMENDMENTS TO THE COLUMBIA HOSPITAL CORPORATION 1992 STOCK AND INCENTIVE PLAN.
GENERAL INFORMATION
STOCKHOLDER PROPOSALS
Any proposals that stockholders of the Company desire to have presented at
the 1997 Annual Meeting of Stockholders must be received by the Company at its
principal executive offices not less than 60 days nor more than 90 days prior
to the scheduled date of the meeting (or, if less than 70 days' notice or
prior public disclosure of the date of the meeting is given, the 10th day fol-
lowing the earlier of (i) the day such notice was mailed or (ii) the day such
public disclosure was made).
ANNUAL REPORT
The Company's 1995 Annual Report to Stockholders is being mailed to stock-
holders with this proxy statement. The Annual Report is not part of the proxy
solicitation materials.
ADDITIONAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEM-
BER 31, 1995, EXCLUDING CERTAIN OF THE EXHIBITS THERETO, MAY BE OBTAINED WITH-
OUT CHARGE BY WRITING TO COLUMBIA/HCA HEALTHCARE CORPORATION, INVESTOR RELA-
TIONS DEPARTMENT, ONE PARK PLAZA, NASHVILLE, TENNESSEE 37203.
By Order of the Board of Directors,
/s/ John M. Franck II
John M. Franck II
Secretary
Nashville, Tennessee
April 3, 1996
21
<PAGE>
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COLUMBIA/HCA HEALTHCARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders (the "Meeting") of Columbia/HCA Healthcare
Corporation, a Delaware corporation (the "Company"), to be held at the
offices of the Company, One Park Plaza, Nashville, Tennessee on May 9,
1996 at 1:30 p.m., Central Daylight Time, and the Proxy Statement in
connection therewith (the "Proxy Statement") and (2) appoints R. Clayton
McWhorter, David T. Vandewater and Stephen T. Braun, and each of them,
his proxies with full power of substitution for and in the name, place,
and stead of the undersigned, to vote upon and act with respect to all of
the shares of Common Stock of the Company standing in the name of the
P undersigned, or with respect to which the undersigned is entitled to vote
and act, at the Meeting and at any adjournment(s) or postponement(s)
R thereof.
O The undersigned directs that this proxy be voted as follows:
1. ELECTION OF DIRECTORS:
X [_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees listed
Y contrary below) below
Thomas F. Frist, Jr., M.D., Sister Judith Ann Karam, CSA, R.Ph.
and Richard L. Scott
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
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2. APPROVAL OF AMENDMENTS TO THE COLUMBIA HOSPITAL CORPORATION 1992
STOCK AND INCENTIVE PLAN, AS DESCRIBED IN THE PROXY STATEMENT.
[_] FOR [_] AGAINST [_] ABSTAIN
3. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.
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The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock of the Company and hereby ratifies and
confirms all that the proxies, their substitutes, or any of them may
lawfully do by virtue hereof.
If one or more of the proxies named shall be present in person or by
substitute at the Meeting or at any adjournment(s) or postponement(s)
thereof, the proxies so present and voting, either in person or by
substitute, shall exercise all of the powers hereby given.
Please date, sign and mail this proxy in the enclosed envelope. No
postage is required.
Dated___________________________________ , 1996
------------------------------------------------
Signature of Stockholder
------------------------------------------------
Signature of Stockholder
Please date this proxy and sign your name ex-
actly as it appears hereon. Where there is more
than one owner, each should sign. When signing
as an attorney, administrator, executor, guard-
ian, or trustee, please add your title as such.
If executed by a corporation, the proxy should
be signed by a duly authorized officer. If a
partnership, please sign in partnership name by
an authorized person.
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