<PAGE>
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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:
[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 Section 240.14a-11(c) or Section 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] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
PRELIMINARY PROXY
MARCH 27, 1998
COLUMBIA/HCA HEALTHCARE CORPORATION
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
Notice is hereby given that the 1998 Annual Meeting of Stockholders ("Annual
Meeting") of Columbia/HCA Healthcare Corporation, a Delaware corporation (the
"Company"), will be held at the Sheraton Music City at 777 McGavock Pike,
Nashville, Tennessee, on Thursday, May 14, 1998 at 1:30 p.m., Central Daylight
Time, for the following purposes:
(1) To elect three directors to serve until the Annual Meeting of Stockhold-
ers in 2001, or until their respective successors shall have been duly elected
and qualified;
(2) To consider and approve an amendment to the Company's Restated Certifi-
cate of Incorporation to provide for the annual election of directors (the
"Charter Amendment");
(3) To consider and approve an amendment to the Columbia Hospital Corpora-
tion Outside Directors Nonqualified Stock Option Plan to increase the number
of authorized shares thereunder from 150,000 to 500,000 and certain other
amendments;
(4) To ratify the appointment of Ernst & Young LLP as the Company's indepen-
dent auditors;
(5) To act on two stockholder proposals; and
(6) To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 23, 1998, 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.
IF YOU PLAN TO ATTEND:
We anticipate that a large number of stockholders will attend the Annual
Meeting. Please note that space limitations make it necessary to limit atten-
dance to stockholders. Cameras and recording devices will not be permitted at
the meeting. "Street name" holders will need to bring a copy of a brokerage
statement reflecting stock ownership as of the record date.
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,
[SIGNATURE OF JOHN M. FRANCK II APPEARS HERE]
John M. Franck II
Corporate Secretary
Nashville, Tennessee
April , 1998
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
----------------
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 1998 Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on the date, at the time and place and for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockhold-
ers. The Company's principal executive offices are located at One Park Plaza,
Nashville, Tennessee 37203, and its telephone number is (615) 344-9551. Stock-
holders of record at the close of business on March 23, 1998 are entitled to
notice of and to vote at the Annual Meeting. This Proxy Statement and the ac-
companying proxy are first being mailed to stockholders on or about April ,
1998.
THE ANNUAL MEETING
VOTING AT THE ANNUAL MEETING
On March 23, 1998, there were approximately 622,200,000 shares of the
Company's voting common stock, $.01 par value (the "Common Stock"), outstand-
ing which were held by approximately 18,700 holders of record. Each share of
Common 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 of Common Stock represented at the Annual Meet-
ing, in person or by proxy, will be necessary for the election of directors.
The affirmative vote of 75% of the outstanding shares of Common Stock will be
necessary to approve the Charter Amendment. Any other matters submitted to a
vote of the stockholders will be determined by a majority of the votes cast.
Any stockholder who is present at the Annual Meeting, but abstains from vot-
ing, shall be counted for purposes of determining whether a quorum exists.
With respect to all matters other than the election of directors, an absten-
tion has the same effect as a vote against the proposal. Since directors are
elected by a plurality of the votes cast at the Annual Meeting, an abstention
from voting has no effect on the election of directors.
<PAGE>
In accordance with the rules of the New York Stock Exchange, brokers and
nominees may be precluded from exercising their voting discretion with respect
to certain matters to be acted upon and thus, in the absence of specific in-
structions from the beneficial owner of the shares, will not be empowered to
vote the shares on such matters. Since directors are elected by a plurality of
votes cast at the Annual Meeting, a broker non-vote has no effect on the elec-
tion of directors. Since the affirmative vote of the holders of 75% of the
outstanding shares of Common Stock will be necessary to approve the Charter
Amendment, a broker non-vote has the same effect as a vote against that pro-
posal. On all other matters, a broker non-vote will have no impact since they
are not considered shares "present" for voting purposes. Shares represented by
such broker non-votes will, however, be counted for purposes of determining
whether there is a quorum.
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 (a) "For" the election of
each nominee named below under "Election of Directors;" (b) "For" the Charter
Amendment; (c) "For" the approval of amendments to the Columbia Hospital Cor-
poration Outside Directors Nonqualified Stock Option Plan; (d) "For" the rati-
fication of Ernst & Young LLP as independent auditors; and (e) "Against" the
two stockholder proposals. If any other matters are properly presented at the
Annual Meeting for action, the proxy holders will vote the proxies (which con-
fer discretionary authority upon such holders to vote on such matters) in ac-
cordance with their best judgment. The Company has been advised by the Service
Employees International Union Master Trust ("SEIU") that it owns beneficially
and of record 47,300 shares of Common Stock and intends to nominate Howard N.
Newman and Steven M.H. Wallman for election as directors. The SEIU is cur-
rently suing the Company and on a local level attempting to organize employees
of certain facilities affiliated with the Company. The SEIU has indicated that
these candidates give stockholders an opportunity to vote for qualified direc-
tors independent of management. The Board of Directors of the Company believes
that a strong independent board is crucial to the Company's future and has re-
cently appointed three qualified independent directors. Two current members of
the Board of Directors are retiring. While the Company is receptive to con-
sider the candidacy of potential qualified board members, in light of the lit-
igation between the Company and the SEIU and the SEIU's organizing activities,
the Board of Directors believes that the Company is best served by directors
who will represent the interests of all stockholders rather than special in-
terests. Other than the foregoing, the Company does not presently anticipate
any other matters being presented at the Annual Meeting for action. 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 submission of
a duly executed proxy bearing a later date (in either case directed to the
Corporate Secretary of the Company) or, if a stockholder is present at the An-
nual 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
$11,500, plus out-of-pocket expenses. Certain directors, officers and other
employees of the Company, not specially employed for this purpose, may also
solicit 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.
2
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth as of March 16, 1998 (unless
otherwise noted), certain information concerning shares of the Common Stock
held by (a) Company sponsored benefit plans owning Common Stock (which collec-
tively own at least 5% of the outstanding Common Stock), (b) each stockholder
owning beneficially at least 5% of the outstanding Common Stock, (c) each di-
rector of the Company, (d) each executive officer of the Company named in the
"Summary Compensation Table" and (e) 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. 28,686,696(3) 4.6
The Columbia/HCA Healthcare Corporation Salary Deferral
Plan.................................................... 21,680,024(3) 3.5
The San Leandro Retirement and Savings Plan.............. 55,568(3) *
FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson... 94,326,123(4) 15.2
Wellington Management Company, LLP....................... 43,546,494(5) 7.0
Magdalena Averhoff, M.D.................................. 10,526(6) *
Thomas F. Frist, Jr., M.D. .............................. 14,668,172(7) 2.4
Frederick W. Gluck....................................... 0
Sr. Judith Ann Karam, CSA, R.Ph.......................... 3,631(8) *
T. Michael Long.......................................... 4,828(9) *
Donald S. MacNaughton.................................... 533,683(10) *
John H. McArthur......................................... 0
R. Clayton McWhorter..................................... 552,827(11) *
Kent C. Nelson........................................... 0
Carl E. Reichardt........................................ 167,695(12) *
Frank S. Royal, M.D...................................... 112,458(13) *
William T. Young......................................... 925,959(14) *
Jay F. Grinney........................................... 47,764(15) *
Daniel J. Moen........................................... 117,131(16) *
James D. Shelton......................................... 91,614(17) *
David R. White........................................... 86,289(18) *
All directors and executive officers as a group (31
persons).............................................. 19,157,811(19) 3.1
</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 rights, if any, and such securities are
deemed to be outstanding for the purpose of computing the percentage ben-
eficially owned by such person or group. Such securities are not deemed
to be outstanding for the purpose of computing the percentage benefi-
cially owned by any other person or group. Accordingly, the indicated
number of shares includes shares issuable upon conversion of convertible
securities or upon exercise of options (including employee stock options)
held by such person or group.
(3) The address of the Columbia/HCA Healthcare Corporation Stock Bonus Plan,
the Columbia/HCA Salary Deferral Plan and the San Leandro Retirement and
Savings Plan is One Park Plaza, Nashville, Tennessee 37203. Such shares
are beneficially owned by employees participating in such benefit plans
and voted at the direction of the Company's Retirement Committee which is
composed of certain Company officers.
3
<PAGE>
(4) The ownership given for FMR Corp., Edward C. Johnson 3d and Abigail P.
Johnson is based on information contained in the Schedule 13G dated Feb-
ruary 14, 1998, filed by FMR Corp. with the Securities and Exchange Com-
mission (the "Commission"). The address of FMR Corp is 82 Devonshire
Street, Boston, Massachusetts 02109.
(5) The ownership given for Wellington Management Company, LLP is based on
information contained in the Schedule 13G dated January 27, 1998, filed
by Wellington Management Company, LLP with the Commission. The address of
Wellington Management Company, LLP is 75 State Street, Boston, Massachu-
setts 02109.
(6) Includes 6,750 shares issuable upon exercise of options.
(7) Includes 172,500 shares issuable upon exercise of options 18,873 shares
beneficially owned in employee plans but not voted by participant. Also
includes 778,045 shares with respect to which Dr. Frist has sole voting
and investment power, 12,111,127 shares with respect to which Dr. Frist
has shared voting and investment power and 1,606,500 shares held by a
trust of which he is an income beneficiary but holds no voting or invest-
ment power.
(8) Includes 2,553 shares issuable upon exercise of options.
(9) Includes 3,750 shares issuable upon exercise of options.
(10) Includes 4,524 shares issuable upon exercise of options. Also includes
170,687 shares with respect to which Mr. MacNaughton has sole voting and
investment power and 358,472 shares with respect to which Mr. MacNaughton
has shared voting and investment power.
(11) Includes 1,078 shares issuable upon exercise of options.
(12) Includes 5,721 shares issuable upon exercise of options.
(13) Includes 5,721 shares issuable upon exercise of options.
(14) Includes 8,250 shares issuable upon exercise of options. Includes 828,815
shares with respect to which Mr. Young has sole voting and investment
power and 88,894 shares with respect to which Mr. Young has shared voting
and investment power. Excludes 115,879 shares held by an educational in-
stitution of which Mr. Young serves as chairman of the governing board.
(15) Includes 38,623 shares issuable upon exercise of options and 591 shares
beneficially owned in employee plans but not voted by participant.
(16) Includes 97,500 shares issuable upon exercise of options and 55 shares
beneficially owned in employee plans but not voted by participant.
(17) Includes 73,125 shares issuable upon exercise of options and 39 shares
beneficially owned in employee plans but not voted by participant.
(18) Includes 86,250 shares issuable upon exercise of options and 39 shares
beneficially owned in employee plans but not voted by participant.
(19) Includes 1,416,539 shares issuable upon exercise of options. Also in-
cludes 89,008 shares beneficially owned in employee plans but not voted
by participant. Excludes Richard L. Scott and David T. Vandewater, the
Company's former Chief Executive Officer and former President, respec-
tively, who resigned from the Company on July 25, 1997. Based on informa-
tion from the last Form 4 filed with the Commission and records main-
tained at the Company, as of October 15, 1997 Mr. Scott owned 9,239,730
shares and Mr. Vandewater owned 355,881 shares. Also excludes 78,128
shares held by Donald E. Steen, who resigned from the Company on December
31, 1997.
4
<PAGE>
ITEM 1--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 nine members, consist-
ing of four Class II members (Messrs. Long, MacNaughton, Reichardt and Young)
whose term of office expires in 1998, two Class III members (Dr. Frist and
Sister Karam) whose term of office expires in 1999 and three Class I members
(Dr. Averhoff, Mr. McWhorter and Dr. Royal) whose term of office expires in
2000 (Class I Directors).
Three new directors--Messrs. Frederick W. Gluck (Class II), John H. McArthur
(Class III) and Kent C. Nelson (Class I) have been elected to the Board of Di-
rectors of the Company effective April 3, 1998 which brings the total to 12
members at that date. Messrs. Donald S. MacNaughton and William T. Young are
retiring from the Board of Directors effective May 14, 1998 and will not be
seeking reelection. Following the Annual Meeting on May 14, 1998, the Board of
Directors will consist of 10 members.
At the Annual Meeting it is proposed that the nominees listed below be
elected as Class II 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 2001 or until his respective successor is duly elected and quali-
fied.
INFORMATION CONCERNING DIRECTORS
Information concerning the nominees proposed by the Board of Directors for
election as Class II Directors along with information concerning the Class I
and Class III Directors, whose terms of office will continue after the Annual
Meeting, is set forth below.
Approval by the Company's stockholders of Item 2 on the agenda for the An-
nual Meeting--the proposed amendment to the Company's Restated Certificate of
Incorporation of the Company to provide for the annual election of the direc-
tors--will not affect the term of the directors who, if elected, will continue
in office until their respective terms expire.
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
Board of Directors 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 II--PRESENT TERM EXPIRES 1998
Frederick W. Gluck. 62 Retired Vice Chairman of Bechtel Group, 1998
Inc. and Retired Managing Director of
McKinsey & Company, Inc.
T. Michael Long.... 54 Partner, Brown Brothers Harriman & Co. 1991
Carl E. Reichardt.. 66 Retired Chairman of the Board and Chief 1994
Executive Officer, Wells Fargo & Company
</TABLE>
5
<PAGE>
<TABLE>
<C> <C> <S> <C>
DIRECTORS CONTINUING IN OFFICE
CLASS III--PRESENT TERM EXPIRES 1999
Thomas F. Frist, Jr., M.D. ........ 59 Chairman of the Board and CEO, 1994
Columbia/HCA Healthcare
Corporation
Sister Judith Ann Karam, CSA, R.Ph. 51 Sisters of Charity of St. 1996
Augustine
John H. McArthur................... 64 Retired Dean of Harvard 1998
University School of Business
Administration
CLASS I--PRESENT TERM EXPIRES 2000
Magdalena Averhoff, M.D............ 47 Practicing Physician 1992
R. Clayton McWhorter............... 64 Chairman and CEO of Clayton 1995
Associates, L.L.C.
Kent C. Nelson..................... 60 Retired Chairman and Chief 1998
Executive Officer of United
Parcel Service
Frank S. Royal, M.D. .............. 58 Practicing Physician 1994
</TABLE>
Magdalena Averhoff, M.D. is a physician specializing in gastroenterology
practicing in Miami, Florida since 1982. Dr. Averhoff is Chairperson of the
Performance Improvement Committee, past Chairperson of the Credentials Commit-
tee and is member of the Board of Cedars Medical Center. Dr. Averhoff is past
President of Victoria Hospital and past President and Chief of Staff of Cedars
Medical Center.
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board and Chief Ex-
ecutive Officer since July 1997. Previously he served as Vice Chairman of the
Board of the Company 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 1988 to February 1994. Dr. Frist was Chairman and Chief Executive
Officer of Hospital Corporation of America from August 1985 until September
1987.
Frederick W. Gluck has worked with Bechtel Group, Inc. since February 1995,
where he served as Vice Chairman and Director from January 1996 until July
1997 and currently serves as a Director. Prior to 1995, Mr. Gluck was with
McKinsey & Company, Inc. for 27 years ultimately leading that firm as its man-
aging director from 1988 until 1994. Mr. Gluck is currently a director of
AMGEN, ACT Networks, Broadband Associates, The New York and Presbyterian Hos-
pital and Thinking Tools. Mr. Gluck also serves on the advisory boards of
Price Waterhouse and Russel Reynolds.
Sister Judith Ann Karam, CSA, R.Ph. is currently on sabbatical at the Ameri-
can College at the Catholic University of Louvain. She was Major Superior of
the Sisters of Charity of St. Augustine from August 1993 to July 1997. From
1989 to August 1993, she served on the Congregational leadership team as Coun-
cilor for Temporal Affairs and Treasurer. She was also Project Director for
Regina Health Center, a skilled nursing and assisted living facility. Sister
Karam is an experienced hospital administrator and is a fellow in the American
College of Healthcare Executives.
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 and where he
is co-manager of The 1818 Fund, L.P. and The 1818 Fund II, L.P. Mr. Long is
also a director of Ekco Group, Inc., Gulf Canada Resources, Ltd., Gulf Indone-
sia Resources, Ltd. and Vaalco Energy, Inc.
6
<PAGE>
John H. McArthur served as Dean of the Faculty of Harvard University Gradu-
ate School of Business Administration from 1980 to 1995. Mr. McArthur had been
on staff with the Harvard Business School since 1962. Mr. McArthur is cur-
rently a director of AES Corporation, BCE Inc., Cabot Corporation, Glaxo
Wellcome plc, Rohm and Haas Company, Springs Industries, Inc. and The Vincam
Group, Inc.
R. Clayton McWhorter is the Chairman and Chief Executive Officer of Clayton
Associates, L.L.C., a venture capital firm and also Chairman and Chief Execu-
tive Officer of Life Trust America, LLC, an assisted living venture. Mr. Mc-
Whorter served as the Chairman of the Board of the Company from April 1995 to
May 1996. 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 Hospital Corporation of America (HCA's predecessor) from 1985 to 1987. Mr.
McWhorter is a director of SunTrust Bank in Nashville, Ingram Industries Inc.,
Corrections Corporation of America and StaffMark, Inc.
Kent C. Nelson served as Chairman and Chief Executive Officer of United Par-
cel Service from November 1989 to December 1996. Mr. Nelson held various posi-
tions with United Parcel Service over a 37 year period. Mr. Nelson currently
serves as a director of United Parcel Service and is a member of the board of
the CDC Foundation and United Way of America. Mr. Nelson also serves on the
Board of Trustees of the Carter Center of Emory University and the Ball State
University Foundation.
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), PG&E Corpo-
ration, 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.
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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, the Company's Board of Directors held seventeen meetings. Also,
there are certain 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 1997 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.
7
<PAGE>
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, reviews the results of the audit and reviews the types of serv-
ices for which the Company retains independent auditors. In 1997, this Commit-
tee met six times.
The Compensation Committee is presently comprised of three directors: Wil-
liam T. Young (Chairman), T. Michael Long and Frank S. Royal, M.D., none of
whom are officers or employees of the Company. Responsibilities of this Com-
mittee include approval of compensation arrangements for executive management,
review of compensation plans relating to officers, grants of options and other
benefits under the Company's employee benefit plans and general review of the
Company's employee compensation policies. In 1997, this Committee met four
times.
The Executive Committee is presently comprised of three directors: Thomas F.
Frist, Jr., M.D., R. Clayton McWhorter and Donald S. MacNaughton. This Commit-
tee has the authority to exercise all of the powers of the full Board of Di-
rectors, with certain exceptions relating to major corporate matters. This
Committee is available to review with members of management certain areas of
the Company's operations and to act when it is impractical to assemble the en-
tire Board for a meeting. In 1997, this Committee met one time.
In April 1997, the Board of Directors established a Special Litigation Com-
mittee which was comprised of three directors: T. Michael Long, Carl E.
Reichardt and Frank S. Royal, M.D., none of whom were officers or employees of
the Company. The Committee was formed for the purpose of reviewing, evaluating
and making recommendations to the Board of Directors regarding the supervision
of the Company's response to a governmental investigation being conducted re-
lating to the Company's operations in El Paso, Texas, as well as any other in-
quiries by governmental agencies. The Board assumed the responsibilities of
the Committee in August 1997, and the Committee was dissolved. The Committee
met five times in 1997.
In November 1997, the Board of Directors established an Ethics, Compliance
and Corporate Responsibility Committee which is presently comprised of three
directors: Sister Judith Ann Karam (Chairperson), Donald S. MacNaughton and
Frank S. Royal, M.D., none of whom are officers or employees of the Company.
The functions of the Committee include review of matters relating to ethics,
compliance and corporate responsibility functions of the Company, review of
ethics, compliance and corporate responsibility results with the personnel of
the Company and review of the scope and results of the Company's ethics, com-
pliance and corporate responsibility procedures and the adequacy thereof. In
1997, this Committee met one time.
In November 1997, the Board of Directors established a Nominating Committee
which is presently comprised of four directors: T. Michael Long, Magdelena
Averhoff, M.D., Carl E. Reichardt and Thomas F. Frist, Jr., M.D. (ex officio).
The functions of the Committee are to consider, investigate and recommend to
the Board of Directors, qualified candidates for election to the Board of Di-
rectors. In 1997, this committee did not meet.
The Board of Directors will consider nominees for the Board of Directors
recommended by stockholders, provided such stockholders comply with the notice
provisions contained in the Company's Restated Certificate of Incorporation.
Directors are selected on the basis of their demonstrated broad knowledge, ex-
perience and ability in their chosen endeavors and, most importantly, on the
basis of their ability to represent the interests of all the stockholders.
Recommendations by stockholders for such nominees, which must include bio-
graphical information and the proposed
8
<PAGE>
nominee's written consent to nomination, must be made in writing to the Corpo-
rate 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 connection with the formation of joint ventures during 1995 with the Sis-
ters of Charity of St. Augustine Health System, Inc. (the "Sisters of Chari-
ty") 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 under certain circumstances. Sister Judith Ann Karam, CSA, R.Ph.
was nominated as a Class III director pursuant to such obligation.
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.
CERTAIN LEGAL PROCEEDINGS
The Company is currently a party to several stockholder derivative and class
action lawsuits in which certain of the Company's directors and current and
former executive officers have been named as defendants. More information with
respect to these and other legal proceedings is provided in the Company's An-
nual Report on Form 10-K for the year ended December 31, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of own-
ership and changes in ownership with the Commission and provide 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 certain reporting per-
sons that no Forms 5 were required for those persons, the Company believes
that, during the past fiscal year all filing requirements applicable to its
executive officers, directors, and greater than ten-percent stockholders were
complied with.
9
<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 1997. The
table also includes information with respect to the Company's former Chief Ex-
ecutive Officer, former President and former President-International Group.
<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(1) YEAR SALARY ($) BONUS ($)(2) ($)(3) AWARDS ($)(4) (#)(5) PAYOUTS ($) ($)(6)
------------------ ------ ---------- ------------ ------------ ------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas F. Frist, Jr.,
M.D. .................. 1997 $ 29,000 - $ 18,800 - - - $ 1,969
Chairman and Chief 1996 $350,000 - $ 16,200 $373,300 75,000 - $14,927
Executive Officer(7) 1995 $375,000 $270,000 $ 83,000 $361,100 150,000 - $15,009
David R. White.......... 1997 $400,000 $200,000 - - 350,000 - $ 6,528
President-- 1996 $340,000 $233,750 - - 90,000 - $ 6,089
Mid-American Group 1995 $315,000 $255,938 - - 60,000 - $ 6,123
James D. Shelton........ 1997 $415,000 $ 41,500 - $221,400 350,000 - $ 7,629
President-- 1996 $350,000 $ 35,000 - $187,000 82,500 - $ 7,214
Central Group 1995 $325,000 $ 32,000 - $165,000 60,000 - $ 7,248
Jay F. Grinney.......... 1997 $402,500 $100,625 $ 53,900 $134,200 340,000 - $ 9,538
President- 1996 $300,000 $150,000 $ 31,200 - 56,250 - $ 8,994
Eastern Group 1995 $220,000 $143,550 - - 6,000 - $ 9,039
Daniel J. Moen(8)....... 1997 $400,000 - - $266,700 100,000 - $ 8,438
President--Columbia 1996 $350,000 - $ 54,000 $233,000 90,000 - $ 7,869
Sponsored Networks 1995 $315,000 $275,000 - - 60,000 - $ 6,123
Richard L. Scott........ 1997 $538,000 - $ 10,115 - 187,500 - -
Former Chairman and 1996 $900,000 - $ 16,000 $960,000 187,500 - $ 8,000
Chief Executive 1995 $900,000 - $390,500 $870,000 225,000 - $ 9,000
Officer(9)
David T. Vandewater..... 1997 $344,000 - $ 4,200 - 150,000 - $ 700
Former President and 1996 $565,000 $226,000 $ 1,500 $301,000 150,000 - $ 9,000
Chief Operating 1995 $550,000 $204,000 $174,500 $273,000 150,000 - $ 9,000
Officer(10)
Donald E. Steen......... 1997 $507,000 $126,750 - $126,800 50,000 - $14,630
Former President-- 1996 $507,000 $ 63,000 - $253,000 45,000 - $13,740
International Group(11) 1995 $507,000 $ 21,000 - $ 83,000 60,000 - $11,000
</TABLE>
- --------
(1) On August 4, 1997, the Company named Jack O. Bovender, Jr. as President
and Chief Operating Officer. During 1997, he earned $375,000 ($900,000
annualized), was awarded 500,000 options on November 3, 1997 with an exer-
cise price of $28.19 and received $13,930 in all other compensation. Mr.
Bovender is not listed in the Summary Compensation Table since his 1997
part-year salary earned did not qualify him as one of the four other most
highly compensated executive officers.
(2) 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 execu-
tive 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.
(3) 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 sal-
ary and bonus for the named executive officer. Other compensation consists
principally of Company provided transportation and relocation expenses.
(4) 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.
(5) Options to acquire shares of the Common Stock. The Company granted options
at two separate times in 1997. The 1997 regular grant was issued in Febru-
ary 1997. A special grant was issued in November 1997 to help ensure the
retention and motivation of key executives at the time the Company was re-
organizing.
(6) Consists of the Company contributions to the Company's Savings and Invest-
ment Plan, Money Purchase Plan and Stock Bonus Plan, except as otherwise
noted.
(7) Dr. Frist was appointed Chairman and Chief Executive Officer effective
July 25, 1997. He elected to serve without salary or bonus. Amount re-
flects prorated salary for services as Vice-Chairman through July 25,
1997.
(8) Mr. Moen was granted 200,000 option shares on March 5, 1998. He did not
participate in the November 1997 special grant.
(9) Mr. Scott resigned from the Company effective July 25, 1997. Mr. Scott re-
ceived a lump-sum payment pursuant to his separation agreement with the
Company and such other benefits as described under "Employment, Severance
and Change In Control Agreements" below.
10
<PAGE>
(10) Mr. Vandewater resigned from the Company effective July 25, 1997. Mr.
Vandewater received a lump-sum payment pursuant to his separation agree-
ment with the Company and such other benefits as described under "Employ-
ment, Severance and Change In Control Agreements" below.
(11) Mr. Steen's employment by the Company commenced September 16, 1994 and
ended December 31, 1997. Mr. Steen received a lump-sum payment pursuant
to his separation agreement with the Company and such other benefits as
described under "Employment, Severance and Change In Control Agreements"
below.
OPTION GRANTS DURING 1997 FISCAL YEAR
The following table provides information related to options granted to the
named executive officers during fiscal 1997.
<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>
Thomas F. Frist, Jr.,
M.D. .................. -- -- -- -- -- -- --
David R. White.......... 100,000 -- $39.88 2/3/07 -- $2,507,717 $ 6,355,048
250,000 1.58% $28.19 11/3/07 -- $4,431,741 $11,230,903
James D. Shelton........ 100,000 $39.88 2/3/07 -- $2,507,717 $ 6,355,048
250,000 1.58% $28.19 11/3/07 -- $4,431,741 $11,230,903
Jay F. Grinney.......... 90,000 $39.88 2/3/07 -- $2,256,945 $ 5,719,543
250,000 1.54% $28.19 11/3/07 -- $4,431,741 $11,230,903
Daniel J. Moen(5)....... 100,000 0.45% $39.88 2/3/07 -- $2,507,717 $ 6,355,048
Richard L. Scott(6)..... 187,500 0.85% $39.88 10/25/97 -- -- --
David T. Vandewater(6).. 150,000 0.68% $39.88 10/25/97 -- -- --
Donald E. Steen(6)...... 50,000 0.23% $39.88 3/31/98 -- -- --
</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. The Company granted options
at two separate times in 1997. The 1997 regular grant was issued in Febru-
ary 1997. A special grant was issued in November 1997 to help ensure the
retention and motivation of key executives at the time the Company was re-
organizing.
(3) The option exercise price may be paid in shares of the Common Stock owned
by the executive officer, in cash, or a combination thereof.
(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.
(5) On March 5, 1998, Mr. Moen was granted 200,000 option shares at an exer-
cise price of $26.47. He did not participate in the November 1997 special
grant.
(6) Options expired 90 days after termination of employment and in accordance
with the terms of the Plan.
OPTION EXERCISES DURING 1997 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during the 1997 fiscal year and the number and value
of options held at fiscal year end. The Company has not issued stock apprecia-
tion rights or warrants to its executive officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)(2)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#)(1) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Frist, Jr.,
M.D. .................. -- -- 116,250 187,500 $1,428,285 $323,438
David R. White.......... -- -- 37,500 507,500 $ 111,563 $557,188
James D. Shelton........ -- -- 37,500 500,000 $ 117,188 $562,813
Jay F. Grinney.......... 12,750 $ 368,531 16,499 415,750 $ 59,741 $422,353
Daniel J. Moen.......... 52,500 $1,592,343 45,000 265,000 $ 159,375 $245,625
Richard L. Scott........ 333,750 $5,153,797 -- -- -- --
David T. Vandewater..... 281,250 $3,595,905 -- -- -- --
Donald E. Steen......... 135,693 $1,546,628 15,000 140,000 $ 43,125 $129,375
</TABLE>
11
<PAGE>
- --------
(1) Except as noted in the table, the named executive officers did not exer-
cise any stock options during 1997.
(2) The closing price for the Common Stock as reported by the New York Stock
Exchange, Inc. on December 31, 1997 was $29.625. Value is calculated on
the basis of the difference between the option exercise price and $29.625
multiplied by the number of shares of Common Stock underlying the option.
DIRECTORS' COMPENSATION
For 1997, the annual retainer for outside directors who are neither officers
nor employees of the Company ("Non-Employee Directors") was increased from
$26,000 (payable in cash) to $40,000 (payable in the form of Common Stock),
and the Board meeting fee was increased from $1,000 to $1,200 per meeting.
Committee chairpersons received $1,200 (increased from $1,000) per meeting,
and other committee members received a fee of $800 (increased from $500) per
meeting, in both cases payable only for attendance at committee meetings not
held in conjunction with a meeting of the Board of Directors. Directors are
also reimbursed for expenses incurred relating to attendance at meetings.
Since 1994, new directors have received an initial option to acquire shares of
Common Stock (exercisable at the shares' fair market value on the date of
grant) having an aggregate exercise price equal to two times the outside di-
rector's annual retainer fee then in effect, but in no event more than 4,500
shares. Following each succeeding annual meeting, each outside director who
continued in office received an option to acquire shares of Common Stock (ex-
ercisable at the shares' fair market value on the date of grant) having an ag-
gregate exercise price equal to the outside director's annual retainer fee
then in effect, but in no event more than 3,000 shares. Effective in 1997, the
Company matched charitable contributions by directors up to an aggregate
$15,000 annually. For directors who were former directors of Galen Health
Care, Inc., the Company matched, on an annual basis, up to $20,000 in charita-
ble contributions, and such directors were eligible to participate in the
Company's self-funded medical and dental plans.
A number of changes have been made for 1998. These changes, which are pri-
marily designed to provide Non-Employee Directors the opportunity to build an
immediate, significant ownership stake in the Company, are summarized as fol-
lows. Outside directors have the choice of (i) receiving an annual retainer of
$40,000 payable in restricted stock that vests one year from the date of
grant; or (ii) receiving, in lieu of annual retainers for the next 5 years,
$200,000 in restricted stock units that vest annually over a 5-year period at
a rate of 20% per year. Non-Employee Directors first elected after 1998 will
be given the choice of a prorated award (for the portion of the 5-year period
they serve) or annual restricted stock retainers. In 1998, Non-Employee direc-
tors will be granted stock options (exercisable at the shares' fair market
value on the date of grant) having an aggregate exercise price equal to 12.5
times the annual retainer. This grant is in lieu of an annual stock option
grant for the next 5 years and will vest over a 5-year period at a rate of 20%
per year, commencing on the date of grant. In addition, committee fees have
been increased from $800 to $1,000.
EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL 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 had an initial term through November 15, 1996 and was
subsequently renewed. The base salary for Mr. Steen was $507,000 in 1997. The
agreement also provided for severance payments based on Mr. Steen's base sal-
ary at the time of termination plus a bonus (payable monthly on a pro rata ba-
sis) 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, 1998, whichever was later. Mr. Steen's em-
ployment with Company terminated on December 31, 1997. In lieu of the above-
referenced agreement, Mr. Steen and the Company entered into a separation
agreement on October 17, 1997. Pursuant to the agreement, the Company paid Mr.
Steen a lump-sum payment of $2,408,250, which was equal to three years' salary
and incentive compensation plus incentive compensation for the period from
July 1 through December 31, 1997. In addition, the Company paid Mr. Steen,
$7,670 for health and dental insurance for eighteen months, $35,000 for relo-
cation expenses and $5,000 for outplacement services. Mr. Steen also received
$87,750 for
12
<PAGE>
accrued but unused paid time off. Pursuant to the terms of the 1995 Management
Stock Purchase Plan, Mr. Steen received $329,982 in consideration for re-
stricted stock issued under the plan. Mr. Steen also received proceeds in the
amount of $1,546,628 upon exercised vested options for the Company's Common
Stock. Simultaneously with the execution of the separation agreement, Mr.
Steen entered into a six month consulting agreement with the Company pursuant
to which he was to receive $42,250 per month for the term of the agreement.
However, the Company canceled the consulting agreement on January 16, 1998 and
no payments were made thereunder.
The Company entered into a two-year employment agreement with R. Clayton
McWhorter on April 24, 1995. Under the employment agreement, Mr. McWhorter was
entitled to an annual base salary of $600,000, and was eligible to participate
in all executive compensation and employee benefit plans or programs
applicable to senior management employees of the Company. Mr. McWhorter
terminated his employment with the Company in 1996. Under the agreement,
Mr. McWhorter received his base salary until April 24, 1997. In addition, the
Company paid Mr. McWhorter $2,400,000 and accelerated the vesting on 20,115
shares of restricted stock on July 1, 1995, in consideration for the
termination of 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
have been entitled.
The Company entered into separation agreements with Richard L. Scott and Da-
vid T. Vandewater on July 25, 1997. Pursuant to the agreements, the Company
paid Mr. Scott a one-time payment of $5,130,000 and paid Mr. Vandewater a one-
time payment of $3,240,000. The agreements also provide for five year consult-
ing agreements pursuant to which Mr. Scott will receive an additional $950,000
per year and Mr. Vandewater will receive an additional $600,000 per year to
consult and assist the Company in connection with issues involving litigation,
compliance and governmental or other investigations. Messrs. Scott and
Vandewater have agreed to a limited noncompete with the Company for a period
of two years. In accordance with the Restated Certificate of Incorporation of
the Company and the laws of the State of Delaware, the Company will continue
to advance each executive expenses and fees for retention of legal counsel in
connection with matters relating to actions as an officer, director or em-
ployee of the Company, and each executive will continue to be entitled to the
benefit of the indemnification and limitation of liability provisions con-
tained in the Company's Restated Certificate of Incorporation. The Company
will continue to insure both executives under the Company's directors and of-
ficers liability insurance policies for a period of five years. In addition,
for the five year term of the consulting agreement, the Company will continue
to pay for health insurance for each executive and for two years from the sep-
aration date, the Company will reimburse certain additional expenses including
reasonable office expenses for use in performing services under the agreement.
In the event Mr. Scott or Mr. Vandewater moves more than 90 miles from Nash-
ville within two years of the separation date, the Company will reimburse the
executive for reasonable moving expenses and each executive shall have the op-
tion to have the Company purchase the executive's primary residence at the
price of the executive's net cumulative investment costs and assume any mort-
gage indebtedness on the residence.
In addition, Mr. Scott and Mr. Vandewater were paid for accrued but unused
paid time off in the amount of $164,423 and $103,846, respectively, and for
accrued bonuses of $443,333 and $280,000, respectively. Both executives also
cashed out of the Company's 1995 Management Stock Purchase Plan. Pursuant to
the terms of the plan, Mr. Scott received proceeds in the amount of $1,368,000
and Mr. Vandewater received proceeds in the amount of $429,500. In addition,
on October 15, 1997, Mr. Scott and Mr. Vandewater exercised their remaining
vested options for the Company's Common Stock and received proceeds in the
amount of $444,735 and $352,155, respectively.
13
<PAGE>
Following the announcement of the sale of Value RX, Inc. and Value Behav-
ioral Health, Inc., the Company entered into a separation agreement with Dan-
iel J. Moen on September 12, 1997. Unless Mr. Moen accepts a new position with
the Company, his resignation is to be effective within 30 days following the
closing of the transactions to divest or joint venture Value Behavioral
Health, Inc. and ValueRx, Inc. Within 10 days of the effective date of his
resignation, Mr. Moen will receive payment equal to three years salary plus
equivalent incentive compensation for three years. The Company will also pay
Mr. Moen for all unused paid time off, health and dental insurance, relocation
expenses and outplacement services. In addition, Mr. Moen may exercise vested
stock options and receive cash for restricted shares of the Company's Common
Stock in accordance the terms of the plans under which such options and re-
stricted stock were granted. Effective February 1998, Mr. Moen assumed addi-
tional responsibilities dealing with managed care activities within the Compa-
ny. However, such assumption of duties does not constitute Mr. Moen as "ac-
cepting a new position with the Company," as described above.
In order to retain key senior officers, the Company has established a sever-
ance pay policy that provides that if a senior officer (senior vice president
or group president) is terminated without cause prior to December 31, 1998,
the Company will pay to such senior officer as severance three times such se-
nior officer's salary, $35,000 for relocation expenses, 18 months of insurance
coverage and certain other expenses and accrued paid time off and benefits.
In October 1997, all agreements under the Columbia/HCA Healthcare Corpora-
tion 1992 Stock and Incentive Plan were amended to provide for immediate and
100% vesting of stock options granted under the plan upon a "change in con-
trol" of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION FOR 1997
Decisions on compensation of the Company's executives are made by the Com-
pensation Committee of the Company's Board of Directors (the "Compensation
Committee"). Each member of the Compensation Committee is a non-employee di-
rector. No member of the Compensation Committee is a current or former em-
ployee or officer of the Company or any of its affiliates. Responsibilities of
the Compensation Committee include approval of compensation arrangements for
executive management, review of compensation plans relating to officers,
grants of options and other benefits under the Company's employee benefit
plans and general review of the Company's employee compensation policy. Pursu-
ant to certain rules of the Commission designed to enhance disclosure of cor-
porate policies toward executive compensation, set forth below is a report
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 ex-
ecutive compensation program is consistent with the Company's overall compen-
sation philosophy for all management levels.
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.
14
<PAGE>
. Providing compensation opportunities that create an environment that at-
tracts and retains talented executives on a long-term basis.
. Appropriately balancing the Company's short-term and long-term business
and financial and strategic goals.
1997 COMPENSATION PROGRAM
For 1997, the Company's executive compensation program was 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
named executive officers) to receive in lieu of all or a portion of the bonus
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.
BASE SALARY
The base salaries of certain of the Company's executive officers are listed
in the Summary Compensation Table found under "Executive Compensation" in this
Proxy Statement. These salaries and the salaries of other executive officers
are evaluated annually. In determining appropriate salary levels and salary
increases, the Compensation Committee considers level of responsibility, indi-
vidual performance, internal equity and external pay practices. In this latter
regard, the Compensation Committee has attempted to set base salaries of exec-
utive officers at a level which approximates the "market" rate, as determined
from information gathered by the Company from independent compensation con-
sulting firms.
The Compensation Committee increased the base salaries of the named execu-
tive officers (other than Dr. Frist) during the last fiscal year based upon an
evaluation of each executive's performance. The Compensation Committee consid-
ered the success of the executive officers in developing and executing the
Company's strategic plans, developing management employees and exercising
leadership. Based upon information provided by management, the Compensation
Committee believes that executive officer base salaries for 1997 were in line
with the average salaries paid by other comparable healthcare companies, in-
cluding the companies included in the Standard & Poor's Hospital Management
Composite Index (the "Hospital Index").
ANNUAL INCENTIVES
For 1997, annual incentive (bonus) award opportunities at the Company were
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.
Annual bonuses were designed to be dependent upon the individual's position,
responsibility and ability to impact the Company's financial success and to
provide competitive incentive pay only for meeting or exceeding performance
goals. For 1997, earnings per share performance comprised 50% of the target
bonus and was contingent upon the Company meeting its budgeted earnings per
share goal. A discretionary component comprised the balance of the target bo-
nus and was to be determined by the Compensation Committee based upon the ex-
ecutive's accomplishment of certain goals and objectives, including patient
satisfaction goals, which were to account for 20% of this discretionary compo-
nent (i.e., 10% of the entire award).
In view of the significant challenges facing the Company including the gov-
ernmental investigation and internal reorganization, and the Compensation Com-
mittee's decision to substantially
15
<PAGE>
alter the Company's executive compensation program going forward in response
to those challenges (see "1998 Compensation Program," below), the Compensation
Committee awarded all employees, including the named executive officers (other
than Dr. Frist and those executive officers whose employment terminated in
1997) a bonus for 1997 equal to 100% of the target bonus, half of which was
paid in September 1997 and half of which was paid in March 1998. Despite the
fact that the Company did not meet its earnings per share goal, the Compensa-
tion Committee firmly believes that these payments were necessary to help en-
sure the retention of those executives whose performance is critical to the
Company's ability to respond successfully to the challenges it faces.
The Columbia/HCA Healthcare Corporation 1995 Management Stock Purchase Plan
(the "Management Plan") allowed in 1997 the officers of the Company (including
the named executive officers) to receive in lieu of all or a portion of the
bonus 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 re-
stricted 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 salary foregone by the participant as a condition to receiving
restricted shares. Any additional value is forfeited.
LONG-TERM INCENTIVES
In 1997, long-term incentive compensation was provided in the form of non-
qualified stock options, which are directly related to improvement in long-
term stockholder value. 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 and 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 two to five years. In October 1997, all agreements under
the Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan were
amended to provide for immediate and 100% vesting of stock options granted un-
der the plan upon a "change in control" of the Company. The number of shares
covered by each grant reflects the executive's level of responsibility and
past and anticipated contributions to the Company.
The Compensation Committee made option grants at two separate times in 1997.
(In determining the number of options to grant to the executive officers, the
Compensation Committee did not consider prior grants, but did consider the
other items of compensation.) In February 1997, options to purchase shares of
Common Stock were granted to executive officers, including the named executive
officers (other than Dr. Frist). These options vest cumulatively in four an-
nual installments of 25% beginning on the second anniversary date of the grant
and expire ten years after the date of grant. The Compensation Committee de-
termined the size of these option grants based on its judgment considering the
executive officers' actual and potential contribution to theCompany.
In November 1997, the Compensation Committee made a special stock option
grant to executive officers, including the named executive officers (other
than Dr. Frist and those executive officers whose employment terminated in
1997) to help ensure the retention and motivation of key executives during
this important period for the Company. These options also vest cumulatively in
four annual installments of 25% beginning on the second anniversary date of
the grant and expire ten years after the date of grant. On average, the size
of these November grants was two times a competitive median long-term grant
for a two-year (i.e., 1998-1999) period. Accordingly, and while
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it reserves the right to do so, the Compensation Committee does not intend to
make any further stock option grants to these executives until 2000.
CHIEF EXECUTIVE OFFICER COMPENSATION
On July 25, 1997, Dr. Frist, the Vice Chairman of the Board and a substan-
tial stockholder of the Company, assumed the responsibilities of Chairman of
the Board and Chief Executive Officer of the Company. Dr. Frist has determined
not to accept any salary for his services as Chief Executive Officer or par-
ticipate in any incentive compensation programs. Accordingly, after July 25,
1997 no salary or bonus was paid, and no options were granted to Dr. Frist.
While the Compensation Committee firmly believes that the value of Dr. Frist's
services is extraordinary, it nevertheless concurs with and respects his deci-
sion.
Prior to his resignation on July 25, 1997, Richard L. Scott was generally
eligible to participate in the same executive compensation plans available to
the other senior executive officers. The Compensation Committee's general ap-
proach in setting his compensation was to seek to be competitive with other
large U.S. corporations with similar revenues. Mr. Scott's base salary for
1997 was set at $931,500. Mr. Scott became entitled to certain compensation
and benefits pursuant to the terms of a separation agreement entered into with
the Company upon the termination of his employment. The terms and conditions
of Mr. Scott's separation agreement were negotiated by the Board of Directors
of the Company. The terms of such agreement are described under "Employment,
Severance and Change in Control Agreements" above.
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 other exec-
utive officers in excess of $1 million per year per executive will be deduct-
ible by the Company only if paid pursuant to qualifying performance-based com-
pensation plans approved by the stockholders of the Company. (The determina-
tion of which executives, including the chief executive officer, are subject
to this provision is made as of the last day of the Company's fiscal year.)
Compensation as defined by the Budget Act includes, among other things, base
salary, incentive compensation and gains on stock option transactions. The
Company establishes individual compensation based primarily upon Company per-
formance and competitive considerations. As a result, executive officer com-
pensation may exceed $1 million in a given year. In 1997, no executive officer
whose compensation is subject to the Budget Act's limit on deductibility re-
ceived base salary and other non performance-based compensation in excess of
$1 million.
1998 COMPENSATION PROGRAM
Given the many and significant challenges facing the Company, including the
governmental investigation and internal reorganization, the Compensation Com-
mittee has made significant changes to the executive compensation program for
1998. The Compensation Committee believes these changes will properly align
the interests of executives, including the named executive officers, and
stockholders and better enable the Company to meet successfully the challenges
it faces.
The 1998 executive compensation program is briefly described below (as pre-
viously stated, Dr. Frist does not participate in these programs):
Cash Compensation
The Committee has decided to eliminate future annual cash bonuses. Effective
1998, the base salary of all employees, including the named executive offi-
cers, has been increased by his or her prior target annual bonus opportunity.
Total annual cash compensation remains targeted at the median total annual
cash compensation paid by other comparable healthcare companies.
Equity-Based Compensation
Pursuant to the Columbia/HCA Healthcare Corporation 1992 Stock and Incentive
Plan, executives, including named executive officers, will have an annual op-
portunity to earn restricted
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shares of Common Stock based on the achievement of annual financial and oper-
ating goals. The award opportunity is approximately 50% of the executive's
prior annual bonus opportunity. To encourage continued focus on the longer-
term, the Common Stock award will vest over a two year period at 50% per year.
The Company will continue to rely on stock options to focus executives on de-
livering superior long-term returns to stockholders. As stated above, the Com-
pensation Committee, while it reserves the right to do so, does not intend to
make further option grants to executives who received a November 1997 stock
option award until 2000.
The Management Plan has been amended to allow the officers of the Company
(including the named executive officers) to reduce up to 25% of their base
compensation and to receive instead awards of shares of restricted stock of
the Company at a 25% discount from the fair market value of the Company's Com-
mon Stock on the date of grant and upon such other terms as previously stated.
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)
T. Michael Long
Frank S. Royal, M.D.
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 1997, the members of the Compensation Committee were responsible for
determining executive compensation and stock option grants to executive offi-
cers. The following directors currently serve on the Compensation Committee:
William T. Young, T. Michael Long and Frank S. Royal, M.D. Richard L. Scott,
the Former Chairman and Chief Executive Officer of the Company, submitted rec-
ommendations to the Compensation Committee concerning executive officer com-
pensation for 1997 (until his resignation on July 25, 1997), but did not par-
ticipate in deliberations regarding the compensation of such executive offi-
cers. Thomas F. Frist, Jr., M.D., the current Chairman and Chief Executive Of-
ficer of the Company, submitted recommendations to the Compensation Committee
concerning executive officer compensation after July 25, 1997 and for 1998,
but did not participate in deliberations regarding the compensation of such
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. The Directors Plan was amended by the Board of Directors on
March 5, 1998 to increase the number of shares authorized under the Directors
Plan and to provide for such other amendments. See "Directors' Compensation"
above and "Item 3--Amendments to the Columbia Hospital Corporation Outside Di-
rectors Nonqualified Stock Option Plan" below.
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 $12.33 per share
in two separate transactions on June 16 and July 1, 1994. The Company also is-
sued a warrant to purchase 600,000 shares of Common Stock (the "Warrant") to
the Fund which was
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subsequently transferred to an unrelated party in 1997. The Warrant was exer-
cised in March 1998 at the exercise price of $13.33 per share. At the time of
issuance of the Warrant, the Fund was also granted certain incidental and de-
mand 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.
COMPANY STOCK PERFORMANCE
The following Performance Graph shall not be deemed incorporated by refer-
ence 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 information 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 (Hospital Index) over the same pe-
riod (assuming the investment of $100 in the Company's Common Stock, the S&P
500 Index and the Hospital Index on December 31, 1992 and reinvestment of all
dividends).
COLUMBIA/HCA HELATHCARE CORPORATION
COMPARISON OF CUMULATIVE TOTAL RETURNS
[PERFORMANCE GRAPH APPEARS HERE]
12/31/92 $100 $100 $100
12/31/93 $156 $110 $151
12/31/94 $172 $112 $160
12/31/95 $240 $153 $224
12/31/96 $290 $189 $263
12/31/97 $211 $252 $230
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ITEM 2--AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR
ANNUAL ELECTION OF DIRECTORS
Following the appointment of Thomas F. Frist, Jr., M.D., as Chairman of the
Board and Chief Executive Officer of the Company in July 1997, the Company has
been considering declassifying the Board of Directors of the Company and pro-
viding for the annual election of directors in light of the view of some in-
vestors that classified boards have the effect of insulating directors from a
corporation's stockholders. On December 15, 1997, the Company received a
stockholder proposal requesting that the Board of Directors take the necessary
steps under Delaware law to effect such a declassification of the Board of Di-
rectors with the current members serving out their respective class terms. In
light of the action taken by the Board of Directors of the Company described
below, the stockholder proposal has been withdrawn.
The Board of Directors has unanimously approved, and recommends to stock-
holders that they consider and approve, a proposal to amend the Company's Re-
stated Certificate of Incorporation to phase out the current division of the
Board of Directors into three classes, with one class elected each year for a
three year term, and to provide instead for the annual election of all direc-
tors commencing with the class of directors standing for election in 1999
("Charter Amendment"). In order to ensure a smooth transition to the new sys-
tem, the proposed amendment would not shorten the terms of directors elected
prior to its effectiveness, including those elected at the 1998 annual meet-
ing. The new procedure would, however, apply to all directors as their current
terms expire. Thus, the Class III directors, who were elected at the 1996 an-
nual meeting for a three-year term or appointed to fill vacancies as Class III
directors prior to the 1999 Annual Meeting of Stockholders, would stand for
election at the 1999 annual meeting for a one-year term. The current Class I
directors who were elected at the 1997 annual meeting for a three-year term or
appointed to fill vacancies as Class I directors prior to the 2000 Annual
Meeting of Stockholders, would stand for election at the 2000 annual meeting
for a one-year term. Beginning with the annual meeting in 2001, the classifi-
cation of the Board would terminate and all directors would be subject to an-
nual election. Adoption of the Charter Amendment will have the effect of pro-
viding stockholders the opportunity to judge the performance and vote on the
election of directors annually as opposed to every three years.
If the proposed amendment is approved, the Fifth Article of the Company's
current Restated Certificate of Incorporation would be deleted and replaced by
the following:
FIFTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such
lawful acts and things as are not by statute or this Restated Certificate
of Incorporation directed or required to be exercised or done by the stock-
holders.
A. Number of Directors. The number of directors of the Corporation (exclu-
sive of directors to be elected by the holders of one or more series of the
Preferred Stock of the Corporation which may be outstanding, voting sepa-
rately as a series or class) shall be fixed from time to time by action of
not less than a majority of the members of the Board of Directors then in
office, but in no event shall be less than three nor more than eighteen.
B. Terms. Until the annual meeting of stockholders in 2001, the directors
shall be divided into three classes designated Class I, Class II and Class
III, respectively. Each director elected prior to the effectiveness of this
Article FIFTH shall serve for the full term for which he or she was elect-
ed, such that the term of each director elected at the 1996 annual meeting
(Class III) or appointed to fill a vacancy as a Class III director prior to
the 1999 annual
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meeting shall end at the annual meeting in 1999, the term of each director
elected at the 1997 annual meeting (Class I) or appointed to fill a vacancy
as a Class I director prior to the 2000 annual meeting shall end at the an-
nual meeting in 2000, and the term of each director elected at the 1998 an-
nual meeting (Class II) or appointed to fill a vacancy as a Class II direc-
tor prior to the 2001 annual meeting shall end at the annual meeting in
2001. Following the expiration of the term of Class III directors in 1999,
Class I directors in 2000, and Class II directors in 2001, the directors in
each such Class shall hold office for a term expiring at the next annual
meeting of stockholders or until their successors are elected and qualified
or until their earlier resignation or removal. Commencing with the Annual
Meeting of Stockholders in 2001, the foregoing classification of the Board
of Directors shall cease, and all directors shall be of one class and shall
hold office for a term expiring at the next annual meeting of stockholders
or until their successors are elected and qualified or until their earlier
resignation or removal. In no case shall a decrease in the number of direc-
tors shorten the term of any incumbent director.
C. Vacancies. 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 of-
fice 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; pro-
vided that, after the Annual Meeting of Stockholders in 2001, directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders or until their successors are elected and qualified or until
their earlier resignation or removal. No decrease in the number of direc-
tors constituting the Board of Directors shall shorten the term of any in-
cumbent director.
D. Removal. Until and including the Annual Meeting of Stockholders in 2001,
and subject to the rights, if any, of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 66 2/3% of the voting power of all 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. Directors so chosen shall hold office for a term expiring at the an-
nual meeting of stockholders at which the term of office of the class to
which they have been elected expires. Following the Annual Meeting of
Stockholders in 2001, subject to the rights, if any, of any series of Pre-
ferred Stock then outstanding, any director, or the entire Board of Direc-
tors, may be removed from office at any time by the affirmative vote of the
holders of the majority of the voting power of all 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 at a duly held
meeting.
The proposed amendment would also delete the provision effective after the
Annual Meeting of Stockholders in 2001 that directors may be removed only for
cause. Under Delaware law, directors of companies that do not have classified
boards may be removed by stockholders with or without cause, by the affirma-
tive vote of the holders of a majority of the outstanding shares then entitled
to vote generally in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE
FOR THE ANNUAL ELECTION OF DIRECTORS.
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ITEM 3--AMENDMENTS TO THE COLUMBIA HOSPITAL CORPORATION OUTSIDE DIRECTORS
NONQUALIFIED STOCK OPTION PLAN
The Board of Directors is requesting the stockholders to consider and ap-
prove amendments to the Columbia Hospital Corporation Outside Directors Non-
qualified Stock Option Plan ("Directors' Plan") to (a) increase the number of
shares authorized thereunder from 150,000 shares to 500,000 shares, (b) change
the name to the Columbia/HCA Healthcare Corporation Outside Directors Stock
and Incentive Compensation Plan, (c) amend the formula for granting options as
set forth below, and (d) add provisions for formula grants of Restricted Share
and Restricted Share Unit awards (the "Amended Plan").
The Directors' Plan was adopted by the Company's Board of Directors on No-
vember 12, 1992 and approved by the stockholders on May 20, 1993. The Direc-
tors' Plan was subsequently amended on February 10, 1994.
The Directors' Plan currently provides for up to 150,000 shares of Common
Stock of the Company ("Common Stock") to be available for grant under the Di-
rector's Plan. This number of shares is subject to normal anti-dilution provi-
sions which increase or decrease the number of shares available upon the oc-
currence of certain events, such as stock splits or stock dividends.
Under the Directors' Plan, options are granted to those directors who are
outside directors (any members of the Board who are not also employees of the
Company or any of its subsidiaries, the "Non-Employee Directors"). All grants
are awarded automatically, and the number of shares covered is fixed. No op-
tion granted under the Directors' Plan may extend for more than ten years.
The Directors' Plan currently provides that each Non-Employee Director who
joins the Columbia Board will receive an option to acquire shares of Common
Stock under the Directors' Plan (exercisable at the shares' fair market value
on the date of grant of the option) having an aggregate exercise price equal
to two times the Non-Employee Director's annual retainer fee then in effect
(currently $40,000), but in no event more than 4,500 shares. Following each
succeeding Annual Meeting of Stockholders and to coincide with the election of
directors, each Non-Employee Director who continues in office is to receive an
option to acquire shares of Common Stock (exercisable at the shares' fair mar-
ket value on the date of grant of the option) having an aggregate exercise
price equal to the Non-Employee Director's annual retainer fee then in effect,
but in no event more than 3,000 shares. The options may generally be exercised
from the date of the grant up to 90 days following termination of service on
the Board and expire five years after the date of grant.
On March 5, 1998, the Board of Directors of the Company approved the Amended
Plan. The Amended Plan is designed to help attract and retain qualified direc-
tors and be competitive with companies of similar size. The Amended Plan pro-
vides Non-Employee Directors with an incentive to improve corporate perfor-
mance and the opportunity to build an immediate, significant ownership stake
in the Company.
The Amended Plan revises the formula for option grants. In 1998, as a one-
time grant, each Non-Employee Director will receive an option to acquire
shares of Common Stock (exercisable at the shares' fair market value on the
date of grant) having an aggregate exercise price equal to twelve and one-half
times the Non-Employee Director's annual retainer fee (currently $40,000).
This grant is in lieu of annual stock option grants which historically would
have been otherwise granted for the next five years and will vest in annual
installments at a rate of twenty percent (20%) per year, commencing on the
date of grant. Non-Employee Directors first elected after 1998 will receive a
prorated option grant (for the remaining portion of the five-year period end-
ing in 2003), which will similarly vest in annual installments. All such op-
tions will have a ten-year term
22
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and, to the extent vested, may generally be exercised up to 90 days following
termination of service on the Board (except that a six-month period applies in
case of death or disability). The option price may be paid (i) in cash, (ii)
in stock or (iii) in a combination of cash and stock.
Options granted under the Plan are not transferable other than by will or
the laws of descent and distribution, and are exercisable during the direc-
tor's lifetime only by the director (except that transfers to family members
are permitted in limited circumstances).
The Amended Plan also provides for Restricted Share and Restricted Share
Unit awards. Beginning in 1998, each Non-Employee Director will be entitled to
receive, in lieu of an annual cash retainer, an award of a number of Re-
stricted Shares having a fair market value of $40,000 on the date of grant.
Each year's grant of Restricted Shares will vest one year after the date of
grant. If a Non-Employee Director's service on the Board terminates other than
by death or disability, his or her rights to any Restricted Shares that have
not yet vested will be forfeited. Restricted Shares may not be transferred or
disposed of (except by will or the laws of descent and distribution) before
they become fully vested. A Non-Employee Director will not be entitled to de-
livery of the stock certificate for any such shares prior to vesting, but will
have all other rights of a stockholder with respect to Restricted Shares, in-
cluding dividend and voting rights.
Under the Amended Plan, in lieu of receiving awards of Restricted Shares as
described above, a Non-Employee Director will have the right to make a one-
time election in 1998 (by timely written notice to the Company) to receive, in
lieu of annual Restricted Share awards for the five-year period beginning in
1998, a single Restricted Share Unit award having a fair market value of
$200,000 (based on the fair market value of the Common Stock on the date of
grant). An award of Restricted Stock Units will vest in annual installments
over a five-year period, at the rate of twenty percent (20%) of the covered
Units per year. If a Non-Employee Director's service on the Board is termi-
nated for any reason other than death or disability, the director will forfeit
all rights to payment with respect to any Restricted Share Units that have not
yet vested. A Non-Employee Director will be entitled to payment in respect of
vested Restricted Share Units at the time his service on the Board terminates,
except that certain alternative payment dates may be elected (by timely writ-
ten notice to the Company). Payments in respect of any Restricted Share Units
will be in shares of Common Stock (with one share to be payable in respect of
each vested Unit).
Upon a "change in control" (as defined in the Amended Plan), all outstanding
options will become fully vested and exercisable, all restrictions relating to
Restricted Shares will lapse and all Restricted Share Units which would become
vested within a year of the change in control will become vested.
The grant of options to Non-Employee Directors does not create income tax-
able to the recipient at the time of grant. Upon exercise, a Non-Employee Di-
rector will recognize ordinary income to the extent the fair market value of
the shares acquired exceeds the option exercise price. When the acquired
shares are eventually sold, the Non-Employee Director will recognize capital
gains to the extent the sale price of the shares exceeds the fair market value
at the time of exercise. To the extent the Non-Employee Director recognizes
income upon exercise, the Company will generally be entitled to a correspond-
ing deduction.
A Non-Employee Director must generally include the fair market value of Re-
stricted Shares as ordinary income at the time such Restricted Shares become
vested. However, a Non-Employee Director may instead elect, pursuant to Sec-
tion 83(b) of the Code, to include as ordinary income, in the year of grant of
the Restricted Shares, an amount equal to the fair market value of the Re-
stricted Shares on the date of such transfer. Such an election must be made
within 30 days of the date of such grant. A Non-Employee Director's tax basis
in Restricted Shares is equal to the amount paid for such shares plus the
amount includable in income with respect to such Restricted
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Shares. With respect to the sale of Restricted Shares after they become vest-
ed, any gain or loss will generally be treated as long-term or short-term cap-
ital gain or loss, depending on the holding period. The holding period for
capital gains treatment will begin when the Restricted Shares become vested,
unless the Non-Employee Director has made a Section 83(b) election, in which
event the holding period will commence at the time the Restricted Shares are
transferred by the Company to such person. The Company generally will be enti-
tled to a deduction in the amount of a Non-Employee Director's income, at the
time such income is recognized.
A Non-Employee Director who makes a timely election to receive Restricted
Share Units generally must include as ordinary income the fair market value of
the Common Stock received in payment of such Restricted Share Units at the
time of such payment. With respect to the sale of such Common Stock, any gain
or loss will generally be treated as long-term or short-term capital gain or
loss, depending on the holding period. The holding period for capital gains
treatment will begin when Common Stock is received in payment of the Re-
stricted Share Units. The Company generally will be entitled to a deduction in
the amount of a Non-Employee Director's income, at the time such income is
recognized as described above.
A favorable vote of the stockholders present at the meeting in person or by
proxy is required for approval of the Directors' Plan. If the Directors' Plan
is not approved, the Board of Directors intends to reexamine its incentive
plan for Non-Employee Directors, with a view to developing a plan that main-
tains the Non-Employee Directors' compensation at competitive levels and pro-
vides appropriate incentives.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND ADOPTION OF
THE COLUMBIA/HCA HEALTHCARE CORPORATION OUTSIDE DIRECTORS STOCK AND INCENTIVE
COMPENSATION PLAN.
ITEM 4--RATIFICATION OF AUDITORS
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 independent auditors to audit the consolidated
financial statements of the Company for the fiscal year ending December 31,
1998. Ernst & Young LLP has served as the Company's independent auditors since
1994. Representatives of Ernst & Young LLP will be present at the Annual Meet-
ing and will be afforded the opportunity to make a statement if they desire to
do so and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR FISCAL 1998. IN THE EVENT STOCKHOLDERS DO NOT RATIFY THE APPOINTMENT, THE
APPOINTMENT WILL BE RECONSIDERED BY THE AUDIT COMMITTEE AND THE BOARD OF
DIRECTORS.
ITEM 5--STOCKHOLDER PROPOSALS
The Company receives many suggestions from stockholders, some as formal
stockholder proposals. All are given careful attention.
Proponents of two stockholder proposals have stated that they intend to
present the following proposals at the Annual Meeting. The name, address and
number of shares of the Common Stock held by the proponents will be furnished
by the Company, either orally or in writing, as requested, promptly upon re-
ceipt of any oral or written request directed to the Corporate Secretary's of-
fice. The proposals and proponents' statements are quoted below. The Board of
Directors opposes the following proposals for the reasons stated after each
proposal.
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STOCKHOLDER PROPOSAL RELATING TO TOBACCO INVESTMENTS
"WHEREAS, a July 7-9, 1995 editorial in USA Today declared:
Here's a little health-care news item: according to a commentary in the
upcoming edition of the British medical journal Lancet, major U.S. health
insurers are large investors in major U.S. tobacco companies. In other
words, the nation's merchants of care are partners with the nation's mer-
chants of death. . . these investments grate and gall. Every year, tobacco
use is fatal for thousands of Americans. For insurers to provide health
care for those suffering smokers on the one hand while investing it in the
source of their misery on the other is unconscionable. And hypocritical."
"Ownership of tobacco equities, we believe, is even more problematic for a
company that provides health care to smokers as it is for the life insurance
companies who insure smokers. As shareholders, we are deeply concerned about
the ethical implications of investments in the tobacco industry by any health
care institution, especially when the negative health and financial effects of
smoking are so clearly understood and experienced by health care providers."
"In 1994, the Centers for Disease Control and Prevention released an article
entitled "Medical-Care Expenditures Attributable to Cigarette Smoking, United
States--1993." The study found that smoking-related disease in the United
States has an enormous economic impact. In 1993, it is estimated that the di-
rect medical costs associated with smoking totaled $30 billion."
"In 1996, the AMA called for mutual funds and health-conscious investors to
refuse to own stock in tobacco companies and for those same investors to di-
vest from stocks and bonds in tobacco companies. We believe that the AMA's ar-
gument is compelling for a company like ours."
"According to a April 23, 1997 report by the Investor Responsibility Re-
search Center, about four-tenths of one percent of Health Care Indemnity's
(Columbia/HCA's wholly-owned insurance subsidiary) portfolio was invested at
that time in tobacco-related stocks and bonds. Even this level of ownership of
tobacco equities by a health care company sends mixed messages about smoking.
Therefore, let it be
RESOLVED: that the shareholders request the Board to initiate a policy man-
dating no further purchases of tobacco equities in non-pension fund portfolios
unless it can be proven that cigarette smoking does not cause the illnesses
and deaths attributed to it. Furthermore, the shareholders request the Board
to initiate a policy divesting the company of all tobacco stocks by January 1,
1999."
SUPPORTING STATEMENT
"Our company, which exists to help people keep and repair their health, in-
vests in companies that produce cigarettes--the single largest cause of prema-
ture death. Just as life insurance companies like Allstate, Chubb, and UNUM
have policies and/or practices regarding tobacco equity-related prohibitions
or limitations, so should a health care company like Columbia/HCA. If you
agree that our company should provide for the restoration and maintenance of
health, rather than profit from the sale of products that contribute to ill-
ness and death, then please vote YES for this resolution."
BOARD OF DIRECTORS' RESPONSE TO STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL
The Board of Directors opposes the proposal to ban Company investments in
tobacco equities. The Board has a fiduciary duty to maximize stockholder val-
ue. To this end, the Company retains
25
<PAGE>
outside financial advisers to manage the Company's investment portfolio. These
advisers are selected based upon their prior investment results. These results
are monitored by the Company on an on-going basis to ensure that the Company
is achieving satisfactory performance from its investments. It would be inap-
propriate for the Company to restrict the investment strategies of these ad-
visers.
In addition, to the extent that the proposed resolution is intended to apply
to the investment of funds held in various pension plans maintained for the
benefit of Company employees, the resolution is inappropriate since neither
the Company's Board of Directors nor its officers and employees control the
investment decisions affecting these pension plans. These investment decisions
are made under the auspices of the Trustees of these plans who have the fidu-
ciary duty to the beneficiaries of the plans to maximize returns.
While investing in tobacco equities may raise social issues compelling to
many of the Company's stockholders, the Board represents a significant number
of stockholders with diverse social and political agendas. As of March 23,
1998, there were approximately 18,700 record holders of the Common Stock. Many
of these stockholders are likely to have strong personal views concerning the
propriety of the business operations or industries of various issuers of pub-
licly traded securities. The Company would be put in an untenable position if
forced to champion the issues of one constituency of stockholders over anoth-
er, particularly in instances where stockholders may have conflicting views
and beliefs. It would be inappropriate and unrealistic to poll stockholders on
an on-going basis as to their investment preferences.
The Board recommends a vote "Against" this proposal for the reasons set
forth above.
STOCKHOLDER PROPOSAL RELATING TO EQUAL ACCESS TO PROXY STATEMENT AND PROXY
CARD
"RESOLVED, that Article II, Section 11 of the Company's by laws be added to
provide:
11. Equal Access to Proxy Statement and Proxy Card.
Every duly-nominated candidate for director shall be listed as a candidate
for director in management's proxy statement and on management's proxy card.
An opportunity to give, or withhold, authority to vote for or against each du-
ly-nominated candidate for director shall be provided on management's proxy
card. Management's proxy statement shall contain the same types and amounts of
information about each duly-nominated candidate for director. Any and all
proxy solicitation materials paid for by the Company, including oral solicita-
tions, shall contain the same types and amount of information about each duly-
nominated candidate for director. "Duly- nominated candidate for director"
means any person who has been nominated as a candidate for director of the
Company in accordance with the provisions of these bylaws or the Articles of
Incorporation applicable to nomination of candidates for director, without re-
gard to whether the person has been nominated by, or has been endorsed or ap-
proved by, the Board of directors or any committee of the Board, or whether
the person has been nominated by a shareholder."
"The purpose of this resolution is to give all candidates for Director of
the Company an equal chance for consideration by the shareholders."
"Under the present system, only candidates who have been nominated by the
incumbent Board of Directors are listed in the annual proxy statement. The
fact that a shareholder may have nominated a candidate is not even disclosed.
This is true even though the proxy statement is paid for by the corporation--
at shareholders' expense. In addition, management's proxy card--also paid for
by the corporation--does not give shareholders any opportunity to vote for an-
yone except management's nominees."
26
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"We do not believe that this is a good way for shareholders to elect corpo-
rate government. This corporation has become like a one-party state: the only
"election" is to vote for the party's slate. It is no answer for management to
say that anyone who wants to become a director may try to win election by
sending out his or her own proxy statement and proxy cards. This can be an ex-
tremely expensive process, more than any individual is willing to pay. There
is no reason why some should be able to campaign at the corporation's expense
and others left to their own resources."
"It is also no defense of this system to say that it helps ensure that the
corporation's assets will only be used to further the candidacies of "quali-
fied" people. This resolution is limited to those candidates who have been
properly nominated under the bylaws and Articles of Incorporation. Moreover,
the corporation's recent performance does not show that management has been
adept at selecting the best candidates for director. Finally, and most impor-
tantly, it is for the shareholders to decide who is most qualified to be the
stewards of their investment."
BOARD OF DIRECTORS' RESPONSE TO STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL
Although the proponent of this proposal suggests that adoption of this pro-
posal would allow stockholders greater input into the management of the Compa-
ny, in practice, the proposal will not result in an increase in meaningful
stockholder input. Instead, the proposal has the potential to result in a
proxy statement of undue length and complexity, which would be less useful and
informative to stockholders.
The proposal is vague and imprecise and fails to address the numerous prac-
tical problems that its implementation would create. For instance:
. Will the number of stockholder nominees be limited? The Company has more
than 18,700 stockholders. If only one-half of one percent of them initi-
ated nominations, this would require the inclusion of 93 nominations in
the proxy statement.
. If the number of nominations is limited, who decides which nominations
are excluded?
. What is required to protect the Company against damages incurred because
of false or misleading or libelous information contained in statements
that are submitted by stockholders?
These are but a few of the important issues which are not addressed or re-
solved in the proposal. The proposal would be extremely difficult to adminis-
ter and would lead to a complicated proxy of overwhelming size. This would se-
riously detract from the quality of the proxy statement as a channel of commu-
nications to stockholders. Further, an overwhelming majority of public compa-
nies do not have provisions as proposed.
Moreover, the proposal would expose management to serious distractions and
further open the Company's proxy to parties having special interest agendas,
contrary to the belief of the Board of Directors that the Company's proxy
should represent the interests of all the Company's stockholders. In the in-
terests of stockholders, the Company has separately proposed (See Item 2) to
declassify the Board of Directors to provide for the annual election of
directors.
All Company stockholders have access to the Company's proxy statement under
present federal proxy rules. A stockholder has the ability to require the Com-
pany to include in the Company's proxy statement proposals advocated by the
stockholder that meet certain guidelines established
27
<PAGE>
by the Securities and Exchange Commission. The proposal at issue was included
in this proxy on the basis of these rules. The Securities and Exchange Commis-
sion has sought a balance between the legitimate needs of stockholders to have
input into a company's proxy statement and creating a situation where stock-
holder proposals make a proxy statement unduly complex and burdensome. The
rules of the Securities and Exchange Commission do not require that companies
include in their proxy statements the nominees to the board who are not nomi-
nated by the existing board of directors.
The Board recommends a vote "Against" this proposal for the reasons set forth
above.
28
<PAGE>
GENERAL INFORMATION
STOCKHOLDER PROPOSALS
Any proposals that stockholders of the Company desire to have presented at
the 1999 Annual Meeting of Stockholders must be received by the Corporate Sec-
retary of the Company no later than the close of business on December 10,
1998.
ANNUAL REPORT
The Company's 1997 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, 1997, 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,
John M. Franck II
Corporate Secretary
Nashville, Tennessee
April , 1998
29
<PAGE>
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 Corpora-
tion, a Delaware corporation (the "Company"), to be held at the Sheraton Music
City at 777 McGavock Pike, Nashville, Tennessee on May 14, 1998 at 1:30 p.m.,
Central Daylight Time, and the Proxy Statement in connection therewith (the
"Proxy Statement") and (2) appoints Thomas F. Frist, Jr., M.D., Robert A. Wa-
terman and John M. Franck II, 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 undersigned, or with respect to which the under-
signed is entitled to vote and act, at the Meeting and at any adjournment(s)
or postponement(s) thereof.
The undersigned directs that this proxy be voted as follows:
1.ELECTION OF DIRECTORS:
[_] FOR all [_] WITHHOLD
nominees listed AUTHORITY to vote
below (except as for all nominees
marked to the listed below
contrary below)
Frederick W. Gluck, T. Michael Long and Carl E. Reichardt
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- -------------------------------------------------------------------------------
2. AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AS
DESCRIBED IN THE PROXY STATEMENT.
[_] FOR[_] AGAINST[_] ABSTAIN
3. APPROVAL OF AMENDMENTS TO THE COLUMBIA HOSPITAL CORPORATION OUTSIDE
DIRECTORS NONQUALIFIED STOCK OPTION PLAN, AS DESCRIBED IN THE PROXY
STATEMENT.
[_] FOR[_] AGAINST[_] ABSTAIN
4. RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S AUDITORS, AS DESCRIBED
IN THE PROXY STATEMENT.
[_] FOR[_] AGAINST[_] ABSTAIN
P
R
O
X
Y
5. STOCKHOLDER PROPOSAL RELATED TO TOBACCO INVESTMENTS, AS DESCRIBED IN THE
PROXY STATEMENT.
[_] FOR[_] AGAINST[_] ABSTAIN
6. STOCKHOLDER PROPOSAL RELATED TO EQUAL ACCESS TO PROXY STATEMENT AND PROXY
CARD, AS DESCRIBED IN THE PROXY STATEMENT.
[_] FOR[_] AGAINST[_] ABSTAIN
7. 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 PROPOSALS 1,2,3 AND 4 AND AGAINST PROPOSALS 5 AND 6.
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___________________________________ , 1998
------------------------------------------------
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.
<PAGE>
EXHIBIT 10.29
COLUMBIA/HCA HEALTHCARE CORPORATION OUTSIDE
DIRECTORS STOCK AND INCENTIVE COMPENSATION PLAN
1. PURPOSES; CONSTRUCTION.
This Plan shall be known as the "Columbia/HCA Healthcare Corporation
Outside Directors Stock and Incentive Compensation Plan" and is hereinafter
referred to as the "Plan." The purposes of the Plan are to encourage
ownership of stock in the Company by Outside Directors, through the
granting of non-qualified stock options, restricted stock awards and
restricted stock unit awards, to provide an incentive to the directors to
continue to serve the Company and to aid the Company in attracting
qualified director candidates in the future. Options granted under the
Plan will not be incentive stock options within the meaning of section 422
of the Code.
The provisions of the Plan are intended to satisfy any applicable
requirements of Section 16(b) of the Exchange Act, and shall be interpreted
in a manner consistent with any such requirements thereof, as now or
hereafter construed, interpreted and applied by regulation, rulings and
cases.
The terms of the Plan shall be as set forth below, effective May 17, 1998.
2. ADMINISTRATION OF THE PLAN.
2.1 General Authority.
The Plan shall be administered by the Board. The Board shall have plenary
authority in its discretion, but subject to 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, to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the details and provisions of the
Agreements and to make all other determinations deemed necessary or
advisable for the administration of the Plan. The Board's determinations
on the foregoing matters shall be final and conclusive. No member of the
Board shall be liable for any action taken or determination made in good
faith with respect to the Plan or any grant hereunder.
3. DEFINITIONS.
As used in the Plan, the following words and phrases shall have the
meanings indicated:
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<PAGE>
(a) "Agreement" shall mean an agreement entered into between the Company
and a Participant in connection with a grant under the Plan.
(b) "Board " shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Common Stock" shall mean the voting shares of common stock of the
Company, with a par value of $.01 per share.
(e) "Company" shall mean Columbia/HCA Healthcare Corporation, a Delaware
corporation, or any successor corporation.
(f) "Disability" shall mean a Participant's total and permanent inability
to perform his or her duties with the Company or any Subsidiary by
reason of any medically determinable physical or mental impairment,
within the meaning of Code section 22(e)(3).
(g) "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.
(h) "Fair Market Value" per Share, Restricted Share or Restricted Share
Unit shall mean the mean of the high and low prices of a Share on the
relevant date as reported by the New York Stock Exchange, or such
value as otherwise determined using procedures established by the
Board.
(i) "Option" means a stock option granted under the Plan.
(j) "Option Price" shall mean the price at which each Share subject to an
Option may be purchased, determined in accordance with Section 5.2
hereof.
(k) "Outside Director" shall mean any member of the Board who is not also
an employee of the Company (or any Subsidiary thereof).
(l) "Participant" shall mean any Outside Director who has received an
Option or other award hereunder that has not yet terminated.
(m) "Restricted Period" shall have the meaning given in Section 6.2(a)
hereof.
(n) "Restricted Share" or "Restricted Shares" shall mean Shares purchased
hereunder subject to restrictions.
(o) "Restricted Share Unit" or "Restricted Share Units" shall have the
meaning given in Section 7 hereof.
2
<PAGE>
(p) "Rule 16b-3" shall mean Rule 16b-3, as in effect from time to time,
promulgated by the Securities and Exchange Commission under Section 16
of the Exchange Act, including any successor to such Rule.
(q) "Shares" shall mean shares of Common Stock of the Company.
(r) "Subsidiary" shall have the meaning set forth in Section 8.2.
4. STOCK SUBJECT TO PLAN.
4.1 Number of Shares.
The maximum number of Shares which may be issued pursuant to Options and
other awards under the Plan shall be 500,000 Shares, which number shall be
subject to adjustment as provided in Section 9 hereof. Such Shares may be
either authorized but unissued Shares, or Shares that shall have been or
may be reacquired by the Company.
4.2 Reuse of Shares.
If an Option or a Restricted Share or Restricted Share Unit award under the
Plan is canceled, terminates, expires unexercised or is exchanged for a
different award without the issuance of Shares, the covered Shares shall,
to the extent of such termination or non-use, again be available for awards
thereafter granted during the term of the Plan.
5. OPTIONS.
5.1 Grant of Options.
Each person who is an Outside Director immediately following the 1998
Annual Meeting of Stockholders of the Company shall be granted an Option,
as of the first business day subsequent to such 1998 Annual Meeting, to
acquire Shares having an aggregate Option Price equal to twelve and one-
half (12.5) times such Outside Director's annual retainer fee then in
effect. Each such Option shall become exercisable in five cumulative
installments, each of which shall relate to 20% of the Shares covered by
the Option, on the date of grant and the four next succeeding anniversary
dates thereof.
Each person who shall become an Outside Director thereafter, but prior to
the close of the Board of Directors' term ending in 2003, shall be granted
an Option, as of the first business day after the commencement of his
service as an Outside Director, to acquire Shares having an aggregate
Option Price equal to such Outside Director's annual retainer fee then in
effect multiplied by two and one-half (2.5) times the number of Board of
Directors' terms (including as one term
3
<PAGE>
the partial term for which the person is elected, if he becomes an Outside
Director in mid-term) remaining in the period ending with the Annual
Meeting of Shareholders of the Company in the year 2003. Each such Option
shall become exercisable in cumulative installments, each of which shall
relate to a pro-rata portion of the Shares covered by the Option, on the
date of grant and respective succeeding dates of the Annual Meetings of the
Company's Shareholders, ending with such Annual Meeting for the year 2003.
5.2 Option Price.
The Option Price of each Share subject to an Option shall be 100 percent of
the Fair Market Value of a Share on the date of grant.
5.3 Term.
The term of any Option issued pursuant to the Plan shall be ten years from
the date of grant and may extend beyond the date of termination of the
Plan.
5.4 Option Exercise.
An Option may be exercised in whole or in part at any time, with respect to
whole Shares only, within the period permitted thereunder for the exercise
thereof, and shall be exercised by written notice of intent to exercise the
Option with respect to a specified number of Shares, delivered to the
Company at its principal office, and payment in full to the Company at said
office of the amount of the Option Price for the number of Shares with
respect to which the Option is then being exercised. Payment of the Option
Price shall be made (i) in cash or cash equivalents, (ii) in whole Shares
valued at the Fair Market Value of such Shares on the date of exercise (or
next succeeding trading date, if the date of exercise is not a trading
date) or (iii) by a combination of such cash (or cash equivalents) and such
Stock. Subject to the provisions of Section 10 hereof, the Company shall
issue a stock certificate for the Shares purchased by exercise of an
Option, in the name of the optionee (or other person exercising the Option
in accordance with the provisions of the Plan), as soon as practicable
after due exercise and payment of the aggregate Option Price for such
Shares.
5.5 Limited Transferability of Option.
All Options shall be nontransferable except (i) upon the optionee's death,
by the optionee's will or the laws of descent and distribution or (ii) on a
case-by-case basis, as may be approved by the Board in its discretion, in
accordance with the terms provided below. Each Agreement shall provide
that the optionee may, during his or her lifetime and subject to the prior
approval of the Board at the time of proposed transfer, transfer all or
part of the Option to a Permitted Transferee (as defined below), provided
that such transfer is made by the optionee for estate and tax planning
purposes or donative purposes and no consideration (other than
4
<PAGE>
nominal consideration) is received by the optionee therefor. The transfer
of an Option shall be subject to such other terms and conditions as the
Board may in its discretion impose from time to time, including (without
limitation) a condition that the portion of the Option to be transferred be
vested and exercisable by the optionee at the time of the transfer and a
requirement that the terms of such transfer be documented in a written
agreement (in such form as the Board may prescribe). Subsequent transfers
of an Option transferred under this Section 5.5 shall be prohibited, other
than by will or the laws of descent and distribution upon the death of the
transferee.
For purposes hereof, a "Permitted Transferee" shall be any member of the
optionee's immediate family, a trust for the exclusive benefit of such
immediate family members, or a partnership or limited liability company the
equity interests of which are owned exclusively by the optionee and/or one
or more members of his or her immediate family. For purposes of the
preceding definition, the "immediate family" of the optionee shall mean and
include the optionee's spouse, any descendant of the optionee or his or her
spouse (including descendants by adoption), and any descendant of either
parent of the optionee (including descendants by adoption).
No transfer of an Option by the optionee by will or by laws of descent and
distribution shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and an authenticated
copy of the will and/or such other evidence as the Board may deem necessary
to establish the validity of the transfer. During the lifetime of an
optionee, except as provided above, the Option shall be exercisable only by
the optionee, except that, in the case of an optionee who is legally
incapacitated, the Option shall be exercisable by the optionee's guardian
or legal representative. In the event of any transfer of an Option to a
Permitted Transferee in accordance with the provisions of this Section 5.5,
such Permitted Transferee shall thereafter have all rights that would
otherwise be held by such optionee (or by such optionee's guardian, legal
representative or beneficiary), except as otherwise provided herein.
5.6 Death of Optionee.
If a Participant holding an Option dies while he is an Outside Director,
the executor or administrator of the estate of the decedent (or the person
or persons to whom an Option shall have been validly transferred in
accordance with Section 5.5) shall have the right, during the period ending
six months after the date of the optionee's death (subject to the
provisions of Section 5.3 hereof concerning the maximum term of an Option),
to exercise the Option to the extent that it was exercisable at the date of
such optionee's death and shall not have been previously exercised.
5
<PAGE>
5.7 Disability.
If an optionee's service as an Outside Director shall be terminated as a
result of Disability, the optionee (or in the case of an optionee who is
legally incapacitated, his guardian or legal representative) shall have the
right, during a period ending six months after the date of his disability
(subject to the provisions of Section 5.3 hereof concerning the maximum
term of an Option), to exercise an Option to the extent that it was
exercisable at the date of such optionee's Disability and shall not have
been previously exercised.
5.8 Other Termination of Service.
If an optionee's service as an Outside Director shall be terminated for any
reason other than death or Disability, the optionee shall have the right,
during the period ending ninety days after such termination (subject to the
provisions of Section 5.3 hereof concerning the maximum term of an Option),
to exercise the Option to the extent that it was exercisable on the date of
such termination of service and shall not have been previously exercised.
6. RESTRICTED SHARES.
6.1 Grant of Annual Restricted Share Retainer Awards.
------------------------------------------------
Commencing with the 1998-1999 Board term, each Outside Director shall be
entitled to receive, as a retainer for each term for which he is elected an
Outside Director, an award of a number of Restricted Shares having a Fair
Market Value of $40,000 on the date of grant of such award. Awards
hereunder for any Board term shall be granted as of the first business day
of the term, except that awards for the 1998-1999 Board term shall be
granted as of June 1, 1998.
6.2 Terms of Restricted Share Agreements.
Each grant of Restricted Shares under the Plan shall be evidenced by a
written Agreement between the Company and Participant, which shall be in
such form as the Board shall from time to time approve and shall comply
with the terms of the Plan, including (without limitation) the following
terms and conditions (and with such other terms and conditions, not
inconsistent with the terms of the Plan, as the Board, in its discretion,
may establish):
(a) RESTRICTED PERIOD. Except as otherwise provided in the Plan, the
Restricted Period for Restricted Shares granted under this Section 6
shall be one year from the date of grant.
(b) OWNERSHIP AND RESTRICTIONS. At the time of grant of Restricted
Shares, a certificate representing the number of Restricted Shares
granted shall be registered in the name of the Participant. Such
certificate shall be held by
6
<PAGE>
the Company or any custodian appointed by the Company for the account
of the Participant, subject to the terms and conditions of the Plan,
and shall bear such legend setting forth the restrictions imposed
thereon as the Board, in its discretion, may determine. The
Participant shall have all rights of a stockholder with respect to
such Restricted Shares, including the right to receive dividends and
the right to vote such Restricted Shares, subject to the following
restrictions: (i) the Participant shall not be entitled to delivery
of the stock certificate until the expiration of the Restricted Period
and the fulfillment of any other restrictive conditions set forth in
this Plan or the Agreement with respect to such Restricted Shares;
(ii) none of the Restricted Shares may be sold, assigned, transferred,
pledged, hypothecated or otherwise encumbered or disposed of (except
by will or the applicable laws of descent and distribution) during
such Restricted Period or until after the fulfillment of any other
restrictive conditions; and (iii) except as otherwise provided under
the Plan, all of the Restricted Shares shall be forfeited and all
rights of the Participant to such Restricted Shares shall terminate,
without further obligation on the part of the Company, unless the
Participant remains in the continuous service as an Outside Director
of the Company for the entire Restricted Period and unless any other
restrictive conditions relating to the Restricted Shares are met. Any
common stock, any other securities of the Company and any other
property (except cash dividends) distributed with respect to the
Restricted Shares shall be subject to the same restrictions, terms and
conditions as such Restricted Shares.
(c) TERMINATION OF RESTRICTIONS. At the end of the Restricted Period and
provided that any other restrictive conditions of the Restricted
Shares are met, or at such earlier time as shall be applicable under
the Plan, all restrictions set forth in the Agreement relating to the
Restricted Shares or in the Plan shall lapse as to the Restricted
Shares subject thereto, and a stock certificate for the appropriate
number of Shares, free of the restrictions and restrictive stock
legend (other than as required under the Securities Act of 1933 or
otherwise), shall be delivered to the Participant or his or her
beneficiary or estate, as the case may be.
(d) TERMINATION OF SERVICE DURING RESTRICTED PERIOD. Except as
provided herein, if during the Restricted Period for any Restricted
Shares held by a Participant the Participant's service as an Outside
Director is terminated for any reason other than death or Disability,
the Participant shall forfeit all rights with respect to such
Restricted Shares, which shall automatically be considered to be
cancelled.
(e) ACCELERATED LAPSE OF RESTRICTIONS. Upon a termination of service as
an Outside Director which results from a Participant's death or
Disability, all restrictions then outstanding with respect to
Restricted Shares held by such Participant shall automatically expire
and be of no further force and effect.
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7. RESTRICTED SHARE UNITS.
7.1 Election of Restricted Share Unit Award.
Any person who is an Outside Director immediately following the Company's
1998 Annual Meeting of Shareholders may elect, by written notice to the
Company on or before May 31, 1998 (in such form as the Board shall
prescribe), to receive an award of Restricted Share Units having a Fair
Market Value of $200,000 on the date of grant, which date shall be June 1,
1998. Any such Restricted Share Unit award shall be in lieu of Restricted
Share awards under Section 6 for the Board terms through the term ending in
2003, and any Outside Director electing a Restricted Stock Unit award
hereunder shall have no right to any Restricted Share award under Section 6
for any Board term ending in 2003 or an earlier year.
7.2 Terms of Restricted Share Unit Agreements.
Each award of Restricted Shares under the Plan shall be evidenced by a
written Agreement between the Company and the Participant, which shall be
in such form as the Board shall from time to time approve and shall comply
with the terms of the Plan, including (without limitation) the following
terms and conditions (and with such other terms and conditions, not
inconsistent with the terms of the Plan, as the Board, in its discretion,
may establish):
(a) VESTING. Except as otherwise provided in the Plan, an award of
Restricted Share Units shall vest in cumulative annual installments,
each of which shall relate to 20% of the Units covered by the Award,
on the five anniversary dates next succeeding the date of grant.
(b) TERMINATION OF SERVICE PRIOR TO FULL VESTING. If a Participant's
service as an Outside Director is terminated for any reason other than
death or Disability before a Restricted Share Unit award held by him
has become fully vested, the Participant shall forfeit all rights
with respect to any Units that are not yet vested on the date of
termination.
(c) ACCELERATED VESTING. Upon a Participant's termination of service as
an Outside Director which results from the Participant's death or
Disability, all Restricted Share Units standing to his credit
immediately prior to such termination shall be fully vested.
(d) DIVIDEND EQUIVALENTS. A Participant shall be credited with dividend
equivalents on any vested Restricted Share Units credited to his
account at the time of any payment of dividends to stockholders on
Shares. The amount of any such dividend equivalents shall equal the
amount that would have been payable to the Participant as a
stockholder in respect of a number of Shares equal to the number of
vested Restricted Share Units then credited to him. Any such dividend
equivalents shall be credited to
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his account as of the date on which such dividend would have been
payable and shall be converted into additional Restricted Share Units
(which shall be immediately vested) based upon the Fair Market Value
of a Share on the date of such crediting. No dividend equivalents
shall be paid in respect of Restricted Share Units that are not yet
vested.
(e) PAYMENT OF AWARDS. A Participant shall be entitled to payment, at the
time of his termination of service as an Outside Director, in respect
of all vested Restricted Share Units then credited to him. Subject to
the provisions of Sections 9 and 10, such payment shall be made
through the issuance to the Participant of a stock certificate for a
number of Shares equal to the number of vested Restricted Share Units
credited to him at the time of such termination.
Notwithstanding the foregoing, a Participant may elect an alternative
payment date for the distribution of Shares in respect of his vested
Restricted Share Units. Any such election must be made by written
notice to the Company by May 31, 1998 (in such form as the Company
shall prescribe) and may specify as the alternative payment date
either (i) June 1, 2003 or (ii) June 1, 2008. Any such election shall
be irrevocable.
8. CHANGE IN CONTROL.
8.1 Effect of Change in Control.
Upon a "change in control" of the Company (as defined below), the following
shall occur:
(a) Each outstanding Option, to the extent that it shall not otherwise
have become exercisable, shall become fully and immediately
exercisable (without regard to the otherwise applicable installment
provisions of Section 5.1 hereof);
(b) All restrictions relating to any Restricted Shares then held by
Participants shall lapse and be of no further force and effect; and
(c) Any Restricted Share Units credited to a Participant's account shall
immediately vest, to the extent that such Units would have been vested
on the next following anniversary date of the date of grant.
8.2 Definition.
For purposes of Section 8.1 hereof, "change in control" of the Company
shall mean any of the following events:
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(i) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by
any "Person" (as the term Person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of twenty percent
(20%) or more of the combined voting power of the then
outstanding Voting Securities; provided, however, that in
determining whether a change in control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition"
(as hereinafter defined) shall not constitute an acquisition
which would cause a change in control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof) maintained
by (A) the Company or (B) any corporation or other Person of
which a majority of its voting power or its equity securities
or equity interest is owned directly or indirectly by the
Company (a "Subsidiary") or (ii) the Company or any
Subsidiary.
(ii) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; provided,
however, that if the election, or nomination for election, by
the Company's stockholders of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such
new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a
member of the Incumbent Board if (1) such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest or (2) such individual was
designated by a Person who has entered into an agreement with
the Company to effect a transaction described in clause (i)
or (iii) of this Section 8.2; or
(iii) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company, unless,
(A) The stockholders of the Company, immediately before
such merger, consolidation or reorganization, own,
directly or indirectly immediately following such
merger, consolidation or reorganization, at least
seventy-
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five percent (75%) of the combined voting power of the
outstanding Voting Securities of the corporation
resulting from such merger or consolidation or
reorganization or its parent corporation (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or
reorganization;
(B) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation or
reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation; and
(C) No Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part
thereof) maintained by the Company, the Surviving
Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or
reorganization, had Beneficial Ownership of twenty
percent (20%) or more of the then outstanding Voting
Securities) has Beneficial Ownership of twenty percent
(20%) or more of the combined voting power of the
Surviving Corporation's then outstanding Voting
Securities.
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a change in control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting
Securities outstanding, increased the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a change in
control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and
after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a change in control
shall occur.
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9. ANTIDILUTION ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger or consolidation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially
all of its property, or any other change in the corporate structure or
shares of the Company, pursuant to any of which events the then outstanding
Shares are split up or combined, or are changed into, become exchangeable
at the holder's election for, or entitle the holder thereof to, other
shares of stock, or in the case of any other transaction described in
section 424(a) of the Code, the Board may make such adjustment or
substitution (including by substitution of shares of another corporation)
as it may determine to be appropriate, in its sole discretion, in (i) the
aggregate number and kind of shares that may be distributed in respect of
Option exercises and/or awards under the Plan, (ii) the number and kind of
shares subject to outstanding Options and/or the Option Price of such
shares, (iii) the number and kind of Restricted Shares outstanding under
the Plan and (iv) the number and kind of shares represented by Restricted
Share Units outstanding under the Plan.
10. CONDITIONS OF ISSUANCE OF STOCK CERTIFICATES.
10.1 Applicable Conditions.
The Company shall not be required to issue or deliver any certificate for
Shares under the Plan prior to fulfillment of all of the following
conditions:
(a) the completion of any registration or other qualification of such
Shares, under any federal or state law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, that the Board shall, in its sole
discretion, deem necessary or advisable;
(b) the obtaining of any approval or other clearance from any federal or
state governmental agency that the Board shall, in its sole
discretion, determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the event
triggering the obligation to distribute shares as the Board from time
to time may establish for reasons of administrative convenience;
(d) satisfaction by the Participant of any applicable withholding taxes or
other withholding liabilities; and
(e) if required by the Board, in its sole discretion, the receipt by the
Company from a Participant of (i) a representation in writing that the
Shares received
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pursuant to the Plan are being acquired for investment and not with a
view to distribution and (ii) such other representations and
warranties as are deemed necessary by counsel to the Company.
10.1 Legends.
The Company reserves the right to legend any certificate for Shares,
conditioning sales of such shares upon compliance with applicable federal
and state securities laws and regulations.
11. PAYMENT OF WITHHOLDING AND PAYROLL TAXES.
Subject to the requirements of Section 16(b) of the Exchange Act, the Board
shall have discretion to permit or require a Participant, on such terms and
conditions as it determines, to pay all or a portion of any taxes arising
in connection with an Option or other award under the Plan by having the
Company withhold Shares or by the Participant's delivering other Shares
having a then-current Fair Market Value equal to the amount of taxes to be
withheld. In the absence of such withholding or delivery of Shares, the
Company shall otherwise withhold from any payment under the Plan all
amounts required by law to be withheld.
12. NO RIGHTS TO SERVICE.
Nothing in the Plan or in any grant made or Agreement entered into pursuant
hereto shall confer upon any Participant the right to continue service as a
member of the Board or to be entitled to any remuneration or benefits not
set forth in the Plan or such Agreement.
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 for the Plan to continue to comply with any
law, regulation or stock exchange requirement shall not be effective unless
approved by the requisite vote of stockholders. No suspension,
termination, modification or amendment of the Plan shall adversely affect
any grants previously made, unless the written consent of the Participant
is obtained.
14. TERM OF THE PLAN.
The Plan, as amended effective May 17, 1998, shall terminate on May 17,
2008. No grants may be made after such termination, but termination of the
Plan shall not, without the consent of any Participant who then holds
Options or Restricted
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Shares or to whom Restricted Share Units are then credited, alter or impair
any rights or obligations in respect of such Options, Restricted Shares or
Restricted Share Units.
15. GOVERNING LAW.
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of
Delaware without giving effect to the choice of law principles thereof,
except to the extent that such laws are preempted by Federal law.
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