<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss 240.14a-11(c) or ss 240.14a-12
</TABLE>
PHYCOR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
--------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
---------------------------------------------------
<PAGE> 2
[PhyCor(R) LOGO]
30 BURTON HILLS BOULEVARD
SUITE 400
NASHVILLE, TENNESSEE 37215
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders, which is to be held on Tuesday, May 25, 1999, at 10:00 a.m. at the
First American Center Auditorium, Fifth Floor, 300 Union Street, Nashville,
Tennessee. The following pages contain the formal notice of the Annual Meeting
and our Proxy Statement, which describe the specific business to be considered
and voted upon at the Annual Meeting.
It is important that your shares be represented at the
meeting. Whether or not you expect to attend in person, we would greatly
appreciate your efforts to return the enclosed Proxy as soon as possible. If you
decide to attend the Annual Meeting, you may withdraw your Proxy should you wish
to vote in person.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Joseph C. Hutts
JOSEPH C. HUTTS
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 3
PHYCOR, INC.
30 BURTON HILLS BOULEVARD
SUITE 400
NASHVILLE, TENNESSEE 37215
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
TUESDAY, MAY 25, 1999
--------------------
Notice is hereby given that the Annual Meeting of Shareholders
(the "Annual Meeting") of PhyCor, Inc. (the "Company") will be held on Tuesday,
May 25, 1999, at 10:00 a.m. at the First American Center Auditorium, Fifth
Floor, 300 Union Street, Nashville, Tennessee, for the following purposes:
(1) To approve the adoption of the Company's 1999
Incentive Stock Plan;
(2) To elect four nominees as Class II directors of
the Company;
(3) To certify the appointment of KPMG LLP as
independent public accountants to audit the consolidated
financial statements of the Company and its subsidiaries for
the year ending December 31, 1999; and
(4) To transact such other business as may properly
come before the meeting or any adjournments thereof.
Only shareholders of record at the close of business on
April 5, 1999 will be entitled to vote at the Annual Meeting.
The enclosed Proxy Statement contains more information
pertaining to matters to be voted on at the Annual Meeting. Please read the
Proxy Statement carefully. Each shareholder who does not plan to attend the
Annual Meeting is requested to date, sign and return the accompanying Proxy in
the enclosed, postage-paid envelope.
By Order of the Board of Directors,
/s/ N. Carolyn Forehand
N. CAROLYN FOREHAND
Secretary
Nashville, Tennessee
April 22, 1999
<PAGE> 4
PHYCOR, INC.
30 BURTON HILLS BOULEVARD
SUITE 400
NASHVILLE, TENNESSEE 37215
--------------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 1999
--------------------
This Proxy Statement is furnished to the holders of Common
Stock, no par value per share ("Common Stock"), of PhyCor, Inc. (the "Company")
in connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors") to be voted at the annual meeting of
shareholders of the Company (the "Annual Meeting") to be held on Tuesday, May
25, 1999, at 10:00 a.m. at the First American Center Auditorium, Fifth Floor,
300 Union Street, Nashville, Tennessee, and at any adjournments or postponements
thereof.
Only the holders of Common Stock of record at the close of
business on April 5, 1999 will be entitled to vote at the Annual Meeting. On
such date, 76,229,540 shares of Common Stock were issued and outstanding. Each
shareholder is entitled to one vote per share held of record on the record date.
This Proxy Statement and the accompanying proxy are first being mailed on or
about April 22, 1999.
A majority of the shares of Common Stock entitled to vote,
represented in person or by proxy, is required to constitute a quorum. If a
quorum is not present at the time of the Annual Meeting, or if for any reason
the Company believes that additional time should be allowed for the solicitation
of proxies, the Company may adjourn or postpone the Annual Meeting with or
without a vote of the shareholders.
All shares of Common Stock represented at the Annual Meeting
by properly executed proxies received prior to or at the Annual Meeting and not
properly revoked will be voted at the Annual Meeting in accordance with the
instructions indicated thereon. If no specification is made, the proxies will be
voted in favor of the matters listed on the proxy card.
To be adopted, the Company's 1999 Incentive Stock Plan (the
"1999 Plan") must receive the affirmative vote of a majority of the votes cast
(in person or by proxy) by the holders of Common Stock entitled to vote at the
Annual Meeting at which a quorum is present. Abstentions will be counted for
purposes of constituting a quorum, but will not have the effect of a vote
against the 1999 Plan. Broker non-votes will not be counted for purposes of
constituting a quorum with respect to this matter and will not affect the
outcome.
Directors must be elected by a plurality of votes cast (in
person or by proxy) by the holders of Common Stock entitled to vote at the
Annual Meeting if a quorum is present. Abstentions and broker non-votes will be
counted for purposes of constituting a quorum, but will not have the effect of
voting in opposition to a director.
<PAGE> 5
The proposal to appoint KPMG LLP as the Company's auditors and
any other matters to be voted on at the Annual Meeting shall be determined based
upon the vote of the majority of votes cast (in person or by proxy) by the
holders of Common Stock entitled to vote at the Annual Meeting if a quorum is
present. Abstentions and broker non-votes will be counted for purposes of
constituting a quorum, but will not have the effect of a vote against such
proposals.
All expenses of the Annual Meeting, including the cost of
soliciting proxies, will be paid by the Company. The Company may reimburse
persons holding shares in their names for others, or holding shares for others
who have the right to give voting instructions, such as brokers, banks,
fiduciaries and nominees, for such persons' reasonable expenses in forwarding
the proxy materials to their principals.
Any shareholder giving a proxy may revoke it by delivering a
written notice of such revocation to the Secretary of the Company at 30 Burton
Hills Boulevard, Suite 400, Nashville, Tennessee 37215 prior to the Annual
Meeting, by submitting to the Company a more recently dated proxy or by
attending the Annual Meeting and voting at any time before it is exercised.
In voting by proxy for the election of four nominees as Class
II directors to serve three year terms, shareholders may vote in favor of all
four nominees, withhold their votes as to all four nominees or withhold their
votes as to specific nominees. If no instructions are indicated, such proxies
will be voted FOR the election of all four nominees as directors.
2
<PAGE> 6
PROPOSAL 1: ADOPTION OF THE COMPANY'S 1999 INCENTIVE STOCK PLAN
The Company's Board of Directors has approved the
establishment of the Company's 1999 Incentive Stock Plan (the "1999 Plan"). The
primary purpose of the 1999 Plan is to provide a performance incentive to
officers, directors and key employees of the Company. The description below is
intended to be a summary of the material provisions of the 1999 Plan. The
description is qualified in its entirety by reference to the full text of the
1999 Plan, which is attached hereto as Appendix A.
DESCRIPTION OF THE 1999 PLAN
A total of 4,500,000 shares of Common Stock has been reserved
for issuance under the 1999 Plan, none of which have been issued. The 1999 Plan
is replacing the expired Amended 1988 Incentive Stock Plan. The purpose of the
1999 Plan is to provide a performance incentive to officers, directors and key
employees who perform services that enhance the value of shareholders' equity.
The Compensation Committee is authorized to administer the 1999 Plan and to
grant awards to Company officers, directors and key employees who provide
significant services to the Company. The 1999 Plan provides for the award of (i)
"incentive stock options" ("ISOs") described in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") to employees of the Company and,
(ii) options that are not ISOs (non-qualified options" or "NSOs") to directors
and employees of the Company (collectively, ISOs and NSOs, are referred to as
"Options"). The 1999 Plan will continue indefinitely until terminated by the
Board of Directors.
The Compensation Committee is authorized to determine which
individuals are to receive options under the 1999 Plan, the type of option to be
granted (i.e., ISOs or NSOs) and the exercise prices and vesting dates of each
Option. The exercise price of ISOs may not be less than 100% of the fair market
value of the Common Stock on the date of grant (110% for individuals who own
more than 10% of the total outstanding Common Stock). These and other terms are
set forth in a written agreement between the Company and the individual
receiving the award. The aggregate fair market value of Common Stock (determined
at the time the option was granted) with regard to which ISOs are exercisable by
an individual for the first time during any calendar year may not exceed
$100,000. No Option shall be exercisable after the expiration of ten years from
the date it is granted (five years for ISOs granted to individuals who own more
than 10% of the total outstanding shares of Common Stock).
Once an Option has become exercisable, the individual may
purchase shares of Common Stock from the Company by paying the exercise price in
cash, shares of Common Stock or in other consideration acceptable to the
Compensation Committee. Options become fully vested upon the occurrence of a
merger or certain other corporate events in which the control of the Company is
changed.
The number of shares granted pursuant to any Option under the
1999 Plan is subject to the discretion of the Compensation Committee and,
therefore, cannot be determined in advance. Similarly, the dollar value of such
Options cannot be determined prior to their grant.
3
<PAGE> 7
1999 PLAN BENEFITS
To date no Options have been granted pursuant to the 1999
Plan.
FEDERAL INCOME TAX CONSEQUENCES
Tax consequences to the Company and to individuals receiving
Options will vary with the type of Option. Generally, a participant will not
recognize income, and the Company is not entitled to take a deduction, upon the
grant of an ISO or a NSO, under the 1999 Plan. An individual who exercises an
ISO will not recognize income on its exercise if he or she does not sell the
shares of Common Stock acquired thereby for at least two years after the date of
grant and one year after exercising the ISO. Any gain or loss on the sale of the
Common Stock after these statutory holding periods will be subject to capital
gains treatment. The exercise price of the ISO is the basis for purposes of
determining capital gains. For Options exercised after December 31, 2000,
reduced capital gains rates apply if the Common Stock is held for at least five
years.
An individual who disposes of the Common Stock before the
statutory holding periods are satisfied will have engaged in a "disqualifying
disposition" and will recognize ordinary compensation income on the difference
between the exercise price of the ISO and the fair market value of the Common
Stock at the time the ISO was exercised. The individual's basis in the Common
Stock after a disqualifying disposition is its fair market value at the time of
exercise. The individual will also be subject to tax on capital gain, if any,
upon the sale of the Common Stock on the amount realized in excess of the basis.
Generally, the Company is not entitled to a tax deduction upon
the grant of an Option or the exercise of an ISO under the 1999 Plan. However,
if the individual engages in a disqualifying disposition, the Company may take a
tax deduction for the amount of ordinary income recognized by the individual.
Upon exercise of a NSO, the individual recognizes ordinary
income on the difference between the fair market value of the Common Stock and
the exercise price paid under the NSO. The Company is generally entitled to
deduct the amount recognized by the individual for tax purposes. The individual
is also subject to capital gains treatment on the subsequent sale of the Common
Stock. For this purpose, the individual's basis in the Common Stock is its fair
market value at the time the NSO is exercised.
REGISTRATION UNDER THE SECURITIES ACT OF 1933
The Company intends to register the shares of Common Stock
authorized for issuance under the 1999 Plan on a Registration Statement on Form
S-8 as soon as practicable after adoption of the 1999 Plan by the shareholders
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE ADOPTION OF THE 1999 INCENTIVE STOCK PLAN.
4
<PAGE> 8
PROPOSAL 2: ELECTION OF DIRECTORS
The Company's Restated Charter provides that the Board of
Directors shall be divided into three classes of as nearly equal size as
possible. Approximately one-third of the directors are elected each year. The
Board of Directors has nominated the four individuals named below under the
caption "Class II Nominees" for election as directors to serve until the annual
meeting of shareholders in 2002 and until their successors have been elected and
qualified. All of the Class II nominees are currently serving on the Board of
Directors of the Company with terms expiring at this Annual Meeting.
The Company's Amended Bylaws provide that the Board of
Directors shall consist of not less than three nor more than 15 directors as
established by the Board of Directors. The size of the Board of Directors has
been established at, and currently consists of, 11 directors. Mr. Richard Wright
resigned his positions as a director and executive officer of the Company
effective October 23, 1998. Mr. John K. Crawford was appointed to fill the
vacancy on the Board resulting from Mr. Wright's resignation and will stand for
re-election to the Board of Directors with the other Class I Directors in 2001.
CLASS II NOMINEES:
SAM A. BROOKS, JR.
Age - 60
Director since 1988
Mr. Brooks is President, Chief Executive Officer and a
director of Renal Care Group, Inc., a provider of nephrology services ("Renal
Care"). He is also President of MedCare Investments Corp., a health care
investment company, and is Chairman of National Imaging Affiliates, Inc., an
owner of outpatient diagnostic imaging centers. From 1986 to 1989, Mr. Brooks
was President of Nationwide Health Properties, a health care real estate
investment trust. From 1969 to 1986, Mr. Brooks served as the Chief Financial
Officer of Hospital Corporation of America ("HCA"). Mr. Brooks is a director of
Kinetic Concepts, Inc., a hospital bed manufacturer, Nationwide Health
Properties, a real estate investment trust, and Quorum Health Group, Inc.
("Quorum"), an owner and operator of hospitals.
THOMPSON S. DENT
Age - 49
Director since 1992
Mr. Dent serves as the President and Chief Operating Officer
of the Company. From October 1997 to October 1998, Mr. Dent served as Executive
Vice President and Chief Operating Officer. Mr. Dent served as Executive Vice
President, Corporate Services, from the inception of the Company until October
1997 and served as Secretary of the Company from 1991 to October 1998. Mr. Dent
served as Vice President of Development at EQUICOR - Equitable HCA Corporation
("EQUICOR") from 1986 until 1988. Prior to 1986, Mr. Dent served as Director of
Mergers and Acquisitions for HCA. Mr. Dent is a director of Healthcare Realty
Trust Incorporated ("HRT"), a real estate investment trust.
5
<PAGE> 9
DR. JAMES A. MONCRIEF
Age - 63
Director since 1988
Dr. Moncrief is a physician specializing in pediatrics and
pediatric neurology at Green Clinic in Ruston, Louisiana, a clinic operated by
the Company. Dr. Moncrief joined Green Clinic in 1966 and serves as its
President.
KAY COLES JAMES
Age -- 49
Director since 1997
Ms. James is a dean of Regent University, Robertson School of
Government in Virginia Beach, Virginia. Ms. James also serves as Chairperson of
the National Gambling Impact Study Commission. From January 1994 to 1996, Ms.
James served as Secretary of Health and Human Resources for the Commonwealth of
Virginia. From January 1993 to January 1994, she served as Senior Vice President
of the Family Research Council. From December 1991 to January 1993, Ms. James
served as Associate Director of the White House Office of National Drug Control
Policy.
CONTINUING DIRECTORS:
The persons named below will continue to serve as directors
until the annual meeting of shareholders in the year indicated and until their
successors are elected and take office. Shareholders are not voting at this
Annual Meeting on the election of Class I and Class III directors. The following
table shows the names, ages and principal occupations of each continuing
director and the year in which each was first elected to the Board of Directors.
CLASS I DIRECTORS SERVING UNTIL 2001:
DR. WINFIELD DUNN
Age - 71
Director since 1988
Dr. Dunn is a former Governor of the State of Tennessee. From
1979 to 1985, Dr. Dunn served as Senior Vice President, Government Affairs, for
HCA. From 1987 to 1991, Dr. Dunn served as Chairman of the Board of First
Cumberland Bank. In 1993, Dr. Dunn became Chairman of the Board of MedShares
Management Group, Incorporated, an owner and manager of home health care
agencies.
C. SAGE GIVENS
Age - 42
Director since 1989
Since 1995, Ms. Givens has served as the managing partner of
Acacia Venture Partners, L.P., a private venture fund specializing in health
care services. From 1987 to 1995, Ms. Givens served as a general partner of
First Century Management Company. Ms. Givens joined First Century in 1983. Ms.
Givens is a director of HEALTHSOUTH Corporation, a leading provider of
rehabilitation services and outpatient surgery centers, and UROHEALTH Systems,
Inc., a designer, manufacturer and marketer of urological medical products.
6
<PAGE> 10
DR. JOSEPH A. HILL
Age - 58
Director since 1989
Dr. Hill is a physician specializing in family practice at
Doctors' Clinic in Vero Beach, Florida, a clinic operated by the Company. Dr.
Hill joined Doctors' Clinic in 1973 and served as its President from 1988 to
1991.
JOHN K. CRAWFORD
Age - 40
Director since 1998
Mr. Crawford has served as Executive Vice President since
February, 1998, Chief Financial Officer since 1995 and as a Vice President of
the Company since 1993. From 1991 to 1993, Mr. Crawford served as Director of
Clinic Financial Operations for the Company. Prior to joining the Company, from
1987 to 1991, Mr. Crawford served as a Senior Manager for KPMG LLP, in
Nashville, Tennessee, the Company's independent public accountants.
CLASS III DIRECTORS SERVING UNTIL 2000:
RONALD B. ASHWORTH
Age - 54
Director since 1992
Since 1991, Mr. Ashworth has served as Executive Vice
President and Chief Operating Officer of the Sisters of Mercy Health System, St.
Louis, Missouri ("SMHS"), a system consisting of hospitals and affiliated health
care entities serving a seven-state area in the central and southwestern United
States. Mr. Ashworth has been a director SMHS since its inception in 1986. From
1986 to 1990, Mr. Ashworth served as Vice Chairman of Specialized Industries and
Marketing for KPMG LLP, the Company's independent public accountants. From 1978
to 1985, Mr. Ashworth served as the National Director of the health care
practice of KPMG LLP. Since 1995 Mr. Ashworth has been a director of the
Benedictine Health System in Duluth, Minnesota.
JOSEPH C. HUTTS
Age - 57
Director since 1988
Mr. Hutts has served as Chairman of the Board and Chief
Executive Officer of the Company since the Company's inception. Mr. Hutts also
served as President from such time until the appointment of Mr. Dent as
President in October 1998. From 1977 to 1986, Mr. Hutts served in various
positions with HCA, including Vice President, Operations, Senior Vice President,
Western Operations, and President of HCA Health Plans, a managed care subsidiary
of HCA. Mr. Hutts served as Vice Chairman and Chief Operating Officer of EQUICOR
from 1986 to 1987. Mr. Hutts serves on the boards of directors of Renal Care and
Quorum.
7
<PAGE> 11
DERRIL W. REEVES
Age - 55
Director since 1988
Mr. Reeves has served as Vice Chairman of the corporation
since October 1998. In addition, Mr. Reeves serves and has served as Executive
Vice President and Chief Development Officer of the Company since the Company's
inception. Prior to becoming an officer of the Company, Mr. Reeves served as
Vice President of Sales and Marketing with HCA Management Company from 1977 to
1986, at which time he took the position of Senior Vice President, National
Sales, with EQUICOR, a position he held until 1987. Mr. Reeves is a director of
American Dental Partners, Inc.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The Board of Directors held eleven meetings, including regular
and special meetings, and took action by written consent five times during 1998.
Each director, except for Mr. Ashworth, Ms. Givens, Ms. James and Mr. Dent,
attended at least 75% of the meetings of the Board of Directors and committees
thereof on which the director serves.
The Committees of the Board of Directors consist of an Audit
Committee, on which Mr. Brooks and Ms. Givens serve, and a Compensation
Committee, on which Mr. Ashworth and Drs. Dunn, Hill and Moncrief serve. During
1998, the Audit Committee met twice, and the Compensation Committee met four
times. The Audit Committee is responsible for recommending the independent
public accountants to the Board of Directors, reviewing audit fees and
supervising matters relating to audit functions and other financial controls.
The Compensation Committee is responsible for approving compensation
arrangements for executive officers of the Company, reviewing compensation
plans, granting stock options and Restricted Stock and Bonus Stock awards and
reviewing employee compensation policies. The Board of Directors has no standing
nominating committee.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no
additional compensation for serving on the Board of Directors. Non-Employee
Directors are entitled to receive (i) a retainer equal to $7,000 times the
number of years for which the Non-Employee Director is elected, payable in
restricted shares of the Common Stock, at a price per share equal to the closing
sales price of the Common Stock as of the date of the annual meeting of
shareholders at which the director is elected to serve, and (ii) options for the
purchase of 6,750 shares of Common Stock automatically issued as of January 1 of
each year during which the Non-Employee Director serves the Company at a per
share price equal to the closing sales price of the Common Stock on the date of
grant. Such newly granted options are immediately exercisable for all shares
subject to such options. In addition, Non-Employee Directors receive $2,500 in
cash per regular and special meeting of the Board of Directors and $1,000 per
committee meeting. The shares of restricted stock are held by the Company, and
Non-Employee Directors receive one-third of the shares representing the retainer
amount
8
<PAGE> 12
referenced above at the completion of each year of service during the three year
term for which they were elected. Board members are reimbursed for their
expenses for each meeting attended.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE PROPOSED CLASS II NOMINEES
TO THE BOARD OF DIRECTORS.
9
<PAGE> 13
PROPOSAL 3: SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee, the Board of
Directors of the Company has appointed, subject to the approval of the
shareholders, the firm of KPMG LLP as independent public accountants to audit
the Company's consolidated financial statements for the year ending December 31,
1999. If the appointment of KPMG LLP is not approved by the shareholders, the
matter will be referred to the Audit Committee for further review.
It is anticipated that representatives of KPMG LLP will attend
the Annual Meeting and will have an opportunity to make a statement, if they
determine to do so, and will be available to respond to questions at that time.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
TO AUDIT THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1999.
10
<PAGE> 14
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding
beneficial ownership as of March 31, 1999 (unless otherwise indicated) by (i)
all directors, nominees for directors and executive officers, (ii) each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock of the Company, and (iii) all directors and officers as a group. Except as
otherwise indicated, the beneficial owners listed below have sole voting and
investment power with respect to all shares owned by them, except to the extent
such power is shared by a spouse under applicable law.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) SHARES
------------------------------------ -------- ------
<S> <C> <C>
Joseph C. Hutts(2)................................................ 1,925,499 2.5%
Thompson S. Dent(4)............................................... 1,694,648 2.2
Derril W. Reeves(3)............................................... 1,642,768 2.1
Richard D. Wright(5).............................................. 45,650 *
John K. Crawford(6)............................................... 1,015,603 1.3
Ronald B. Ashworth(7)............................................. 57,837 *
Sam A. Brooks, Jr.(8)............................................. 71,699 *
Dr. Winfield Dunn(9).............................................. 79,854 *
C. Sage Givens(10)................................................ 68,976 *
Dr. Joseph A. Hill(11)............................................ 88,290 *
Kay Coles James (12).............................................. 29,008 *
Dr. James A. Moncrief(13)......................................... 86,885 *
E. M. Warburg, Pincus & Co., LLC(14).............................. 7,488,387 9.8
Legg Mason, Inc.(15).............................................. 5,599,550 7.4
The Prudential Insurance Company of America(16)................... 4,212,991 5.5
All directors and officers as a group (12 persons)(17)............ 6,806,717 8.3
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock subject to options which may be
exercised within 60 days of March 31, 1999. Such shares are deemed to
be outstanding for the purposes of computing the percentage ownership
of the individual holding such shares, but are not deemed outstanding
for purposes of computing the percentage of any other person shown in
the table.
(2) Includes options to purchase 1,807,488 shares of Common Stock.
(3) Includes options to purchase 1,473,741 shares of Common Stock.
(4) Includes options to purchase 1,528,741 shares of Common Stock. Of
Mr. Dent's 165,907 shares, 147,986 shares are held in four trusts by
Mr. Dent for the benefit of members of his immediate family.
(5) Mr. Wright resigned as an officer and director in October 1998. All
unexercised options held by Mr. Wright have been terminated.
(6) Includes options to purchase 960,254 shares of Common Stock. Of these
shares, 4,628 shares are held in trust by Mr. Crawford for the benefit
of his two minor daughters, 5,000 shares are held in an IRA for his
spouse and 1,000 shares are held by C.T. Investments, a general
partnership.
(7) Includes options to purchase 55,500 shares of Common Stock and 508
shares of restricted Common Stock.
(8) Includes options to purchase 52,125 shares of Common Stock and 206
shares of restricted Common Stock.
(9) Includes options to purchase 65,626 shares of Common Stock and 1,308
shares of restricted Common Stock.
(10) Includes options to purchase 57,188 shares of Common Stock and 1,308
shares of restricted Common Stock.
(11) Includes options to purchase 57,188 shares of Common Stock and 1,308
shares of restricted Common Stock.
11
<PAGE> 15
(12) Includes options to purchase 28,500 shares of Common Stock and 254
shares of restricted Common Stock.
(13) Includes options to purchase 57,188 shares of Common Stock and 206
shares of restricted Common Stock.
(14) E. M. Warburg, Pincus & Co., 101,387 shares are held by advisory
accounts managed by Warburg Pincus Asset Management, Inc. on a
discretionary basis. Information as of March 8, 1999 and is derived
from Commission filings. Warburg, Pincus' address is 466 Lexington
Avenue, New York, New York 10017. Information is as of December 31,
1998 and is derived from Commission filings.
(15) Legg Mason, Inc. is an investment company. The address of Legg Mason is
100 Light Street, Baltimore, Maryland, 21202. Legg Mason Special
Investment Trust, Inc. holds 5,599,550 shares. Information is as of
December 31, 1998 and is derived from Commission filings.
(16) The Prudential Insurance Company is a mutual insurance company has
shared voting power over 4,175,900 shares. The address of Prudential
Insurance is 751 Broad Street, Newark, New Jersey 07102. Information is
as of December 31, 1998 and is derived form Commission filings.
(17) Includes options to purchase 6,143,539 shares of Common Stock and 5,098
shares of restricted Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's
officers, directors and persons who own more than 10% of a registered class of
the Company's securities to file reports of ownership and changes in ownership
with the Commission.
Based solely on a review of copies of reports filed with the
Commission and written representations from certain of the Company's directors
and executive officers, no other reports were required.
12
<PAGE> 16
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning
compensation paid or accrued by or on behalf of the Company's Chief Executive
Officer and the four other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 (hereinafter,
collectively referred to as the "Named Executive Officers") for services
rendered in all capacities to the Company for the years ended December 31, 1996,
1997 and 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation
-------------------------------------- ------------------------------------
Securities
Name and Underlying All Other
Principal Position Year Salary($) Bonus($) Options(#)(2) Compensation($)
------------------ ---- --------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Joseph C. Hutts............... 1998 $646,000(3) $ 60,000(4) 402,199 $8,000(5)
Chairman of the Board 1997 586,000 -- (6) 275,259(6) 8,000(7)
and Chief Executive Officer 1996 508,000 178,300(8) 226,593 7,500(9)
Thompson S. Dent.............. 1998 $471,000(3) $ 55,000(4) 364,619 $8,000(5)
President and 1997 416,000 -- (6) 204,576(7) 8,000(8)
Chief Operating Officer 1996 358,000 124,810(9) 170,113 7,500(10)
Derril W. Reeves.............. 1998 $471,000(3) $ 55,000(4) 334,619 $8,000(5)
Vice Chairman, Executive 1997 416,000 -- (6) 204,576(7) 8,000(8)
Vice President and Chief 1996 358,000 124,810(9) 170,113 7,500(10)
Development Officer
Richard D. Wright (11)........ 1998 $471,000(3) $ 55,000(4) 114,619 $8,000(5)
Executive Vice President, 1997 416,000 -- (6) 204,576(7) 8,000(8)
Corporate Services 1996 358,000 124,810(9) 170,113 7,500(10)
John K. Crawford.............. 1998 $366,000(3) $ 50,000(4) 306,117 $9,832(5)
Executive Vice President 1997 316,000 -- (6) 150,914(7) 8,952(8)
and Chief Financial Officer 1996 258,000 71,325(9) 127,568 8,155(10)
</TABLE>
- ---------------
(1) In 1997, the Company did not pay any perquisites or other personal
benefits to the Named Executive Officers. For 1996 and 1998, the
perquisites and personal benefits paid to each of the Named Executive
Officers was less than $50,000 or 10% of the total salary and bonus
reported for the Named Executive Officers, and, therefore, the amount
of such other annual compensation is not reported.
(2) Reflects the three-for-two stock split of the Common Stock effected in
June 1996.
(3) Includes cash compensation of $586,000, $416,000, $416,000, $416,000
and $316,000 and options to purchase 9,023, 8,271, 8,271, 8,271 and
7,519 shares of Common Stock for Messrs. Hutts, Dent, Reeves, Wright
and Crawford, respectively. The options are exercisable at a price of
$19.00 per share and expire January 14, 2008.
(4) In lieu of any cash bonus for 1998, Messrs. Hutts, Dent, Reeves, Wright
and Crawford were granted options to purchase 40,060, 29,534, 29,534,
29,534 and 22,015 shares of Common Stock, respectively, at an exercise
price of $19.00 per share. These options expire April 14, 2001.
(5) Includes the 1998 contributions by the Company to a defined
contribution plan of $8,000 for the four named Executive Officers and
includes excess premiums paid by the Company in 1998 in term life
insurance policies of $1,832 paid on behalf of Mr. Crawford.
13
<PAGE> 17
(6) Options to purchase shares have been forfeited by the recipient as a
result of the recipient's election to forego any bonus for 1997.
(7) Of these options, Messrs. Hutts, Reeves, Wright, Dent and Crawford
subsequently elected to forfeit options to purchase 38,000, 26,667,
26,667, 26,667 and 17,500 shares of Common Stock, respectively.
(8) Includes the 1997 contributions by the Company to a defined
contribution plan of $8,000 for each Named Executive Officer and
includes excess premiums paid by the Company in 1997 on term life
insurance policies of $952 paid on behalf of Mr. Crawford.
(9) Of these amounts, Messrs. Hutts, Reeves, Wright, Dent and Crawford
elected to forego $89,148, $62,404, $24,943, $62,404 and $35,249 in
exchange for 3,910, 2,737, 1,094, 2,737 and 1,564 shares of Bonus
Stock, respectively. These shares of Bonus Stock vested on May 16,
1997. The shares of Bonus Stock were issued on January 3, 1997 at a per
share price of $22.80.
(10) Includes the 1996 contributions by the Company to a defined
contribution plan of $7,500 for each Named Executive Officer and
includes excess premiums paid by the Company in 1996 on group term life
insurance of $655 on behalf of Mr. Crawford.
(11) Represents compensation through Mr. Wright's resignation effective
October 23, 1998.
The following table sets forth information concerning the
stock options granted to the Named Executive Officers in 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Number of Potential Realizable Value
Securities Percent of at Assumed Annual Rates of
Underlying Total Options Stock Price Appreciation for
Options Granted to Exercise or Option Term(3)
Granted Employees in Base Price Expiration ----------------------------
Name (#) (1) Fiscal Year ($/Sh) (2) Date 5% ($) 10% ($)
---- ------- ----------- ---------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph C. Hutts........... 9,023 0.5% $19.00 1/14/08 130,989 277,264
40,060 0.1 $19.00 4/14/01 119,975 251,937
131,116 1.5 $7.91 8/20/08 652,244 1,652,914
260,000 3.0 $5.00 9/30/08 817,563 2,071,865
Thompson S. Dent.......... 8,271 0.3 $19.00 1/14/08 98,830 250,455
29,534 0.1 $19.00 4/14/01 96,571 204,411
103,481 1.2 $7.91 8/20/08 514,772 1,304,534
250,000 2.9 $5.00 9/30/08 786,118 1,992,178
Derril W. Reeves.......... 8,271 0.3 $19.00 1/14/08 98,830 250,455
29,534 0.1 $19.00 4/14/01 96,571 204,411
103,481 1.2 $7.91 8/20/08 514,772 1,304,534
220,000 2.6 $5.00 9/30/08 691,784 1,753,117
Richard D. Wright(4)...... 8,271 0.3 $19.00 1/14/08 98,830 250,455
29,534 0.1 $19.00 4/14/01 96,571 204,411
103,481 1.2 $7.91 8/20/08 514,772 1,304,534
John K. Crawford.......... 7,519 0.3 $19.00 1/14/08 89,845 227,684
22,015 0.1 $19.00 4/14/01 71,985 152,371
74,083 0.9 $7.91 8/20/08 368,530 933,928
220,000 2.6 $5.00 9/30/08 691,784 1,753,117
</TABLE>
- ---------------
(1) All options granted to the Named Executive Officers, including the
options described above, are immediately exercisable. Options listed in
the table were granted under the Company's Amended 1988 Incentive Stock
Plan.
14
<PAGE> 18
(2) Represents the fair market value per share of the Common Stock on the
date of the grant of the option.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term and based
upon assumed rates of appreciation in the market price of the Common
Stock of 5% and 10% compounded annually from the date of grant to the
expiration date. Actual gains, if any, upon the exercise of stock
options will depend on the future performance of the Common Stock and
the date on which the options are exercised.
(4) Mr. Wright resigned his position as an executive officer and director
effective October 23, 1998.
The following table sets forth information with respect to the
exercise of options during the last fiscal year and unexercised options held as
of the end of the fiscal year by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
Shares at Fiscal Year-End(#) at Fiscal Year-End($)(2)
Acquired on Value --------------------- ------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph C. Hutts.......... 25,313 $313,797 1,507,488 -- $1,113,973 --
Thompson S. Dent......... -- -- 1,253,741 -- 1,169,698 --
Derril W. Reeves......... -- -- 1,223,741 -- 1,112,398 --
Richard D. Wright(3)..... 52,188 1,052,954 951,553 -- 521,675 --
John K. Crawford......... 112,883 1,840,595 710,254 -- 420,200 --
</TABLE>
- ---------------
(1) Based upon the closing sales price of a share of Common Stock as
reported on the Nasdaq Stock Market on the date of exercise, less the
exercise price for the options.
(2) Based upon the closing sales price of the Common Stock of $6.91 per
share as reported on the Nasdaq Stock Market on December 31, 1998, less
the exercise price for the options.
(3) Mr. Wright resigned his position as an executive officer and director
in October 1998.
The Company has not awarded stock appreciation rights to any
employee of the Company and has no long-term incentive plans, as such term is
defined in Commission regulations.
RETIREMENT PLAN
The Company developed a supplemental, non-qualified retirement
plan (the "Retirement Plan") for certain of the Company's executive officers
effective as of January 1, 1997. As of December 31, 1998, under the terms of the
Retirement Plan, Messrs. Hutts, Reeves, Dent and Crawford (the "Eligible
Officers") were eligible to participate. The Company has acquired certain
insurance policies with respect to each of the Eligible Officers and funds the
Retirement Plan through the development of cash surrender values and death
benefits on such policies. The Company may elect to terminate the Retirement
Plan at any time.
The Retirement Plan also provides a death benefit for Eligible
Officers while they are employees of the Company. Pursuant to the Retirement
Plan, the estate of an Eligible Officer who dies while an employee of the
Company will be entitled to receive a taxable death benefit from one to three
times the Eligible Officer's salary.
15
<PAGE> 19
Retirement Plan benefits are limited to the amount that the
Company has paid to fund these policies or any other funding device established
by the Company. After the occurrence of a change of corporate control, however,
the benefit payable is a straight life annuity (with a ten-year certain period)
with annual payments equal to 55% (or, if greater, 2.5% for each year of
service) of the Eligible Officer's compensation at the time of the change in
control. In addition, the Retirement Plan provides for additional payments by
the Company to offset the effects of excise taxes for which the Eligible Officer
may become liable under Section 4999 of the Code upon a change of corporate
control.
Benefits payable under the Retirement Plan are based upon the
average rate of compensation for the three consecutive calendar years prior to
the Eligible Officer's retirement that results in the highest average. Benefits
under the Retirement Plan are not subject to offset for Social Security
benefits.
The following table illustrates the total combined estimated
annual pension benefits payable to an Eligible Officer at normal retirement age
(age 60 under the Retirement Plan) after a change of control based on
compensation that is covered under the plans and years of service with the
Company and its subsidiaries:
RETIREMENT PLAN
<TABLE>
<CAPTION>
Average Annual Remuneration Plus
Company Contributions to the Years of Service at Retirement
Company's Qualified -----------------------------------------------------------------------
Retirement Plan (401(k)) 15 20 25 30 35
------------------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 200,000 $110,000 $110,000 $125,000 $150,000 $ 175,000
300,000 165,000 165,000 187,500 235,000 262,500
400,000 220,000 220,000 250,000 300,000 350,000
500,000 275,000 275,000 312,500 375,000 437,500
600,000 330,000 330,000 375,000 450,000 525,000
700,000 385,000 385,000 437,500 525,000 612,500
800,000 440,000 440,000 500,000 600,000 700,000
900,000 495,000 495,000 562,500 675,000 787,500
1,000,000 550,000 550,000 625,000 750,000 875,000
1,100,000 605,000 605,000 687,000 825,000 962,500
1,200,000 660,000 660,000 750,000 900,000 1,050,000
</TABLE>
As of December 31, 1998, the average three-year compensation,
as defined in the Retirement Plan, of the Eligible Officers was: (i) Mr. Hutts,
$641,000; (ii) Mr. Reeves, $458,000; (iii) Mr. Dent, $458,000 and, (iv) Mr.
Crawford, $336,000. The estimated credited years of service for the Eligible
Officers were: (i) Mr. Hutts, ten years; (ii) Mr. Reeves, ten years; (iii) Mr.
Dent, ten years, and (iv) Mr. Crawford, seven years.
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE-OF-CONTROL ARRANGEMENTS
Messrs. Hutts, Reeves, Dent and Wright, entered into Amended
and Restated Employment Agreements with the Company which were effective August
1, 1997, and Mr. Crawford entered into an Amended and Restated Employment
Agreement with the Company which was effective April 1, 1999 (collectively, the
"Amended Agreements"). The Amended Agreements supersede the employment
agreements entered into by each of Messrs. Hutts, Reeves, Dent and Wright as of
March 25, 1994 and the employment agreement of Mr.
16
<PAGE> 20
Crawford entered into as of August 13, 1997, and extend the employment of the
executive officers for an initial period of five years from the date of the
execution of the Amended Agreements, unless earlier terminated. Mr. Wright
terminated his Amended Agreement effective October 1998. Each Named Executive
Officer and the Company will begin to negotiate in good faith for the renewal of
the Amended Agreements, commencing 30 months prior to the expiration of the term
of the Amended Agreements. Failure by the Company and the Named Executive
Officer to reach agreement as to the renewal of the Amended Agreement by 24
months prior to the expiration of the term, to extend the negotiation period of
such Amended Agreement, or to reach agreement as to renewal by the end of the
extended negotiation period will result in the Amended Agreement being
terminated without cause.
Each of the Amended Agreements provides that the Named
Executive Officer may terminate his agreement upon giving 90 days prior written
notice of termination to the Company. The Amended Agreements also provide that
the Company may terminate the Named Executive Officer at any time for cause,
which includes a violation by the Named Executive Officer of any material term
of the Amended Agreement or if the Named Executive Officer is convicted of a
felony or commits an act of dishonesty, fraud or embezzlement against the
Company or its affiliates.
In the event the Company terminates a Named Executive Officer
without cause, the Company is obligated to pay to such Named Executive Officer
all bonuses and unreimbursed expenses owed that have accrued. The Company will
also (i) continue to pay the Named Executive Officer's salary for the longer of
the remaining term of the Amended Agreement or 24 months, (ii) continue to
provide insurance and other benefits for the period the salary is paid, (iii)
provide that all grants of outstanding options, Restricted Stock, Bonus Stock
and any other incentive stock awards become fully vested and (iv) cause all
deferred compensation, supplemental retirement programs and similar programs to
become fully funded.
In the event of a merger or consolidation of the Company where
the Company does not survive, or survives only as a subsidiary of another
company or in the event any person becomes the holder of 50% or more of the
Company's outstanding voting securities or has the power, directly or
indirectly, to designate a majority of the members of the Board of Directors
("Change of Control") and any of Messrs. Hutts, Dent, Reeves or Crawford
terminates his Amended Agreement within two years of such event, he will be
entitled to the benefits described immediately above. In the event Messrs.
Hutts, Dent, Reeves or Crawford becomes subject to an excise tax under Section
4999 of the Code as a result of such payments, the Company will provide
additional payments to such executive officer to avoid any adverse economic
impact from such excise tax. Additionally upon a Change of Control, payments
will be made to the Named Executive Officers under the Retirement Plan, as
described under the heading "Retirement Plans."
In the event any of Messrs. Hutts, Dent, Reeves or Crawford
becomes disabled and his disability continues for a period of 60 consecutive
days, the Company will pay the disabled executive officer's insurance, bonus and
other benefits for a period of six months from the date of the beginning of the
disability. The executive officer's salary would be reduced by any disability
income paid pursuant to any disability insurance policy maintained under the
terms of his Amended Agreement. Messrs. Hutts, Reeves and Dent have individual
disability insurance policies, the premiums for which are paid by the Company.
All other officers and
17
<PAGE> 21
employees of the Company have disability insurance through a group policy, the
premiums for which are also paid by the Company.
Each of the Named Executive Officer's compensation shall
consist of an annual salary determined by the Compensation Committee, vacation,
bonuses and reimbursement for all reasonable expenses incurred in the
performance of his duties. For 1999, Mr. Hutts' base salary is $600,000 and the
base salary for Mr. Dent is $500,000. The 1999 base salary for each of Messrs.
Reeves and Crawford is $425,000. The base salary of the Named Executive Officers
may be adjusted each year by the Compensation Committee.
Under the Amended Agreements, each Named Executive Officer
agrees that during the term of the applicable agreement and for a period of 24
months following the expiration or termination of the applicable agreement, the
Named Executive Officer will not (i) operate, develop or own any interest in,
other than the ownership of less than 5% of the equity securities of a
publicly-traded company, any business which has significant (viewed in relation
to the business of the Company) activities or has announced an intention to
focus significant resources, relating to the ownership, management or operation
of multi-specialty medical clinics, physician group practices, independent
practice associations, or other similar entities (a "Business"), (ii) compete
with the Company or any of its subsidiaries and affiliates in the operation or
development of any Business within the United States, (iii) be employed by any
business which owns, manages or operates a Business, (iv) interfere with,
solicit, disrupt or attempt to disrupt any past, present or prospective
relationship, contractual or otherwise, between the Company, its subsidiaries or
affiliates and any customer, client, supplier or employee of the Company, its
subsidiaries or affiliates, or (v) solicit any employee of the Company, its
subsidiaries or affiliates to leave their employment with the Company, its
subsidiaries or affiliates, or hire any such employee to work for a Business. In
the event the Named Executive Officer is terminated without cause, the above
provisions are applicable only for so long as the Company is obligated to pay
the Named Executive Officer's compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors during
1998 consisted of Mr. Ashworth and Drs. Dunn, Hill and Moncrief. None of the
members of the Compensation Committee has at any time been an officer or
employee of the Company or any of its subsidiaries, nor have any of the members
had any relationship with the Company requiring disclosure by the Company,
except for Drs. Hill and Moncrief, whose relationships are described hereinafter
under the caption "Certain Relationships and Related Transactions."
18
<PAGE> 22
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph C. Hutts......... 57 Chairman of the Board and Chief Executive Officer
Thompson S. Dent........ 49 President and Chief Operating Officer
Derril W. Reeves........ 55 Vice Chairman, Executive Vice President and Chief
Development Officer
John K. Crawford........ 40 Executive Vice President and Chief Financial Officer
</TABLE>
See "Proposal 2: Election of Directors" for information
regarding the backgrounds of the executive officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee of the
Company at the direction of the Board of Directors pursuant to rules established
by the Commission. This report provides certain data and information regarding
the compensation and benefits provided to Mr. Hutts, the Company's Chief
Executive Officer, as well as to Messrs. Reeves, Dent and Crawford.
The Compensation Committee is responsible for establishing and
administering the Company's executive compensation policies and programs within
the guidelines of the Company's compensation philosophy. Recommendations
relating to the compensation of the Named Executive Officers are made by the
Compensation Committee to the Board of Directors, which makes the final
decisions as to compensation. Employees serving on the Board of Directors do not
participate in the determination of their own compensation.
COMPENSATION PHILOSOPHY
The Compensation Committee's philosophy is to provide
significant ownership opportunity to the Named Executive Officers so that they
will continue to be motivated to enhance shareholder return and increase
shareholder value. The compensation policies and programs utilized by the
Compensation Committee and endorsed by the Board of Directors generally consist
of the following:
- Recommend the Named Executive Officers' total compensation
in relation to Company performance;
- Support the team concept among the Named Executive Officers
by providing comparable base compensation amounts;
- Align base salary and bonus amounts for the Named
Executive Officers with annual compensation levels
paid to executive officers of companies comparable in
size and performance to the Company; and
19
<PAGE> 23
- Provide long-term incentive compensation in the form
of stock options based upon a percentage of
outstanding shares and an analysis of competitive
stock option grants by a comparable group of health
care companies.
The compensation program of the Company generally consists of
(i) base salary and annual incentive compensation in the form of cash bonuses
and/or stock option awards and (ii) long-term incentive compensation in the form
of stock options.
COMPENSATION
The Compensation Committee in 1998 utilized the services of an
independent compensation consulting firm to further develop the compensation
program for the Named Executive Officers. At the suggestion of the consulting
firm, the Compensation Committee adopted certain refinements to the Company's
compensation and benefit program. The 1998 compensation package for the Named
Executive Officers continued to include annual compensation in the form of base
salary consisting of cash and stock options, but any cash bonus was replaced
with an option grant similar to the grant in 1997, and long-term compensation in
the form of stock options.
The following briefly describes the sources of compensation:
Base Compensation
The Company's annual salary levels are intended to reflect the
level of responsibility of the particular executive officer, with increases in
salary resulting from the individual performance of the executive officer and
the recognition of the Company's new and challenging business environment. In
determining the levels of annual compensation payable to the Named Executive
Officers, the Company used comparisons to compensation paid to executive
officers in 18 companies in the health care industry as reported in their latest
proxy statements as well as comparisons to executive officers in a broader based
health care management company survey. The companies utilized in the comparison
were located throughout the United States and many, but not all, of such
companies are included in the peer group indices used in the performance graph
included elsewhere in this Proxy Statement.
Annual Incentives
As stated above, the Named Executive Officers relinquished
their opportunity for an annual cash incentive payment in 1998 in favor of an
additional stock option grant. However, under normal circumstances where this
opportunity is not relinquished, actual bonus opportunities are established in
recognition of the bonuses paid in the health care industry and in consideration
of the level of the Named Executive Officer's position in the Company and
resulting impact on business success. The bonus is stated as a percentage of
annual salary of the Named Executive Officers. In establishing the level of
bonuses actually paid, the Compensation Committee utilizes a formula based upon
a comparison of actual earnings per share and return on capital achieved during
the year as compared to budgeted amounts for such results. Each of these factors
is weighted equally in application of the bonus formula.
20
<PAGE> 24
Long-Term Compensation
The Company's long-term compensation strategy includes the
grant of stock options. The Company grants stock options to provide a total
compensation package that rewards contributions by the executive officers to the
Company's long-term stock performance. These grants are intended not only to
motivate and retain the Named Executive Officers in the service of the Company,
but also to more closely align the Named Executive Officers' interests with
those of the Company's shareholders.
In making its decisions to approve stock option awards to the
Named Executive Officers, the Compensation Committee evaluated the Company's
performance for the year, the Company's growth plans, the desirability of
long-term service from the Named Executive Officers, the value of options
granted to persons in similar positions in comparable publicly traded health
care companies, the number of options held by other executives in the Company
with similar responsibilities as the executive at issue, and the amount and
terms of options already held by the Named Executive Officers. The amount of
long-term compensation granted to the Named Executive Officers in 1998 was based
upon a consideration of the need to ensure that the options granted would
provide a meaningful incentive to motivate and retain the Named Executive
Officers. In connection with the ongoing compensation plans, the Committee
intends to continue to promote long-term compensation structures which, in the
Committee's opinion, provide features which properly align the Company's
executive compensation with corporate performance and the interest of its
shareholders and which offer competitive compensation relevant to comparable
opportunities in the marketplace.
COMPENSATION PAID IN 1998 TO THE CHIEF EXECUTIVE OFFICER
Base Salary
The independent compensation consulting firm retained by the
Compensation Committee continued to evaluate compensation levels paid to the
Chief Executive Officer. Based upon an analysis of 18 similarly sized health
care companies as reported in their most recent annual proxy statements, as well
as a comparison to a broader based health care management company survey, the
consulting firm recommended a salary increase for the Chief Executive Officer
over 1997 levels.
In response to the recommendations of the consulting firm and
in recognition of the performance of Mr. Hutts and the financial results of the
Company, the Compensation Committee determined to increase the base salary of
Mr. Hutts by approximately 10.2% over 1997 levels. That salary was based upon
the consulting firm's recommendation to target the Company's compensation paid
to its Chief Executive Officer to place the Company in the top 25% of the 18
similarly sized companies used in the study. The salary levels were also based
upon the recognition of the Company's new and challenging business environment.
An option to purchase 9,023 shares of Common Stock was granted to Mr. Hutts to
represent the amount of his salary increase.
Annual Incentive for 1998
The target bonus established for Mr. Hutts for 1998 reflected
the Company's new and challenging environment and to support the strategic
direction of the Company. The
21
<PAGE> 25
percentage bonus opportunity for Mr. Hutts in 1998 was established at 40% of
base salary. In lieu of a cash bonus, Mr. Hutts was granted an option for the
purchase of 40,060 shares of Common Stock.
Long-Term Incentives
The Compensation Committee determined to issue to Mr. Hutts
options for the purchase of an aggregate of 391,116 shares of Common Stock. The
grant was intended to recognize Mr. Hutts' efforts in 1998 in a difficult and
demanding environment and to provide continued motivation to deal with the
Company's future challenges. The foregoing amount does not include the options
granted to Mr. Hutts in lieu of a cash bonus or a cash salary increase as
described above.
COMPENSATION PAID IN 1998 TO OTHER NAMED EXECUTIVE OFFICERS
Base Salaries
In 1998 the independent compensation consulting firm retained
by the Compensation Committee continued to evaluate compensation levels paid to
the Named Executive Officers. Based upon an analysis of 18 similarly sized
health care companies to which the Company was compared, the consulting firm
recommended a salary increase for the Named Executive Officers over 1997 levels.
In response to the recommendations of the consulting firm, in
recognition of the performance of Messrs. Reeves, Dent and Wright and the
Company's desire to recognize recent organizational changes, the Company's new
and challenging environment and to support the strategic direction of the
Company, the Compensation Committee determined to increase the base salaries of
each of these Named Executive Officers by approximately 13.2% over 1997 levels.
Options to purchase 8,271 shares of Common Stock were granted to each of Messrs.
Reeves, Dent and Wright, respectively, to represent the amount of their salary
increase. The amount of salary payable to these Named Executive Officers was
based upon the consulting firm's recommendation to target the Company's
compensation paid to its Named Executive Officers to place the Company in the
top 25% of the 18 similarly sized companies used in the study. The amounts
payable to Messrs. Reeves, Dent and Wright remained equal in amount in order to
promote the Company's team approach to compensation and the understanding that
these individuals perform equally vital roles in different aspects of the
Company's business. Mr. Wright tendered his resignation as an officer and
director of the Company in October 1998.
The base salary payable to Mr. Crawford was increased by
approximately 15.8% over his 1997 salary in recognition of Mr. Crawford's
contributions to the Company. Mr. Crawford's salary increase, while influenced
by the recommendations of the consulting firm, was based on an assessment of Mr.
Crawford's performance and in recognition of the recent organizational changes,
to recognize the Company's new and challenging environment and to support the
strategic direction of the Company. An option to purchase 7,519 shares of Common
Stock was granted to Mr. Crawford to represent the amount of his salary
increase.
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Annual Incentives for 1998
The target bonuses established for Messrs. Reeves, Dent,
Wright and Crawford for 1998 were intended to recognize the difficult and
demanding challenges faced by these executives and to provide continued
motivation to deal with future challenges. The bonus levels also had the goal of
providing competitive levels of total compensation to the Named Executive
Officers as compared to the health care marketplace and the goal of providing
comparable compensation to these executive officers in recognition of the team
approach to compensation. The percentage bonus opportunity for Messrs. Reeves,
Dent, Wright and Crawford was established at 40% of base salary. In lieu of cash
bonuses, Messrs. Reeves, Dent, Wright and Crawford were granted options to
purchase shares of Common Stock of 29,534, 29,534, 29,534 and 22,015,
respectively.
Long-Term Incentives
The Compensation Committee determined to issue options to
purchase shares of Common Stock to each of these Named Executive Officers to
reflect the team approach to compensation for these individuals, as well as the
Committee's perception of their equally vital roles with the Company during
1998. The award were also provided in recognition of the recent organizational
changes, to recognize the Company's new and challenging environment and to
support the strategic direction of the Company. Messrs. Dent, Reeves, Wright and
Crawford were granted options in 1998 to purchase 353,481, 323,481, 103,481 and
294,083 shares, respectively, of the Company's Common Stock (which amounts do
not include the option grants by the Company in 1998 to the Named Executive
Officers in lieu of cash bonuses or cash salary increases as described above).
With the assistance of the independent consulting firm, the
Compensation Committee will continue to monitor the financial performance of the
Company and its executive officers in reassessing executive compensation.
COMPENSATION COMMITTEE
Dr. Winfield Dunn, Chairman
Ronald B. Ashworth
Dr. Joseph A. Hill
Dr. James A. Moncrief
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<PAGE> 27
COMPARATIVE PERFORMANCE GRAPH
The following is a comparative performance graph which
compares the percentage change of cumulative total shareholder return on the
Common Stock with (a) the performance of a broad equity market indicator, the
CRSP Index for Nasdaq Stock Market (US Companies) (the "Broad Index"), and (b)
the performance of a published industry index, the CRSP Index for Nasdaq Health
Services Stocks (the "Industry Index"). The graph begins on January 1, 1994, and
assumes the investment on such date of $100 in the Common Stock, the Broad Index
and the Industry Index and assumes that all dividends, if any, were reinvested
at the time they were paid.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
PHYCOR, INC.
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
- ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PHYCOR, INC. 100.00 139.6 395.7 331.1 317.0 80.0
Nasdaq Stock Market (US Companies) 100.00 97.8 138.3 170.0 208.3 293.5
Nasdaq Health Services Stocks 100.00 107.3 136.1 135.9 138.5 118.8
SIC 8000-8099 US & Foreign
</TABLE>
24
<PAGE> 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. James A. Moncrief, a director of the Company, is President
and a member of The Green Clinic L.L.C. ("Green Clinic"), with which the Company
has entered into a 30-year service agreement in connection with the operation of
the Green Clinic. Under the service agreement, the Company receives a management
fee equal to clinic expenses incurred by the Company plus a percentage of
operating income of the clinic. Dr. Moncrief is also a partner of Medical
Clinical Properties Company, an affiliate of The Green Clinic, which leased the
clinic facility to Green Clinic until November 1998. In November 1998, the
facility was sold to CitiCorp Del-Lease, Inc. ("CitiCorp") and PhyCor leases
such facility from CitiCorp through its synthetic lease facility. Until the sale
to CitiCorp, Green Clinic subleased the facility to the Company for total rental
payments in 1998 of approximately $331,000.
Dr. Joseph A. Hill, a director of the Company, is a
shareholder of Gold, Vann & White, P.A., with which the Company has entered into
a 40-year service agreement in connection with the operation of the Doctors'
Clinic. Under the service agreement, the Company receives a management fee equal
to clinic expenses incurred by the Company plus a percentage of operating income
of the clinic.
Mr. Dent, an executive officer and director of the Company, is
a director and shareholder of HRT. The Company's Vero Beach property is leased
from HRT by PhyCor of Vero Beach, Inc., a wholly-owned subsidiary of the
Company, at a base rental of approximately $1.1 million per year for a term of
15 years. The affiliated physician group in Harlingen, Texas sold its property
to HRT, which it then leased from HRT at a base rental of approximately $520,000
per year for a term of 15 years. PhyCor of Harlingen, Inc., a wholly-owned
subsidiary of the Company, subleased the Harlingen, Texas property from the
affiliated physician group for the same base rental amount. The sublease
terminated effective July 1, 1998 in conjunction with the termination of the
Company's affiliation with the affiliated physician group. The Company's
affiliated Roanoke, Virginia physician group leased properties under a 15-year
agreement which includes rent and certain operating expenses. Such payments
totaled approximately $6.7 million in 1998. The Company has guaranteed the lease
obligations of the physician group to HRT.
Mr. Hutts, President, Chief Executive Officer and Chairman of
the Board of the Company, and Mr. Brooks, a director of the Company, are
directors of Quorum. The Company has entered into an agreement with Quorum to
obtain access to volume purchasing agreements, materials management support and
other services. Total payments by the Company to Quorum for such services during
1998 were approximately $63,000.
During the first quarter of 1998, the Company owned a minority
interest in PhyCor Management Corporation ("PMC") and an option to purchase the
remaining interests. Effective March 31, 1998, the Company completed the
acquisition of the remaining interests, and PMC's operations were integrated
into North American Medical Management, Inc., a wholly-owned subsidiary of the
Company. Until the acquisition was completed, the Company
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<PAGE> 29
provided management services to PMC pursuant to an Administrative Services
Agreement. For services rendered pursuant to the Administrative Services
Agreement, the Company received a fee equal to the costs incurred from providing
services plus a fee of 10% of such costs. The Company received total payments of
approximately $64,000 in 1998 pursuant to the Administrative Services Agreement,
including reimbursement of costs incurred equal to approximately $46,000.
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<PAGE> 30
SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal considered for
inclusion in the Company's proxy materials for the 2000 annual meeting of
shareholders, the proposal must comply with the Commission's proxy rules, be
stated in writing and be submitted on or before December 1, 1999. Any proposals
should be mailed to the Company at 30 Burton Hills Boulevard, Suite 400,
Nashville, Tennessee 37215, Attention: N. Carolyn Forehand, Secretary.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be
brought before the Annual Meeting. If any other matters, however, are properly
brought before the Annual Meeting, the persons named in the enclosed form of
proxy will have discretionary authority to vote all proxies with respect to such
matters in accordance with their best judgment.
UPON THE WRITTEN REQUEST OF ANY HOLDER OF THE COMMON STOCK
ENTITLED TO VOTE AT THE ANNUAL MEETING, THE COMPANY WILL FURNISH, WITHOUT
CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998, AS FILED WITH THE COMMISSION. REQUESTS SHOULD BE DIRECTED TO
JOHN K. CRAWFORD, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, PHYCOR,
INC., 30 BURTON HILLS BOULEVARD, SUITE 400, NASHVILLE, TENNESSEE 37215.
By Order of the Board of Directors,
/s/ N. Carolyn Forehand
N. Carolyn Forehand
Secretary
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<PAGE> 31
APPENDIX A
PHYCOR, INC.
1999 INCENTIVE STOCK PLAN
1. Name of the Plan. This incentive stock plan has been established by
action of the board of directors of PhyCor, Inc. (the "Board") on April 5, 1999,
as the PhyCor, Inc. 1999 Incentive Stock Plan.
2. The Purpose of the Plan. The Plan is intended to provide an
opportunity for individuals performing services to PhyCor, Inc., a Tennessee
corporation (the "Corporation"), including officers, directors and key employees
of the Corporation and its subsidiaries ("Subsidiaries"), as subsidiaries are
defined in Section 424(f) of the Internal Revenue Code of 1986 (the "Code"), to
acquire shares of the Corporation's common stock, no par value per share
("Common Stock"), and to provide for additional compensation based on
appreciation of the Corporation's stock. The Plan provides for the (i) grant of
incentive stock options, as defined in section 422 of the Code, ("Incentive
Stock Options") and (ii) stock options not qualifying as Incentive Stock Options
("Non-Qualified Stock Options"), each providing an equity interest in the
Corporation's business as an incentive for service or continued service with the
Corporation and to aid the Corporation in retaining and obtaining key personnel
of outstanding ability. As used herein, "Option" refers to an Incentive Stock
Option or a Non-Qualified Stock Option.
3. Stock Subject to the Plan. The maximum numbers of shares of Common
Stock which may be issued under Options granted under the Plan is 4,500,000
(subject to adjustments pursuant to Section 8), which may be either authorized
and unissued shares or shares that are held in the treasury of the Corporation,
as shall be determined by the Board. If an Option expires or terminates for any
reason without being exercised in full, the shares of Common Stock represented
by such Option shall again be available for purposes of the Plan.
4. Administration of the Plan. This Plan shall be administered by a
committee composed of at least two individuals (or such number that satisfies
section 162(m)(4)(C) of the Code and Rule 16b-3 of the Securities Exchange Act
of 1934 (the "Exchange Act")) who are "non-employee directors" as defined in
Rule 16b-3(b) of the Exchange Act and would be considered "outside directors" as
defined in Treasury Regulation Section 1.162-27(e)(2), and who are designated by
the Board as the "compensation committee" or are otherwise designated to
administer the Plan (the "Committee"). The Committee shall have full authority
in its discretion to determine the eligible persons to whom Options shall be
granted and the terms and provisions of the option grants subject to the Plan.
In making such determinations, the Committee may take into account the nature of
the services rendered and to be rendered by such persons, their present and
potential contributions to the Corporation and any other factors which the
Committee deems relevant. Subject to the provisions of the Plan, the Committee
shall have full and conclusive authority to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine the
terms and provisions of the respective agreements which represent each Option
(hereinafter, an "Agreement"), which need not be identical; to determine the
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restrictions on transferability of Common Stock acquired upon exercise of
Options; and to make all other determinations necessary or advisable for the
proper administration of the Plan.
The Committee may delegate authority to the president or chief
executive officer of the Corporation to amend any Agreement in the manner
specified in a written delegation to modify the exercisability or vesting of the
Option or in any other manner that is specified in a written delegation by the
Committee.
5. Eligibility and Limits. Non-Qualified Stock Options may be granted
to employees and directors as are selected by the Committee. Incentive Stock
Options may only be granted to employees of the Corporation and its present or
future Subsidiaries. The aggregate fair market value (determined as of the time
an Incentive Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable by an individual for the first time
during any calendar year, taking into account Incentive Stock Options granted
under this Plan and under all other plans of the Corporation or Subsidiary
corporations shall not exceed $100,000. No employee of the Company or a
Subsidiary may receive Options with respect to more than 750,000 shares of
Common Stock during any calendar year (which number of shares shall be subject
to adjustments pursuant to Section 8 herein).
6. Incentive Stock Options and Non-Qualified Stock Options. At the time
any Option is granted under this Plan, the Committee shall determine whether
said Option is to be an Incentive Stock Option or a Non-Qualified Stock Option,
and the Option shall be clearly identified to designate its status as an
Incentive Stock Option or a Non-Qualified Stock Option. The number of shares as
to which Incentive Stock Options and Non-Qualified Stock Options shall be
granted shall be determined by the Committee in its sole discretion, subject to
the limitations of Section 3 and Section 5. At the time any Incentive Stock
Option granted under this Plan is exercised, the certificates representing the
shares of Common Stock purchased pursuant to said Option shall be clearly
identified by legend as representing shares purchased upon exercise of an
Incentive Stock Option.
7. Terms and Conditions of Options. Subject to the following
provisions, all Options shall be in such form and upon such terms and conditions
as the Committee, in its discretion, may from time to time determine.
(a) Option Price.
(i) Incentive Stock Options. The Option price per
share shall in no event be less than 100% of the fair market
value per share of the Common Stock on the date the Option is
granted. If the employee owns (as defined in Code section 424)
more than 10% of the total combined voting power of all
classes of the Corporation's stock or of the stock of its
parent or Subsidiary, the Option price per share shall not be
less than 110% of the fair market value per share of the
Common Stock on the date the Option is granted.
(ii) Non-Qualified Options. The Option price per share
shall not be less than 85% of the fair market value per share of the
Common Stock on the date the Option is granted.
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(iii) Fair Market Value. For purposes of this Plan,
and as used herein, the "fair market value" of a share of
Common Stock is the closing sales price on the date in
question (or, if there was no reported sale on such date, on
the last preceding day on which any reported sale occurred) of
the Common Stock as reported on the Nasdaq National Market
System (or such other exchange that is, at the time, the
primary exchange on which the Common Stock is traded).
(b) Date of Grant. The date the Option is granted shall be the
date on which the Committee has determined the recipient of the Option, the
number of shares covered by the Option and has taken all such other action as is
necessary to complete the grant of the Option. Accordingly, the date an Option
is granted may be deemed to be prior to the time that an Agreement is executed
by a Participant and the Company.
(c) Option Term. No Option shall be exercisable after the expiration
of ten years from the date the Option is granted, unless provided otherwise in
an Agreement that covers a Non-Qualified Stock Option. No Incentive Stock Option
granted to an employee who at the time of grant owns (as defined in Code section
424) more than 10% of the total combined voting power of all classes of the
Corporation's stock or of the stock of its parent or Subsidiary shall be
exercisable after the expiration of five years from the date it is granted.
(d) Payment. Unless otherwise provided by the Agreement, payment of
the exercise price of an Option shall be made in cash, Common Stock that was
acquired at least six months prior to the exercise of the Option, other
consideration acceptable to the Committee, or a combination thereof. Such
payment shall be made at the time that the Option or any part thereof is
exercised, and no shares shall be issued until full payment therefor has been
made.
(e) Status of Option Holder. The holder of an Option shall, as such,
have none of the rights of a stockholder.
(f) Nontransferability of Options. In general, Options shall not be
transferable or assignable except by will or by the laws of descent and
distribution and shall be exercisable, during the holder's lifetime, only by
him; provided, however, that a Participant may transfer a Non-Qualified Stock
Option to the extent permitted by the Committee and set forth in the Agreement
evidencing the Option.
(g) Termination of Employment; Disability; Retirement or Death.
Except as provided below, an Option may not be exercised by a holder unless he
has been an employee continually from the date of the grant until the date
ending three months before the date of exercise. If the holder of an Option
dies, such Option may be exercised by a legatee or legatees of the holder under
his last will, or by his personal representative or distributee, at any time
during the twelve-month period following his death. If a holder is discharged as
an employee, or removed as a director, for cause, as determined by the
Committee, Options held by him shall not be exercisable after such discharge or
removal, unless otherwise provided herein. If a holder ceases to be an employee
by reason of permanent disability, within the meaning of section 22(e)(3) of the
Code ("Disability"), all Options held by the holder may be exercised at any time
during the twelve-month period
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following the Disability. Upon a holder's Retirement (as defined below),
Disability or Death, all Options held by the holder shall become fully
exercisable as to the full number of shares covered thereby notwithstanding any
vesting schedule contemplated in the Option. As used herein, "retirement" shall
mean (i) the holder is at least 60 years old and has continuously been employed
by the Corporation or a subsidiary for a period of at least five years, or is at
least 55 years old and has continuously been employed by the Corporation or a
subsidiary for a period of at least twenty years, and (ii) the holder has given
written notice in a form satisfactory to the Committee of his permanent
retirement. Notwithstanding this Section 7(g), no Incentive Stock Option may be
exercised more than ten years after the date on which it was granted, and a
holder shall be deemed to be an employee or director so long as the holder is an
employee or director of a parent or Subsidiary of the Corporation or by another
corporation (or a parent or subsidiary corporation of such other corporation)
which has assumed the Option of the holder in a transaction to which section
424(a) of the Code is applicable. The provisions of this Section 7(g) shall be
deemed to apply to any outstanding Option without regard to when such Option was
granted by the Committee.
(h) Limited Rights of Exercise. Notwithstanding any vesting
schedule contained in an Agreement, an Option may be exercised during the Option
term as to the full number of shares covered by the Option, if: (1) a tender
offer or exchange offer has been made for shares of Common Stock, provided that
the corporation, person or other entity making such offer purchases or otherwise
acquires shares of Common Stock pursuant to such offer; (2) the stockholders of
the Corporation have approved a definitive agreement (a "Merger Agreement") to
merge or consolidate with or into another corporation pursuant to which the
Corporation will not survive or will survive only as a subsidiary of another
corporation (the "Transaction"), or to sell or otherwise dispose of all or
substantially all of its assets, (3) any person or group (as such terms are
defined in section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Act")), becomes the beneficial owner (as such term is defined in Rule 13(d)
pursuant to the Act) of 50% or more of the outstanding shares of Common Stock,
or (4) the individuals who, as of the date of this Plan, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least a
majority of the members of the Board; provided, however, that if the election,
or nomination for election by PhyCor's stockholders, of any new director was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall, for purposes of this Plan, 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 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 Exchange 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. If any of the events
specified in this subparagraph (g) (a "Change in Control") have occurred, the
Option shall be fully exercisable: (x) in the event of a tender offer or
exchange offer as described in clause (1) above, during the term of the tender
or exchange offer and for a period of 30 days thereafter; (y) in the event of
execution of a Merger Agreement as defined in clause (2) above, within a 30-day
period commencing on the date of execution of a Merger Agreement, and the Option
holder may condition such exercise upon the consummation of the Transaction; (z)
in the event of an event described in clause (3) above, within a 30-day
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period commencing on the date upon which the Corporation is provided a copy of
Schedule 13D or 13G (filed pursuant to section 13(d) or 13(g) of the Act and the
rules and regulations promulgated thereunder) indicating that any person or
group has become the beneficial owner of 50% or more of the outstanding shares
of Common Stock or, if the Corporation is not subject to section 13(d) of the
Act, within a 30-day period commencing on the date upon which the Corporation
receives written notice that any person or group has become the beneficial owner
of 50% or more of the outstanding shares of Common Stock or (a) if a change in
the Incumbent Board occurs pursuant to clause (4) above, within a 30 day period
commencing upon the date the Option holder was given notice of the change in the
Board composition. The provisions of this Section 7(h) shall be deemed to apply
to any outstanding Option without regard to when such Option was granted by the
Committee. Moreover, unless the Option holder specifically elects otherwise, if
the Option holder exercises less than all the Options as to which vesting is
accelerated pursuant to this Section 7(h), the Options exercised shall be deemed
to be those which had the latest vesting date.
(i) Upon exercise of a Nonqualified Stock Option, the
Participant shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Corporation amounts necessary to satisfy applicable federal, state and
local withholding tax requirements or shall otherwise make arrangements
satisfactory to the Corporation for such requirements. Such withholding
requirements shall not apply to the exercise of an Incentive Stock Option, or to
a disqualifying disposition of Common Stock that is acquired with an Incentive
Stock Option, unless the Committee gives the Participant notice that withholding
described in this Section is required.
8. Changes in Capitalization; Merger; Liquidation. The number of shares
of Common Stock as to which Options may be granted, the number of shares covered
by each outstanding Option, and the price per share in each outstanding Option,
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued shares of Common Stock resulting from a subdivision or combination of
shares, (ii) the payment of a stock dividend in shares of Common Stock to
holders of outstanding shares of Common Stock or (iii) any other increase or
decrease in the number of such shares effected without receipt of consideration
by the Corporation.
If the Corporation shall be the surviving corporation in any merger,
share exchange or consolidation, recapitalization, reclassification of shares or
similar reorganization, the holder of each outstanding Option shall be entitled
to receive or purchase, as applicable, at the same times and upon the same terms
and conditions as are then provided in the relevant Agreement, the number and
class of shares of Common Stock or other securities to which a holder of the
number of options or shares of Common Stock at the time of such transaction
would have been entitled to receive as a result of such transaction.
In the event of any such changes in capitalization of the Corporation,
the Committee may make such additional adjustments in the number and class of
shares of Common Stock or other securities with respect to which outstanding
Options are exercisable and with respect to which future Options may be granted
as the Committee in its sole discretion shall deem equitable or appropriate,
subject to the provisions of this Section 8.
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A dissolution or liquidation of the Corporation shall cause each
outstanding Option to terminate.
Upon a merger, share exchange, consolidation or other business
combination in which the Corporation is not the surviving corporation, the
surviving corporation shall substitute another option with equivalent terms and
value as the outstanding Option in a manner consistent with section 424(a) of
the Code. In the event of a change of the Corporation's shares of Common Stock
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan. Except as expressly provided
in this Section 8, the holder of a Option shall have no rights by reason of any
subdivision or combination of shares of Common Stock of any class or the payment
of any stock dividend or any other increase or decrease in the number of shares
of Common Stock of any class or by reason of any dissolution, liquidation,
merger, share exchange or consolidation or distribution to the Corporation's
stockholders of assets of stock of another corporation, and any issue by the
Corporation of shares of Common Stock of any class, or securities convertible
into shares of Common Stock of any class, shall not affect, and no adjustment by
reasons thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. The existence of the Plan and the Options
granted pursuant to the Plan shall not affect in any way the right or power of
the Corporation to make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business structure, any merger,
share exchange or consolidation of the Corporation, any issue of debt or equity
securities having preferences or priorities as to the Common Stock or the rights
thereof, the dissolution or liquidation of the Corporation, any sale or transfer
of all or any part of its business or assets, or any other corporate act or
proceeding.
9. Termination and Amendment of the Plan. The Plan shall remain in
effect until terminated by the Board. Upon termination of the Plan, no Options
shall be granted under the Plan after that date, but any Options granted before
termination of the Plan shall remain exercisable thereafter until they expire or
lapse according to their terms. The Board may amend or terminate this Plan at
any time; provided, however, an amendment that would have a material adverse
effect on the rights of a Participant under an outstanding Option is not valid
with respect to such Option without the Participant's consent, except as
necessary for Incentive Stock Options to maintain qualification under the Code;
and provided, further, that the shareholders of the Corporation must approve the
following:
(a) within 12 months before or after the date of adoption, any
amendment that increases the aggregate number of shares of Stock that may be
issued pursuant to Incentive Options or changes the employees (or class of
employees) eligible to receive Incentive Options;
(b) before the effective date thereof, any amendment that changes
the number of shares which may be issued in the aggregate pursuant to Options
granted under the Plan;
(c) before the effective date thereof, any amendment that
increases the period during which Options may be granted or exercised; and
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(d) before the date that compensation is paid with respect thereto,
any amendment that changes the number of Options which may be granted to an
employee of the Corporation or a Subsidiary under the Plan during a specified
period.
10. Effective Date of Plan. This Plan is effective upon its adoption by
the Board; provided that any Incentive Stock Options granted with respect to
shares of Common Stock that were reserved for the Plan on the date of Board
adoption shall become void if this Plan is not approved by a majority of the
votes cast by holders of Common Stock entitled to vote at a meeting of
shareholders at which a quorum is present within 12 months of the date of the
adoption of the Plan by the Board. No Incentive Stock Option may be granted
under this Plan with respect to the shares of Common Stock identified in Section
3 more than ten years after the date that this Plan was adopted by the Board.
Incentive Stock Options granted before such date shall remain valid in
accordance with their terms.
11. Incentive Stock Option Plan. All Incentive Stock Options to be
granted hereunder are intended to comply with sections 421 and 422 of the Code.
All Options are intended to be treaded as "performance-based compensation"
within the meaning of Section 162(m) of the Code. The provisions of this Plan
and all Options granted hereunder shall be construed in such manner as to
effectuate such intent.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this instrument on this the 5th day of April, 1999.
PHYCOR, INC.
By: John K. Crawford
Its: Executive Vice President and
Chief Financial Officer
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Appendix B
PHYCOR, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 25, 1999
The undersigned hereby appoints Joseph C. Hutts and John K. Crawford, or
either of them, with power of substitution, as proxies to vote all stock of
PhyCor, Inc. (the "Company") owned by the undersigned at the Annual Meeting of
Shareholders to be held at the First American Center Auditorium, Fifth Floor,
300 Union Street, Nashville, Tennessee, at 10:00 a.m. on May 25, 1999, on the
following matters as indicated below and such other business as may properly
come before the meeting.
1. Proposal to adopt the Company's 1999 Incentive Stock Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. [ ] FOR the election as Class II Directors of all nominees listed: Sam A.
Brooks, Jr., Thompson S. Dent, Kay Coles James, Dr. James A. Moncrief.
(except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed: Sam A. Brooks, Jr.,
Thompson S. Dent, Kay Coles James and Dr. James A. Moncrief.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEES, WRITE THEIR
NAMES IN THE SPACE PROVIDED BELOW:
- -------------------------------------------------------------------------------
3. Proposal to ratify the appointment of KPMG LLP as the independent public
accountants of the Company for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies named above may vote upon such other matters as
may properly come before the meeting or any adjournment thereof.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. Any proxy voted against any of the
proposals will not be counted as a vote for adjournment of the Annual Meeting.
If no direction is made, this Proxy will be voted (i) FOR the adoption of the
Company's 1999 Incentive Stock Plan; (ii) FOR the four nominees as Class II
Directors of the Company; and (iii) FOR the proposal to ratify the appointment
of KPMG LLP as the independent public accountants of the Company for the year
ending December 31, 1999.
Please sign exactly as your name
appears on this Proxy Card. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership or
limited liability entity, please
sign in full name of such entity
by authorized person.
Dated: , 1999
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Signature of Shareholder
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
