SCHEDULE 14A INFORMATION
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MedCath Incorporated
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(Name of Registrant as Specified In Its Charter)
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<PAGE>
MEDCATH INCORPORATED
7621 Little Avenue, Suite 106
Charlotte, North Carolina 28226
January 10, 1997
TO OUR SHAREHOLDERS:
You are cordially invited to attend the Annual Meeting of Shareholders
of MedCath Incorporated to be held at 9:00 a.m. on Wednesday, February 19, 1997
at Raintree Country Club, 8600 Raintree Lane, Charlotte, North Carolina. The
Board of Directors looks forward to personally greeting those who are able to
attend.
The Notice of Annual Meeting of Shareholders and Proxy Statement, which
describe the formal business to be conducted at the meeting, follows this
letter. It is important that your shares be represented at the meeting, whether
or not you plan to attend. Accordingly, please take a moment now to sign, date
and mail the enclosed proxy in the envelope provided.
Following completion of the formal portion of the Annual Meeting,
management will comment on the Company's affairs. A question and answer period
will follow. We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Stephen R. Puckett
Stephen R. Puckett
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE>
MEDCATH INCORPORATED
7621 LITTLE AVENUE, SUITE 106
CHARLOTTE, NORTH CAROLINA 28226
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 19, 1997
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TO THE SHAREHOLDERS OF MEDCATH INCORPORATED:
The Annual Meeting of Shareholders of MedCath Incorporated will be held
at Raintree Country Club, 8600 Raintree Lane, Charlotte, North Carolina on
Wednesday, February 19, 1997 at 9:00 a.m., Eastern Standard Time, for the
following purposes:
1. To elect six directors for a one year term and, in
each case, until their successors are elected and qualified;
2. To approve an increase in the number of shares
reserved for issuance under the Company's Omnibus Stock Plan.
3. To ratify the appointment of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ending
September 30, 1997; and
4. To transact such other business as may properly
come before the meeting or any reconvened session thereof.
The Board of Directors has fixed the close of business on
December 20, 1996, as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and at
any reconvened session thereof.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU
HOLD ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT, YOU ARE
REQUESTED TO DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE
THAT IS PROVIDED. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME, AND THE GIVING OF
YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE
MEETING.
This notice is given pursuant to direction of the Board of Directors.
Richard J. Post
Secretary
Charlotte, North Carolina
January 10, 1997
<PAGE>
MEDCATH INCORPORATED
7621 LITTLE AVENUE, SUITE 106
CHARLOTTE, NORTH CAROLINA 28226
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 19, 1997
The accompanying proxy is solicited by the Board of Directors of
MedCath Incorporated (the "Company"), for use at the Annual Meeting of
Shareholders to be held at 9:00 a.m. on Wednesday, February 19, 1997, at
Raintree Country Club, 8600 Raintree Lane, Charlotte, North Carolina and at any
reconvened session thereof. When such proxy is properly executed and returned,
the shares it represents will be voted at the meeting. If a choice has been
specified by the shareholder as to any matter referred to on the proxy the
shares will be voted accordingly. If no choice is indicated on the proxy, the
shares will be voted in favor of the election of the six nominees named herein
and in favor of each of the other proposals. A shareholder giving a proxy has
the power to revoke it at any time before it is voted. Presence at the meeting
of a shareholder who has signed a proxy does not alone revoke that proxy; the
proxy may be revoked by a later dated proxy or by notice to the Secretary at the
meeting. At the meeting, votes will be counted by written ballot.
At the Annual Meeting shareholders will be asked to:
1. Elect six directors for a one year term and, in each
case, until their successors are elected and qualified;
2. Approve an increase in the number of shares of
Common Stock reserved for issuance under the Company's Omnibus
Stock Plan.
3. Ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending September
30, 1997; and
4. Transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
The representation in person or by proxy of a majority of the votes
entitled to be cast is necessary to provide a quorum at the Annual Meeting.
Provided a quorum is present, directors are elected by a plurality of the votes
cast. With respect to the election of directors, votes may be cast in favor of
nominees or withheld. Withheld votes and shares not voted are not treated as
votes cast and, therefore, will have no effect on the proposal to elect
directors. Approval of an increase in the number of shares of Common Stock
reserved for issuance under the Company's Omnibus Stock Plan, ratification of
the appointment of the Company's independent auditors and the approval of any
other business which properly comes before the Annual Meeting requires the
affirmative vote of the holders of a majority of the shares of Common Stock
voted. Abstentions and shares not voted are not treated as votes cast and,
therefore, will have no effect on the vote for any such proposal.
Only shareholders of record as of the close of business on December 20,
1996, will be entitled to vote at the Annual Meeting. The approximate date on
which this proxy statement and form of proxy were first sent or given to
shareholders is January 10, 1997.
<PAGE>
OUTSTANDING VOTING SECURITIES
The Board of Directors has set the close of business on December 20,
1996 as the record date for determination of shareholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of December 20,
1996, the Company had outstanding 11,146,749 shares of its Common Stock, $.01
par value per share (the "Common Stock"). Each of such shares is entitled to one
vote per share with respect to all matters to be acted upon at the Annual
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 20, 1996 by: (i) each
person known to the Company to beneficially own more than 5% of the Common
Stock; (ii) each director and nominee for director of the Company; (iii) each
executive officer named in the Summary Compensation Table; and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name Amount and Nature of Percentage of
Beneficial Ownership(1) Common
Stock
<S> <C> <C>
Stephen R. Puckett(2)......................................... 1,210,178 10.8%
Patrick J. Welsh(3)........................................... 966,177 8.7
Andrew M. Paul(3)............................................. 903,267 8.1
Welsh, Carson, Anderson & Stowe, V, L.P.(4)................... 884,829 7.9
Crown Advisors, Ltd.(5)....................................... 673,200 6.0
Charles W. (Todd) Johnson (6)................................. 281,989 2.5
David Crane(7)................................................ 195,441 1.7
David A. Ward................................................. 79,187 *
John B. McKinnon(8)........................................... 60,666 *
Daniel L. Belongia(9)......................................... 37,355 *
W. Jack Duncan(8)............................................. 3,020 *
All Executive Officers and Directors as
a Group (12 persons)(10).................................... 2,865,709 25.3
<FN>
*Less than 1%
(1) Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws
where applicable.
(2) The address of Mr. Puckett is 7621 Little Avenue, Suite 106,
Charlotte, North Carolina 28226. Includes 1,055,650 shares
held by two limited partnerships of which Mr. Puckett is the
sole general partner and 34,528 shares issuable upon exercise
of options that are exercisable within 60 days of December 20,
1996.
(3) Includes 884,829 shares of Common Stock held by Welsh,
Carson, Anderson & Stowe, V, L.P. ("WCAS"). Each of Messrs.
Welsh and Paul is a general partner of the sole general
partner of WCAS. The address of Messrs. Welsh and Paul is One
World Financial Center, Suite 3601, New York, New York
10280.
-2-
<PAGE>
(4) The address of WCAS is One World Financial Center, Suite
3601, New York, New York 10280. Messrs. Welsh and Paul each
serve as a general partner of the sole general partner of
WCAS.
(5) The address of Crown Advisors Ltd. is 60 East 42nd Street,
New York, New York 10165. The amount shown is based upon
information provided to the Company by Crown Advisors Ltd.
Includes 438,500 shares held by certain investment
partnerships for which Crown Advisors Ltd. serves as
investment advisor, and as to which Crown Advisors Ltd. has
shared voting and investment power, 202,300 shares held by a
co-advisor to such partnerships and 32,400 shares held by an
affiliate of Crown Advisors Ltd.
(6) Includes 5,119 shares issuable upon exercise of options that
are exercisable within 60 days of December 20, 1996.
(7) Includes 93,324 shares of Common Stock issuable upon exercise
of options that are exercisable within 60 days of December 20,
1996.
(8) Includes 666 shares of Common Stock issuable upon exercise of
options that are exercisable within 60 days of December 20,
1996.
(9) Includes 28,117 shares of Common Stock issuable upon exercise
of options that are exercisable within 60 days of December 20,
1996.
(10) Includes 175,228 shares of Common Stock issuable upon exercise
of options that are exercisable within 60 days of December 20,
1996.
</FN>
</TABLE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of six directors. Directors are elected
annually and serve until the next Annual Meeting of Shareholders and their
successors are elected and qualified. Six directors are to be elected at this
Annual Meeting for one year terms ending in 1998 and, in each case, until their
successors are elected and qualified. Each of the nominees is a current member
of the Board of Directors.
The following table provides certain information with respect to the
Company's nominees for directors. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" ALL OF THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
Nominee Position with the Company Age Director Since
<S> <C> <C> <C>
Stephen R. Puckett Chairman of the Board of Directors, 44 1988
President and Chief Executive Officer
David Crane Executive Vice President and Chief 40 1989
Operating Officer and Director
Patrick J. Welsh Director 53 1991
Andrew M. Paul Director 40 1991
W. Jack Duncan Director 54 1994
John B. McKinnon Director 61 1996
</TABLE>
STEPHEN R. PUCKETT was a founder of the Company in 1988 and has served
as Chairman of the Board of Directors and President of the Company since that
time. From 1984 to 1989, Mr. Puckett served as Executive Vice President and
Chief Operating Officer of Charlotte Mecklenburg Hospital Authority (the
"Authority"), a 1,677-bed multi-hospital system, and from 1981 to 1983, he
served as Senior Vice President of the Authority. Carolinas Medical Center, an
853-bed hospital and the largest facility in the Authority's system, operates
one of the largest heart programs in the Southeast. While he was associated with
the Authority, Mr. Puckett was active in managing many of the additions to the
Carolinas Medical Center, including an 80,000 square foot heart institute with
four surgical suites and several cardiac diagnostic and therapeutic
laboratories. From 1976 to 1981, Mr. Puckett worked for the University of
Alabama hospital and served in a variety of management positions with increasing
responsibilities for hospital operations. Mr. Puckett serves as a director of
Cardiovascular Diagnostics, Inc. Mr. Puckett received a B.A. and an M.S. in
Health Management from the University of Alabama.
-3-
<PAGE>
DAVID CRANE has served as a director and Chief Operating Officer of the
Company since 1989. From 1985 to 1989, Mr. Crane was employed by MediVision,
Inc., an owner/manager of ophthalmic outpatient surgery centers and private
ophthalmic surgical practices, and he served as Chief Operating Officer of
MediVision from 1987 to 1989. While he was associated with MediVision, Mr. Crane
managed the construction of several ophthalmic outpatient surgical centers. From
1982 to 1985, he was a business and health care consultant with Bain & Company,
a consulting firm. Mr. Crane received a B.A. from Yale University and an M.B.A.
from Harvard Business School.
PATRICK J. WELSH, a director of the Company since 1991, has been a
general partner of the sole general partner of WCAS since its formation. Mr.
Welsh has been a general partner of the sole general partner of associated
limited partnerships since 1979. Prior to 1979, Mr. Welsh was President and
a director of Citicorp Venture Capital, Ltd., an affiliate of Citicorp engaged
in venture capital investing. Mr. Welsh serves as a director of Syntellect,
Inc., Pharmaceutical Marketing Services Inc. and several privately-held
companies.
ANDREW M. PAUL has been a director of the Company since 1991. He joined
Welsh, Carson, Anderson & Stowein 1984, where he currently serves as a general
partner of the sole general partner of WCAS. From 1983 to 1984, he was an
associate in Hambrecht & Quist's venture capital group. From 1978 to 1981, he
was a systems engineer and then a marketing representative for IBM. Mr. Paul
received a B.A. from Cornell University and an M.B.A. from Harvard Business
School. Mr. Paul serves as a director of Lincare, Inc., Emcare Holdings, Inc.,
American Oncology Resources, Inc., National Surgery Centers, Inc., Housecall
Medical Resources, Inc. and several privately-held companies.
W. JACK DUNCAN has served as a director of the Company since September
1994. Since 1987, he has been a Professor and University Scholar in Management
in the Graduate School of Management and Professor of Health Care Organization
and Policy and a Senior Scholar in the Lister Hill Center for Health Policy in
the School of Public Health at the University of Alabama at Birmingham. He
is the author of 14 books on management and over 100 articles and published
papers in management journals. Dr. Duncan received a B.S. in Economics
from Howard College and an M.B.A. and a Ph.D. from Louisiana State University.
JOHN B. MCKINNON has been a director of the Company since February
1996. From 1989 until his retirement in 1995, he served as the Dean of the
Babcock Graduate School of Management at Wake Forest University. From 1986 to
1988 he served as President of Sara Lee Corporation. Mr. McKinnon also
serves as a director of Premark International, Morrison's Health Care, Inc.,
Ruby Tuesday, Inc., Integon Corporation and two privately-held companies.
He received an A.B. from Duke University and an M.B.A. from Harvard Business
School.
During the fiscal year ended September 30, 1996, the Board of Directors
of the Company held five meetings. During that period, the Audit Committee of
the Board held two meetings and the Compensation Committee of the Board held
five meetings. During their period of service in the fiscal year ended September
30, 1996, no director attended fewer than 75% of the total number of meetings
(i) of the Board of Directors and (ii) of all the committees of the Board on
which such director was serving.
-4-
<PAGE>
The members of the Audit Committee during the fiscal year ended
September 30, 1996 were Messrs. Duncan, Welsh, Paul and McKinnon. The principal
functions of the Audit Committee include: recommending to the Board, subject to
shareholder approval, the retention of independent auditors; discussing and
reviewing the scope of the prospective annual audit and reviewing the results
thereof with the independent auditors; reviewing non-audit services of the
independent auditors; reviewing compliance with the accounting and financial
policies of the Company; reviewing the adequacy of the financial organization of
the Company; reviewing management's procedures and policies relative to the
adequacy of the Company's internal accounting controls and compliance with
federal and state laws relative to accounting practices; and reviewing
transactions with affiliated parties.
The members of the Compensation Committee during the fiscal year ended
September 30, 1996 were Messrs. Duncan, Welsh, Paul and McKinnon. The principal
functions of the Compensation Committee are to review and recommend annual
salaries and bonuses for all corporate officers and management personnel, review
and recommend to the Board of Directors modifications in employee benefit plans
and administer the Company's Incentive Stock Option Plan and Omnibus Stock Plan.
The Company does not presently have a Nominating Committee.
DIRECTORS' COMPENSATION
With the exception of Messrs. Duncan and McKinnon, who each receives
$1,000 for each Board or Committee meeting attended, directors do not receive
any cash compensation from the Company for their service as members of the Board
of Directors. All directors are reimbursed for reasonable expenses incurred by
them in attending Board and Committee meetings. Upon his appointment to the
Board, Dr. Duncan was granted an option to purchase 3,531 shares of Common Stock
at an exercise price of $7.51 per share which became exercisable (and was
exercised) as to 1,177 of the shares in September 1995 and 1,177 of the shares
in September 1996 and is exercisable in a final installment of 1,177 shares in
September 1997.
Directors who are not employees of the Company (excluding Messrs.
Welsh and Paul) are entitled to participate in the Company's 1994 Outside
Directors' Stock Option Plan (the "Directors' Plan"). On the date of the
annual meeting, the Company will grant an option under the Directors' Plan to
purchase 2,000 shares of CommonStock to each of W. Jack Duncan and John B.
McKinnon at an exercise price per share equal to the fair market value on
such date. See "Management-Executive Compensation--Benefit Plans--Outside
Directors' Stock Option Plan."
-5-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
MANAGEMENT
- -----------------------------------------------------------------------------------------------
Executive Officers
The executive officers of the Company and their respective ages and
positions are as follows:
Name Age Position
<S> <C> <C>
Stephen R. Puckett 44 Chairman of the Board of Directors, President and
Chief Executive Officer
David Crane 40 Executive Vice President and Chief
Operating Officer
Charles W. (Todd) Johnson 39 Vice President - Development
Richard J. Post 41 Chief Financial Officer, Secretary and Treasurer
Daniel L. Belongia 54 Vice President - Finance
David A. Ward 39 President - Practice Management Division
R. William Moore, Jr. 47 President - Hospital Division
Thomas K. Hearn III 36 President - Diagnostics Division
</TABLE>
CHARLES W. (TODD) JOHNSON has served as a Vice President of the Company
since April 1995 when the Company acquired all of the outstanding shares of
HealthTech Corporation. Mr. Johnson was the founder and President of HealthTech
Corporation, a company whose principal business was the ownership and operation
of mobile cardiac catheterization laboratories. Prior to founding HealthTech
Corporation in July 1991, Mr. Johnson was a partner in Paragon Group, a national
real estate development and investment company. Mr. Johnson received a B.A.
from the University of North Carolina and an M.B.A. from Wake Forest University.
RICHARD J. POST joined MedCath in September 1996 as Chief Financial
Officer, Secretary and Treasurer. From 1986 to 1996, Mr. Post was employed as an
investment banker, assisting clients in the execution of a wide variety of
public and private debt and equity financings and merger and acquisition
transactions. He served as a Senior Vice President, Corporate Finance with Price
Waterhouse LLP from 1994 to 1996. From 1992 to 1994, he was a Senior Manager in
the Corporate Finance Department of Ernst & Young LLP and from 1988 to 1992, he
was a Vice President in the Investment Banking Department of Bear, Stearns & Co.
Inc. From 1986 to 1988, he was an Associate in the Corporate Finance Group at
The First Boston Corporation. Mr. Post served as a Military Intelligence Officer
in the United States Army from 1977 to 1986. He received a B.A. in English and
Philosophy from the University of Notre Dame and an M.B.A. from Harvard Business
School.
DANIEL L. BELONGIA has served as Vice President - Finance of the
Company since September 1996. From 1990 to September 1996 he served as Chief
Financial Officer of the Company. From 1986 to 1989, he served as Executive Vice
President of Biggers Brothers, a wholesale food distributor, and from 1976 to
1985 he served as Controller of Biggers Brothers. From 1970 to 1976, he was with
Arthur Andersen & Co., serving as an Audit Manager from 1974 to 1976. Mr.
Belongia is a certified public accountant and received a B.A. in Business
Administration from the University of Wisconsin.
DAVID A. WARD served as Vice President - Development of the Company
from 1992 until November 1995, at which time he was appointed to his current
position of President - Practice Management Division. From 1989 to 1992, Mr.
Ward served as Vice President of Medical Care International, Inc., the nation's
largest owner/operator of free-standing outpatient surgery centers. His
responsibilities there included acquisitions and initiating and directing its
managed care contracting effort. From 1984 until 1989, he served as Vice
President of MediVision, Inc., with responsibility for acquisition, development
and operation of ophthalmic surgery centers. In that capacity, Mr. Ward managed
the construction of several ophthalmic outpatient surgical centers. He received
an A.B. in Economics, an M.B.A. and a J.D. from Stanford University.
-6-
<PAGE>
R. WILLIAM MOORE, JR. has served as President - Hospital Division of
the Company since November 1995. He joined the Company in April 1994 and from
that date until he was appointed to his current position, he served as President
of the Company's first specialty heart hospital, the McAllen Heart Hospital in
McAllen, Texas. From 1989 until he joined the Company, Mr. Moore was
Administrator of University Hospital, a 130-bed hospital in the Charlotte
Mecklenburg Hospital Authority multi-hospital system. Prior thereto, he held
other top management positions for eight years in the Charlotte Mecklenburg
Hospital Authority system and with Memorial Mission Hospital in Asheville, North
Carolina. Mr. Moore received a B.A. from Ohio Northern University and an M.B.A.
from Western Carolina University.
THOMAS K. HEARN III, has served as President - Diagnostics Division
since joining the Company in November 1995. From August 1993 until he joined the
Company, Mr. Hearn served as President of Decision Support Systems, Inc., a
health care software and consulting firm that he co-founded. Prior to
co-founding that company, he was employed from 1987 to 1993 by the Charlotte
Mecklenburg Hospital Authority where he served as Vice President of
Administration and Administrator of the Authority's Carolinas Heart Institute,
one of the busiest centers for the treatment of cardiovascular disease in the
Southeast. From 1985 to 1987 Mr. Hearn developed managed care products for VHA.
Mr. Hearn received a B.A. from the College of William and Mary, and the M.P.H.
and M.B.A. degrees from the University of Alabama at Birmingham.
EXECUTIVE COMPENSATION
The following table sets forth certain information for each of the last
three fiscal years concerning the compensation of the Company's President and
Chief Executive Officer and the Company's other four most highly compensated
executive officers who were serving as executive officers at September 30, 1996
(the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
======================================================================================================
Long-term
Compensation
Awards
Number of
Securities All Other
Underlying Compensation
Annual Compensation Options (#)(1) ($)(2)
=======================================================================================================
Name and Principal Position Year Salary ($) Bonus ($)
- --------------------------- ---- ---------- ---------
<S> <C> <C> <C> <C> <C>
Stephen R. Puckett
President and Chief Executive 1996 $192,344 $ 67,247 77,671 $2,461
Officer ...................... 1995 183,185 116,000 100,000 2,481
1994 174,462 87,000 --- 2,050
David Crane
Executive Vice President and 1996 $160,287 $ 56,039 51,276 $2,439
Chief Operating Officer ..... 1995 152,654 84,000 60,000 2,445
1994 145,385 72,500 --- 1,690
Charles W. (Todd) Johnson (3)
Vice President-Development.... 1996 $ 155,925 $ 54,511 29,001 $3,086
1995 65,058 47,000 20,000 400
1994 --- --- --- ---
David A. Ward
President-Practice Management 1996 $141,400 $ 24,150 10,000 $2,428
Division...................... 1995 131,670 20,000 --- 2,434
1994 125,400 62,700 --- 1,465
Daniel L. Belongia
Vice President - Finance...... 1996 $125,000 $ 43,701 32,500 $2,627
1995 100,000 60,000 40,000 2,473
1994 85,585 42,800 7,062 963
<FN>
(1) The Company's executive compensation program consists of three
principal components: base salary, discretionary cash bonuses and
long-term incentive compensation in the form of stock options. Stock
options granted in a particular fiscal year may in fact be based upon
an evaluation by the Chief Executive Officer or the Compensation
Committee of the Named Executive Officer's contributions to the
Company's performance in the prior fiscal year. For example, options to
purchase 52,143; 30,000; 8,306 and 25,000 shares were granted to
Messrs. Puckett, Crane, Johnson and Belongia, respectively, in October
1995 based upon an evaluation of their respective contributions to the
Company's performance in the prior fiscal year. See the table below
providing information about stock options granted during the fiscal
year ended September 30, 1996.
-7-
<PAGE>
(2) For fiscal 1996, consists of matching contributions to the Company's
401(k) Plan. For fiscal 1995, consists of (i) matching contributions to
the Company's 401(k) Plan in the amounts of $2,421, $2,404, $376,
$2,393 and $2,473, respectively, for each Named Executive Officer and
(ii) life insurance premiums in the amounts of $60, $41, $24 and $41
paid on behalf of Messrs. Puckett, Crane, Johnson and Ward,
respectively. For fiscal 1994, consists of (i) matching contributions
to the Company's 401(k) Plan in the amounts of $1,963, $1,636, $0,
$1,411 and $963, respectively and (ii) life insurance premiums paid on
behalf of Messrs. Puckett, Crane and Ward in the amounts of $87, $54
and $54, respectively.
(3) Represents compensation earned for the period from April 24, 1995,
the date Mr. Johnson became an executive officer of the Company.
</FN>
</TABLE>
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
The following table provides certain information concerning grants of
options to purchase shares of Common Stock made during the fiscal year ended
September 30, 1996 to the Named Executive Officers. All grants were made under
the Company's Omnibus Stock Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
===================================================================================================================
Individual Grants
------------------------------------------------------
% of Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Securities Granted to of Stock Price Appreciation
Underlying Employees Exercise for Option Term(2)
Options in Fiscal Price Expiration
Granted (#) Year (1) ($/sh) Date
------------ ----------- -------- ---------- ---------------------------
Name 5% ($) 10% ($)
---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Puckett 52,143 (3) 11.1% $18.25 10/2/05 $598,462 $1,516,621
4,255 (4) 0.9 19.11 9/30/06 36,502 106,295
21,273 (5) 4.5 17.38 9/30/06 219,457 568,385
David Crane 30,000 (3) 6.4% $18.25 10/2/05 $344,320 $ 872,574
21,276 (6) 4.5 17.38 9/30/06 219,488 568,465
Charles W. (Todd) Johnson 8,306 (7) 1.8% $18.25 10/2/05 $ 95,331 $ 241,587
20,695 (8) 4.4 17.38 9/30/06 213,494 552,942
David Ward 10,000 (9) 2.1% $17.38 9/30/06 $103,062 $ 267,186
Daniel L. Belongia 25,000 (3) 5.3% $18.25 10/2/05 $286,933 $ 727,145
7,500 (10) 1.6 17.38 9/30/06 77,372 200,390
<FN>
(1) In fiscal 1996, options to purchase an aggregate of 471,448 shares
of Common Stock were granted to all employees.
(2) Represents potential net gain of the exercise price before income taxes
associated with the exercise of the options. The 5% and 10% assumed
annual rate of compounded stock price appreciation is mandated by the
Securities and Exchange Commission (the "Commission") and does not
represent the Company's estimate or projection of the future Common
Stock price. For the options expiring on October 2, 2005, assumes a
stock price per share of $29.73 for the 5% rate and of $47.34 for the
10% rate. For the options expiring on September 30, 2006, assumes a
stock price per share of $27.69 for the 5% rate and of $44.09 for the
10% rate. The Common Stock price on October 2, 1995 (the date of grant
for the options expiring October 2, 2005) was $18.25 and on September
30, 1996 (the date of grant for options expiring September 30, 2006)
was $17.00.
-8-
<PAGE>
(3) These shares of Common Stock are issuable upon exercise of
non-qualified incentive stock options that vest and become exercisable
in 48 equal monthly installments commencing October 2, 1995.
(4) These shares of Common Stock are issuable upon exercise of qualified
incentive stock options that vest and become exercisable equally over
eight months beginning January 31, 2000.
(5) These shares of Common Stock are issuable upon exercise of
non-qualified incentive stock options that vest and become exercisable
equally over 40 months beginning September 30, 1996.
(6) These shares of Common Stock are issuable upon exercise of qualified
and non-qualified incentive stock options that vest and become
exercisable as follows: 1,773 and 15,957 nonqualified incentive stock
options in equal monthly installments from September, 1996 through
December, 1996, and January, 1997 through December, 1999, respectively,
and 3,546 qualified incentive stock options equally over 8 months
beginning January 31, 2000.
(7) These shares of Common Stock are issuable upon exercise of qualified
and nonqualified incentive stock options that vest and become
exercisable as follows: 938 and 417 nonqualified incentive stock
options in equal monthly installments during the 1998 and 1999 calendar
years, respectively, and 519, 2,077, 2,077, 1,139 and 1,139 qualified
incentive stock options in equal monthly installments during the 1995,
1996, 1997, 1998 and 1999 calendar years, respectively.
(8) These shares of Common Stock are issuable upon exercise of qualified
and nonqualified incentive stock options that vest and become
exercisable as follows: 1,601, 10,348 and 2,299 nonqualified incentive
stock options in equal monthly installments from January, 1997 through
December, 1997, January, 1998 through December, 1999 and January, 2000
through August, 2000, respectively, and 1,724, 3,573 and 1,150
qualified incentive stock options in equal monthly installments from
September, 1996 through December, 1996, January, 1997 through December,
1997 and January, 2000 through August, 2000, respectively.
(9) These shares of Common Stock are issuable upon exercise of qualified
and nonqualified incentive stock options that vest and become
exercisable as follows: 258 nonqualified incentive stock options in
equal monthly installments from September, 1997 through December, 1997
and 575 and 9,167 qualified incentive stock options in equal monthly
installments from September, 1997 through December, 1997 and January,
1998 through August, 2001, respectively.
(10) These shares of Common Stock are issuable upon exercise of qualified
and nonqualified incentive stock options that vest and become
exercisable as follows: 625 and 5,625 nonqualified incentive stock
options in equal monthly installments from September, 1996 through
December, 1996 and January, 1997 through December, 1999, respectively,
and 1,250 qualified incentive stock options in equal monthly
installments from January, 2000 through August, 2000.
</FN>
</TABLE>
-9-
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES FOR FISCAL YEAR ENDED SEPTEMBER 30, 1996
The table provides certain information concerning shares acquired and
value realized on exercise of options, the number of shares of Common Stock
underlying unexercised options held by each of the Named Executive Officers and
the value of such officers' unexercised options at September 30, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End(#) Fiscal Year-End($)(1)
----------------------------- -------------------------
Shares
Acquired
on Value
Name Exercise (#) Realized($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------ --------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Puckett --- --- 21,896 155,775 $ 15,176 $316,704
David Crane --- --- 87,906 129,294 1,062,362 617,897
Todd Johnson --- --- 2,507 46,494 (2,654) 84,510
David Ward 25,421 $405,719 25,423 35,422 342,194 338,430
Daniel L. Belongia 8,238 174,515 19,763 69,215 119,325 249,739
<FN>
(1) The value of the unexercised in-the-money options is based on the
difference between the closing sales price of the Common Stock on
September 30, 1996 of $17.00 per share and the exercise price of the
options.
(2) The value realized upon exercise of stock options is based on the
difference between the fair market value of the shares of Common Stock
underlying the options and the exercise price of the options at the
date of exercise.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
Pursuant to employment agreements entered into in 1991, Mr. Puckett is
entitled to a minimum annual salary of $159,000 and Mr. Crane is entitled to a
minimum annual salary of $132,500, each with such salary increases and bonuses
as the Board of Directors may approve from time to time. Pursuant to an
employment agreement entered into in 1992, Mr. Ward is entitled to a minimum
annual salary of $120,000, to be reviewed from time to time. Mr. Ward is also
eligible to participate in the Company's bonus plan for any year if he is
employed by the Company on December 31 of that year. Pursuant to an employment
agreement entered into in 1995, Mr. Johnson is entitled to a minimum salary of
$148,630, to be reviewed from time to time. The employment agreements for
Messrs. Puckett and Crane each had an initial a term of three years and, without
prior notice, the agreements renew automatically for consecutive one-year terms.
In the event the employment of any of Messrs. Puckett, Crane, Ward or Johnson is
terminated without cause, the Company is generally obligated to pay salary and
benefits for a period of 12 months (for Messrs. Puckett and Crane), five months
(for Mr. Ward) and six months (for Mr. Johnson). The employment agreements
include provisions prohibiting the employee from competing with the Company, as
defined in the agreements, for periods of 12 months (for Messrs. Puckett and
Crane), 18 months (for Mr. Ward) and either 36 or 24 months (for Mr. Johnson),
varying according to the activity, following termination of employment.
-10-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996 the Compensation Committee of the Board of Directors was
composed of Messrs. Welsh, Paul, Duncan and McKinnon, none of whom was an
officer or employee of the Company during the fiscal year or at any time prior
to the fiscal year.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
GENERAL
The Company's executive compensation program is administered by the
compensation committee of the Board of Directors (the "Committee"), the members
of which are the four directors set forth at the end of this report who are
neither employees nor officers of the Company. The goals of the Company's
executive compensation program have been established with a view to ensuring the
financial health of the Company, encouraging high levels of growth and
maximizing shareholder wealth. The goals of the Company's executive compensation
program are to pay competitively and to establish compensation levels that will
enable the Company to attract, motivate, reward and retain qualified executives
whose contributions are critical to the Company's long-term success. The program
is also designed to focus and direct the energies and efforts of key executives
toward achieving individual, Company, strategic business unit and revenue and
profit objectives. To achieve these goals, the Company has established an
executive compensation program consisting of three principal components: base
salary, discretionary cash bonuses and long-term incentive compensation in the
form of stock options. In addition, executive officers may elect to participate
in the Company's tax-deferred savings plan and other benefit plans available to
employees generally.
To ensure that compensation is competitive, the Company reviews and
compares its compensation program with national surveys which reflect pay ranges
for executives of companies of comparable size and industry type. Although there
is minimal overlap between the companies included in the foregoing surveys and
the companies included in the industry index used in the Performance Graph on
page 14 of this proxy statement, the Company believes that the survey companies
accurately reflect the market in which the Company competes for executives'
skills.
BASE SALARY
Each of the Company's executive officers, including the Chief Executive
Officer, receives a base salary that is generally adjusted annually to reflect
changes in market conditions, the Company's performance and individual
responsibilities. The base salaries for the Company's executive officers are
targeted to be at the level necessary to attract and retain qualified executive
talent. Base salaries generally range from 70% to 90% of salaries of similar
positions at the companies included in the surveys relied upon by the Company to
ensure that its executive compensation program is competitive. In addition to
comparisons with these surveys, an individual's base salary is determined based
upon a combination of a subjective review of his performance by the Chief
Executive Officer and the attainment of business and financial objectives, with
no specified weight being given to any of these factors. Fiscal 1996 base salary
levels were established by the Committee based upon the above criteria. The
Committee is reviewing additional survey data regarding base compensation for
executives of companies of comparable size and industry type and, upon further
analysis of the data, may recommend changes in the base salaries of all or some
of the Company's executive officers.
BONUS AWARDS
To reward superior performance and contributions made by key
executives, the Company awards discretionary bonuses annually based on overall
Company, division and individual performance. For fiscal 1996, the Company's
executive officers (other than the Chief Executive Officer) received
discretionary bonuses which ranged from 10% to 37% of base salary. These bonuses
were awarded by the Company based on the subjective recommendations of the Chief
Executive Officer to the Committee.
-11-
<PAGE>
The aggregate amount of the cash incentive award for each executive
officer is determined annually as a percentage of aggregate annual base salaries
of the Company's executive officers. The percentage, which is expected to vary
from year to year, is based upon a combination of the following factors: (i) the
level of achievement of a targeted earnings per share amount established in
advance by the Board of Directors in consultation with the Chief Executive
Officer, (ii) the development or acquisition by the Company during the year of
one or more facilities (other than a heart hospital) that is expected to
contribute in excess of $1,000,000 annually in pre-tax net earnings and (iii)
the development of additional heart hospitals. Individual cash incentive awards
are determined based upon the recommendations of the Chief Executive Officer
reflecting his assessment of each executive officer's individual contributions
to the Company's performance during the year.
OMNIBUS STOCK PLAN
Pursuant to the Company's Omnibus Stock Plan, the Company may award its
executive officers incentive stock options, nonqualified stock options, stock
appreciations rights, restricted stock, performance awards or other stock-based
awards. In fiscal 1996, grants of both incentive and non-qualified stock options
were made upon the recommendation of the Chief Executive Officer based on his
subjective evaluation of each individual's performance, including a
recommendation respecting options to be granted to himself. The Chief Executive
Officer makes recommendations with respect to the number of options to be
granted and the recipients thereof based on his subjective evaluation of each
individual's performance. The Committee makes the final decision upon the number
of options which will be granted to individuals under the Omnibus Stock Plan. In
fiscal 1996, options to purchase 467,448 shares of Common Stock were granted to
all employees, including options to purchase 295,448 shares awarded to executive
officers of which 77,671 were awarded to the Chief Executive Officer. The
options granted to the Chief Executive Officer and the other Named Executive
Officers in October 1995 were based upon an evaluation of their respective
contributions to the Company's performance in fiscal 1995. Options granted to
the Named Executive Officers in fiscal 1996 become exercisable in cumulative
installments per year as set forth under "Executive Compensation."
The Committee has recommended to the Board of Directors that long-term
incentive compensation, primarily through the granting of additional stock
options, be emphasized as a component of the Company's executive compensation
program. Specifically, the Committee has recommended that in respect of any
fiscal year in which the Company's earnings per share and other goals are
achieved, the Company should award long term incentive compensation bonuses in
the form of incentive stock options. The Committee has recommended that the
aggregate number of shares issuable upon exercise of such grant of options in
each fiscal year should be determined, based on the aggregate exercise price of
such options, as a percentage of the aggregate base salaries of the Company's
executive officers over a rolling three year period. The percentage, which is
expected to vary from year to year, will be based upon a combination of the same
factors the Committee intends to use to determine the aggregate amount of annual
cash bonus awards to the Company's executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
The cash compensation of Stephen R. Puckett, the Company's Chief
Executive Officer, is determined pursuant to the terms of his employment
agreement with the Company. See "Executive Compensation -- Employment
Agreements." Mr. Puckett's employment agreement, which was entered into in 1991,
provides for a minimum annual salary of $159,000, but further provides that Mr.
Puckett shall be entitled to such salary increases and bonuses as the Board of
Directors may approve from time to time. In fiscal 1996, Mr. Puckett earned a
base annual salary of $192,344. Based on the Committee's subjective evaluation
of Mr. Puckett's performance and contributions made to the achievement of the
Company's objectives, the Compensation Committee approved a cash incentive bonus
for Mr. Puckett in fiscal 1996 of $67,247.
-12-
<PAGE>
DEDUCTIBILITY OF CERTAIN EXECUTIVE COMPENSATION
Under federal tax law, certain non-performance based executive
compensation which is in excess of $1.0 million is not deductible by the
Company. No executive officer of the Company received in fiscal 1996 any such
compensation in excess of this limit, and, at this time, the Company does not
expect that any executive officer of the Company will receive compensation in
excess of this limit in fiscal 1997. Accordingly, the Committee did not take any
action to comply with the new limit. It will continue to monitor this situation,
however, and will take appropriate action if it is warranted in the future.
COMPENSATION COMMITTEE
W. Jack Duncan, Chairman
Patrick J. Welsh
Andrew M. Paul
John B. McKinnon
-13-
<PAGE>
PERFORMANCE GRAPH
The performance graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except to
the extent the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
The following is a comparative performance graph which compares the
percentage change of cumulative total shareholder return on the Company's Common
Stock with (a) the performance of a broad equity market indicator and (b) the
performance of a published industry index or peer group. The following graph
compares the percentage change of cumulative total shareholder return on the
Company's Common Stock with (a) the Center for Research in Securities Prices
("CSRP") Index for Nasdaq Stock Market (US Companies) (the "Broad Index") and
(b) CRSP Index for Nasdaq Health Services Stocks (the "Industry Group Index").
The graph begins on December 7, 1994, the date on which the Company's Common
Stock first began trading on the Nasdaq Stock Market, and assumes the investment
on such date of $100 in the Company's Common Stock, the Broad Index and the
Industry Group Index and assumes that all dividends, if any, were reinvested at
the time they were paid. No cash dividends have been declared on the Common
Stock. Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
COMPARISON OF CUMULATIVE TOTAL RETURN
Among MedCath Incorporated --
Broad Index and the Industry Group Index
From December 7, 1994 through September 30, 1996
[LINE GRAPH APPEARS HERE]
CRSP TOTAL RETURNS INDEX FOR: 12/7/94 9/30/95 9/30/96
MedCath Incorporated 100 127.59 117.24
Nasdaq Stock Market (US Companies) 100 141.64 168.09
Nasdaq Health Services Stocks 100 109.09 142.57
(SIC 8000-8999 US & Foreign)
Notes:
A. The lines represent index levels derived from compunded daily returns
that include all dividends.
B. The indexes are reweighed daily, using the market capitalization on the
previous trading day.
C. If the interval, based on the fiscal year-end, is not a trading day,
the preceding trading day ia used.
D. The index level for all series was set to $100 on 12/7/94 (the date of
the Company's Initial Public Offering).
-14-
<PAGE>
PROPOSAL 2
APPROVAL OF INCREASE OF NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S OMNIBUS STOCK PLAN
On recommendation of the Compensation Committee, the Board of Directors
has approved an amendment to the Company's Omnibus Stock Plan ("Omnibus Plan")
increasing the number of shares reserved for issuance under the Omnibus Plan
from 800,000 to 1,300,000 shares. As of December 20, 1996, options to purchase
708,948 shares had been granted under the Omnibus Plan leaving only 91,052
shares available for grants of options and other awards under the plan. On the
same date, the closing price of the Common Stock as reported on the Nasdaq
National Market was $16.125. The Board of Directors has approved the increase in
the number of shares reserved for issuance under the Omnibus Plan to facilitate
implementation of the Compensation Committee's recommendation that long-term
incentive compensation, primarily through the granting of additional stock
options, be an essential component of the Company's executive compensation
program. The directors believe it is also in the best interests of the Company
and the shareholders to have a sufficient number of shares available to permit
the Company, when deemed necessary, to grant options under the Omnibus Plan to
secure and retain the services of new key employees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE OMNIBUS PLAN INCREASING THE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER.
The material features of the Omnibus Plan are described briefly below.
GENERAL
The Omnibus Plan is intended to encourage high levels of performance by
the Company's officers and other key employees and to enable the Company to
recruit, reward, retain and motivate employees of experience and ability on a
basis competitive with industry practices. The Omnibus Plan is administered by
the Compensation Committee, the members of which are appointed by the Board of
Directors. Eligibility for awards under the Omnibus Plan are limited to
employees of the Company and the amount of those awards are determined solely by
the Compensation Committee; provided, however, no member of the Compensation
Committee is eligible to receive an award under the Omnibus Plan. Awards under
the Omnibus Plan may include incentive stock options or non-qualified stock
options, stock appreciation rights, restricted stock, performance awards or
other stock-based awards. The Compensation Committee also retains sole
discretion to determine the terms and conditions of such awards, including the
vesting schedule. The option price for incentive stock options issued under the
Omnibus Plan may not be less than the fair market value of the Common Stock on
the date of grant; however, the Compensation Committee may exercise discretion
as to the exercise price per share of any non-qualified option awarded under the
Omnibus Plan. The incentive stock options presently outstanding under the
Omnibus Plan generally vest over four to five years and expire in ten years.
The exercise price of options granted under the Omnibus Plan is payable
in cash or, at the discretion of the Compensation Committee, in shares of Common
Stock owned by the optionee having a fair market value equal to the exercise
price, or through a combination of cash and shares of Common Stock. Option
grants will require the withholding of any applicable taxes required to be
withheld upon the exercise of an option.
CHANGE OF CONTROL CONSEQUENCES
In the event of a Change of Control of the Company, in addition to any
action required or authorized by the terms of an award agreement, the
Compensation Committee may, at its discretion, recommend that the Board of
Directors take any of the following actions as a result of, or in anticipation
of, any such event: (i) accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding award made pursuant to the Omnibus Plan;
(ii) offer to purchase any outstanding award made pursuant to the Omnibus Plan
from the holder for its equivalent cash value, as determined by the Compensation
Committee, as of the date of the Change of Control; or (iii) make adjustments or
modifications to outstanding awards as the Compensation Committee deems
appropriate. Through the exercise of its discretion, the Compensation Committee
has provided, through the terms and conditions of individual award agreements or
otherwise, that the time periods for purposes of vesting in all options granted
under the Omnibus Plan to date will be accelerated in the event of a Change of
Control.
-15-
<PAGE>
Under the Omnibus Plan, a "Change of Control" is defined as the
earliest date on which either of the following events occur: (i) an individual,
entity, or group acquires after the date the Omnibus Plan was approved by the
Board of Directors, otherwise than directly from the Company, beneficial
ownership of 20% or more of the outstanding Common Stock or voting power of the
Company, provided that no such individual, entity or group shall be deemed to
own beneficially any securities held by (a) the Company or any of its
subsidiaries or (b) any employee benefit plan of the Company or any of its
subsidiaries; or (ii) the persons who were directors of the Company on the date
30 days after the effective date of the Omnibus Plan, together with those who
subsequently became directors of the Company and whose election, or nomination
for election by the Company's shareholders, was approved by the vote of at least
a majority of the directors who were directors on the date 30 days after the
effective date of the Omnibus Plan, or directors whose nomination or election
was approved as provided above (the "Continuing Directors"), shall cease to
constitute a majority of the Board or of its successor by merger, consolidation
or sale of assets. However, a majority of the Continuing Directors may approve
any such event and determine that, for purposes of the Omnibus Plan, a Change of
Control has not occurred.
In the event any change is made in the Company's capitalization, such
as a stock split or stock dividend, which results in a change in the Common
Stock or an increase or decrease in the number of outstanding shares of Common
Stock, the Compensation Committee may make appropriate adjustments in the
Omnibus Plan and the then outstanding awards. The Board of Directors may amend
the Omnibus Plan at any time and in any respect; provided, however, no amendment
may be made without the approval of the shareholders of the Company if approval
of such amendment is required in order that transactions in Company securities
under the Omnibus Plan be exempt from the operation of Section 16(b) of the
Exchange Act and if such amendment would (i) increase the number of shares of
Common Stock which may be issued under the Omnibus Plan other than as a result
of a change in capitalization; (ii) materially modify the requirements as to
eligibility for participation; (iii) materially increase the benefits accruing
to participants under the Omnibus Plan; or (iv) extend the duration of the
Omnibus Plan beyond the date approved by the shareholders. The Board of
Directors may terminate or suspend the Omnibus Plan and any or all awards
thereunder at any time and for any reason to the extent permitted by law.
NEW PLAN BENEFITS
The amounts of future option grants under the Omnibus Plan to (i) the
Company's Chief Executive Officer; (ii) the Named Executive Officers; (iii) all
current executive officers as a group; (iv) all current directors who are not
executive officers as a group; and (v) all employees, including all officers who
are not executive officers, as a group, are not determinable because, under the
terms of the Omnibus Plan, such grants are made in the discretion of the
Committee. Future option exercise prices are not determinable because they are
based upon fair market value of the Company's Common Stock on the date of grant.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary only of the general tax principles
applicable to awards under the Omnibus Plan under federal law as in effect on
the date of this Proxy Statement.
INCENTIVE STOCK OPTIONS. There are no tax consequences to the optionee
upon the grant of an incentive stock option. There are no tax consequences to
the optionee upon exercise of an incentive stock option, except that the amount
by which the fair market value of the shares at the time of exercise exceeds the
option exercise price is a tax preference item possibly giving rise to
alternative minimum tax. If the shares of Common Stock acquired are not disposed
of within two years from the date the option was granted and within one year
after the shares are transferred to the optionee, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If all
requirements other than the above described holding period requirements are met,
a "disqualifying disposition" occurs and gain in an amount equal to the lesser
of (i) the fair market value of the shares on the date of exercise minus the
option exercise price or (ii) the amount realized on disposition minus the
option exercise price (except for certain "wash" sales, gifts or sales to
related persons), is taxed as ordinary income and the Company will be entitled
to a corresponding deduction in an amount equal to the optionee's ordinary
income at that time. The gain in excess of this amount, if any, will be
characterized as long-term capital gain if the optionee held the shares for more
than one year.
-16-
<PAGE>
NON-QUALIFIED STOCK OPTIONS. There are no tax consequences to the
optionee upon the grant of a non-qualified stock option. Upon the exercise of a
non-qualified stock option, taxable ordinary income will be recognized by the
holder in an amount equal to the excess of the fair market value of the shares
purchased at the time of such exercise over the aggregate option price. The
Company will be entitled to a corresponding federal income tax deduction. Upon
any subsequent sale of the shares, the optionee will generally recognize a
taxable capital gain or loss based upon the difference between the per share
fair market value at the time of exercise and the per share selling price at the
time of the subsequent sale of the shares.
STOCK APPRECIATION RIGHTS. There are no tax consequences to the
employee upon the grant of a stock appreciation right ("SAR"). Upon the exercise
of an SAR, the holder will realize taxable ordinary income on the amount of cash
received and the Company will be entitled to a corresponding federal income tax
deduction.
RESTRICTED STOCK. Unless the grantee of restricted stock makes the
election described below, such grantee will not recognize income and the Company
will not be allowed a deduction at the time such shares of restricted stock are
granted. While the restrictions on the shares are in effect, a grantee will
recognize compensation income equal to the amount of dividends received and the
Company will be allowed a deduction in a like amount. When the restrictions on
the shares are removed or lapse, the excess fair market value of the shares on
the date the restrictions are removed or lapse over the amount paid by the
grantee for the shares will be ordinary income to the grantee and will be
allowed as a deduction for federal income tax purposes to the Company. Upon
disposition of the shares, the gain or loss realized by the grantee will be
taxable as capital gain or loss. However, by filing a Section 83(b) election
with the Internal Revenue Service within 30 days after the date of grant, a
grantee's ordinary income will be determined as of the date of grant. In such
case, the amount of ordinary income recognized by such a grantee and deductible
by the Company will be equal to the excess of the fair market value of the
shares as of the date of grant over the amount paid by the grantee for the
shares. If such election is made and a grantee thereafter forfeits his or her
stock, no deduction will be allowed for the amount previously included in such
grantee's income.
GENERAL TAX LAW CONSIDERATIONS. The preceding paragraphs are intended
to be merely a summary of the most important federal income tax consequences
concerning the grant of certain awards under the Omnibus Plan and the
corresponding disposition of shares of Common Stock issued thereunder in
existence as of the date of this Proxy Statement. Therefore, participants in the
plans should review the current tax treatment with their individual tax advisors
at the time of the grant, exercise, purchase or any other transaction relating
to any award, purchase or underlying stock issued under the plans.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, on the recommendation of the
company's Audit Committee, has selected Ernst & Young LLP as the independent
auditors to audit the financial statements of the Company for the fiscal year
ending September 30, 1997. A representative of Ernst & Young LLP is expected to
be present at the annual meeting with the opportunity to make a statement if the
representative desires to do so, and is expected to be available to respond to
appropriate questions. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1997.
-17-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than ten percent of the Common Stock to file
initial reports of ownership and reports of changes in their ownership of the
Common Stock with the Commission. Officers, directors and greater than ten
percent shareholders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received by the Company, all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than ten percent
shareholders were complied with during the fiscal year ended September 30, 1996,
except that: R. William Moore, Jr. and Lawrence J. Scott did not upon becoming
executive officers of the Company file with the Commission, on a timely basis,
the form required by Section 16(a) which reports such individual's beneficial
ownership of the Common Stock. All of such forms have since been filed.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
A shareholder intending to present a proposal at the 1998 Annual
Meeting of Shareholders must deliver the proposal in writing to the attention of
the Company's Secretary at the Company's principal offices at 7621 Little
Avenue, Suite 106, Charlotte, North Carolina 28226 no later than September 30,
1997. It is suggested that proposals be submitted by certified mail-return
receipt requested.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment or postponement thereof, it is the
intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgement.
The cost of preparing, printing and mailing this proxy statement to
shareholders will be borne by the Company. In addition to the use of mail,
employees of the Company may solicit proxies personally and by telephone without
compensation by the Company other than their regular salaries. The Company's
regularly retained investor relations firm, Corporate Communications, Inc., may
also be called upon to solicit proxies by telephone and mail. The Company may
request banks, brokers, and other custodians, nominees and fiduciaries to
forward copies of the proxy materials to their principals and to request
authority for the execution of proxies.
By Order of the Board of Directors
/s/ Richard J. Post
Richard J. Post
Secretary
January 10, 1997
-18-
<PAGE>
Appendix A
MEDCATH INCORPORATED
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF MEDCATH INCORPORATED
The undersigned hereby appoints Stephen R. Puckett, David Crane and
Lawrence J. Scott, and each of them, proxies, with power of substitution, to
represent the undersigned at the Annual Meeting of Shareholders of MedCath
Incorporated (the "Company"), to be held at 9:00 a.m., on February 19, 1997, at
Raintree Country Club, 8600 Raintree Lane, Charlotte, North Carolina, and at any
adjournments thereof, to vote the number of shares which the undersigned would
be entitled to vote if present in person in such manner as such proxies may
determine, and to vote on the following proposals as specified below by the
undersigned.
(1) Election of Directors:
[ ] VOTE FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below). all nominees listed below.
Stephen R. Puckett David Crane Patrick J. Welsh Andrew M. Paul
W. Jack Duncan John B. McKinnon
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
- -------------------------------------------------------------------------------
(2) Proposal to increase the number of shares of Common Stock reserved for
issuance under the Company's Omnibus Stock Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending
September 30, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. IN THE ABSENCE OF SPECIFIED DIRECTIONS, THIS PROXY
WILL BE VOTED IN FAVOR OF THE ELECTION OF ALL NOMINEES NAMED IN THIS PROXY AND
IN FAVOR OF THE OTHER PROPOSALS LISTED IN THIS PROXY. The proxies are also
authorized to vote in their discretion upon such other matters as may properly
come before the meeting or any adjournment thereof.
If signing as attorney, administrator,
executor, guardian, trustee or as a
custodian for a minor, please add your title
as such. If a corporation, please sign in
full corporate name and indicate the
signer's office. If a partner, please sign
in the partnership's name.
X
------------------------------------------
X
------------------------------------------
Dated ,1996
---------------------------------
<PAGE>
Appendix B
MEDCATH INCORPORATED
OMNIBUS STOCK PLAN,
AS AMENDED
<PAGE>
MEDCATH INCORPORATED
OMNIBUS STOCK PLAN
ARTICLE I
NAME, PURPOSE, AND DEFINITIONS
Section 1.1. NAME. The Plan shall be known as the "MedCath
Incorporated Omnibus Stock Plan" (the "Plan").
Section 1.2. PURPOSE. The purpose of the Plan is to benefit the
Company, Subsidiaries, and their shareholders by encouraging and enabling key
Employees of the Company or Subsidiaries to have a financial interest in the
Company. The Plan is intended to aid the Company and Subsidiaries in attracting
and retaining officers and key employees, to stimulate the efforts of those
individuals, and to strengthen their desire to remain in the office or in the
employ of the Company and Subsidiaries.
Section 1.3. DEFINITIONS. Whenever used in the Plan, unless the
context clearly indicates otherwise, the following terms shall have the
following meanings:
(a) "AWARD" or "AWARDS" means an award granted pursuant to
Article III.
(b) "AWARD AGREEMENT" means an agreement described in Article
IV hereof entered into between the Company and a Participant, setting
forth the terms, conditions, and limitations applicable to the Award
granted to the Participant.
(c) "BENEFICIARY," with respect to a Participant, means (i)
one or more persons as the Participant may designate as primary or
contingent beneficiary in a writing delivered to the Company or
Committee or, (ii), if there is no such valid designation in effect at
the Participant's death, the Participant's spouse or, (iii) if the
Participant is not married at the date of the Participant's death, the
Participant's estate. This definition shall not, however, supersede or
adversely affect, nor shall it be subject to, any definition or
designation of beneficiary which may be included in any Award.
(d) "BOARD" means the Board of Directors of the Company as it
may be comprised from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, and applicable
regulations.
(f) "COMMITTEE" means the committee appointed by the Board
from among its members and shall be comprised of not less than two (2)
persons. Unless and until otherwise appointed, the Committee shall be
the Compensation Committee of the Board or any successor committee with
substantially the same responsibilities if the members of that
committee satisfy the requirements of the following sentence. A member
of the Committee must not be an Employee and must not have received an
Award during the one year period prior to service on the Committee.
<PAGE>
(g) "COMPANY" means MedCath Incorporated, a North Carolina
corporation, and any successor corporation.
(g) "DIRECTOR" means any individual who is a member of the
Company's Board.
(h) "DISABILITY" shall mean the inability, in the opinion of
the Company's group health insurance carrier (or claims processor, if
applicable), of a Participant, because of injury or sickness, to work
at a reasonable occupation which is available with the Participant's
employer (the Company or a Subsidiary) or at any gainful occupation for
which the Participant is or may become fitted.
(i) "EMPLOYEE" means any individual who is a salaried employee
of the Company or any Subsidiary, whether or not he is a Director.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended and in effect from time to time, or any successor statute.
(k) "FAIR MARKET VALUE" means, with respect to shares of the
Common Stock, (i) if the Common Stock is traded on the NASDAQ National
Market or listed on a national securities exchange, the mean between
the high and low prices per share reported by the NASDAQ National
Market or a national securities exchange, as the case may be, on the
relevant date, or, in the absence of trading on such date, on the next
preceding day on which trading occurs; or (ii) if the Common Stock is
not traded on the NASDAQ National Market or listed on a national
securities exchange, the mean between the bid and asked prices per
share last reported by the National Association of Securities Dealers,
Inc. for the over-the-counter market on the relevant date, or, in the
absence of any bid and asked prices on that date, on the next preceding
day for which there are such quotations; or (iii) if the Common Stock
is not traded on the NASDAQ National Market or listed on a national
securities exchange, and if quotations for the Common Stock are not
reported by the National Association of Securities Dealers, Inc., the
fair market value as determined by the Committee on the basis of
available prices for the Common Stock or in such manner as the
Committee shall agree.
(l) "INSIDER" means any person who is subject to Section 16 of
the Exchange Act.
<PAGE>
(m) "PARTICIPANT" means an Employee designated by the
Committee to be eligible for an Award pursuant to this Plan.
(n) "RESTRICTED STOCK" means shares of Stock which have
certain restrictions attached to the ownership thereof, which may be
issued under Section 3.4.
(o) "RETIREMENT" means termination of employment with the
Company or a Subsidiary for any reason other than death or Disability
on or after age 65.
(p) "RULE 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission as now in force or as such
regulation or successor regulation shall be hereafter amended.
(q) "SECTION 16" means Section 16 of the Exchange Act or any
successor regulation and the rules promulgated thereunder as they may
be amended from time to time.
(r) "STOCK" means shares of the common stock of the Company.
(s) "STOCK APPRECIATION RIGHT" means a right, the value of
which is determined relative to the appreciation in value of shares of
Stock, which may be issued under Section 3.3.
(t) "STOCK OPTION" means a right to purchase shares of Stock
granted pursuant to Section 3.2 and includes Incentive Stock Options
and Non-Qualified Stock Options as defined in Section 3.2(a).
(u) "SUBSIDIARY" means any corporation (other than the
Company), in a unbroken chain of corporations beginning with the
Company in which each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one
of the other corporations in that chain.
ARTICLE II
ELIGIBILITY
Awards may be granted to any Employee who is or class of Employees who are
designated as Participants from time to time by the Committee; provided,
however, that no member of the Committee shall be eligible to participate. The
Committee shall determine which Employees shall be Participants, the types of
Awards to be made to Participants, and the terms, conditions, and limitations
applicable to the Awards.
<PAGE>
ARTICLE III
AWARDS
SECTION 3.1. GENERAL. Awards may include, but are not limited to, those
described in this Article III, including its sections. The Committee may grant
Awards singly, in tandem, or in combination with other Awards, as the Committee
may in its sole discretion determine. Subject to the other provisions of this
Plan, Awards also may be granted in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under this Plan and any
other employee plan of the Company.
SECTION 3.2. STOCK OPTIONS. A Stock Option is a right to purchase a
specified number of shares of Stock at a specified price during such specified
time as the Committee shall determine, subject to the following:
(a) An option granted may be either of a type that complies
with the requirements of incentive stock options as defined in Section
422 of the Code ("Incentive Stock Option") or of a type that does not
comply with such requirements ("Non-Qualified Option").
(b) The exercise price per share of any Incentive Stock Option
shall be no less than the Fair Market Value per share of the Stock
subject to the option on the date such a Stock Option is granted. The
exercise price per share of any Non-Qualified Option, however, may be
less than the Fair Market Value per share of Stock subject to the
option on the date such a Stock Option is granted.
(c) A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Company specifying the number
of shares of Stock to be purchased.
(d) The exercise price of the Stock subject to the Stock
Option may be paid in cash or, at the discretion of the Committee, may
also be paid by the tender of shares of Stock already owned by the
Participant, or through a combination of cash and shares of Stock, or
through such other means that the Committee determines are consistent
with the Plan's purpose and applicable law. No fractional shares of
Stock will be issued or accepted.
SECTION 3.3. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is a
right to receive, upon surrender of the right, but without payment, an amount
payable in cash and/or shares of Stock under such terms and conditions as the
Committee shall determine, subject to the following:
(a) A Stock Appreciation Right may be granted in tandem with
part or all of, in addition to, or completely independent of a Stock
Option or any other Award under this Plan. A Stock Appreciation Right
issued in tandem with a Stock Option may be granted at the time of
grant of the related Stock Option or at any time thereafter during the
term of the Stock Option.
<PAGE>
(b) The amount payable in cash and/or shares of Stock with
respect to each right shall be equal in value to a percent of the
amount by which the Fair Market Value per share of Stock on the
exercise date exceeds the exercise price of the Stock Appreciation
Right. The applicable percent shall be established by the Committee.
The amount payable in shares of Stock, if any, is determined with
reference to the Fair Market Value on the date of exercise.
(c) Stock Appreciation Rights issued in tandem with Stock
Options shall be exercisable only to the extent that the Stock Options
to which they relate are exercisable. Upon the exercise of the Stock
Appreciation Right, the Participant shall surrender to the Company the
underlying Stock Option. Stock Appreciation Rights issued in tandem
with Stock Options shall automatically terminate upon the exercise of
such Stock Options.
SECTION 3.4. RESTRICTED STOCK. Restricted Stock is shares of Stock that
are issued to a Participant and are subject to such terms, conditions, and
restrictions as the Committee deems appropriate, which may include, but are not
limited to, restrictions upon the sale, assignment, transfer, or other
disposition of the Restricted Stock and the requirement of forfeiture of the
Restricted Stock upon termination of employment under certain specified
conditions. The Committee may provide for the lapse of any such term or
condition or waive any term or condition based on such factors or criteria as
the Committee may determine. The Participant shall have, with respect to awards
of Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the Restricted Stock and the right to receive any
cash or stock dividends on such Stock.
SECTION 3.5 PERFORMANCE AWARDS. Performance Awards may be granted under
this Plan from time to time based on such terms and conditions as the Committee
deems appropriate provided that such Awards shall not be inconsistent with the
terms and purposes of this Plan. Performance Awards are Awards which are
contingent upon the performance of all or a portion of the Company and/or
subsidiaries or which are contingent upon the individual performance of the
Participant. Performance Awards may be in the form of performance units,
performance shares, and such other forms of performance Awards which the
Committee shall determine. The Committee shall determine the performance
measurements and criteria for such performance Awards.
SECTION 3.6 OTHER AWARDS. The Committee may from time to time grant
other Stock and Stock-based Awards under the Plan, including without limitation,
those Awards pursuant to which shares of Stock are or may in the future be
acquired, Awards denominated in Stock units, securities convertible into shares
of Stock, and dividend equivalents. The Committee shall determine the terms and
conditions of such other Stock and Stock-based Awards provided that such Awards
shall not be inconsistent with the terms and purpose of this Plan.
<PAGE>
ARTICLE IV
AWARD AGREEMENTS
SECTION 4.1 GENERAL. Each Award under this Plan shall be evidenced by
an Award Agreement setting forth the number of shares of Stock or other
security, Stock Appreciation Rights, or units subject to the Award and such
other terms and conditions applicable to the Award as are determined by the
Committee.
SECTION 4.2 REQUIRED TERMS. In any event, Award Agreements shall
include, at a minimum, explicitly or by reference, the following terms:
(a) Non-assignability. A provision that the Awards under the
Plan shall not be assigned, pledged, or otherwise transferred except by
will or by the laws of descent and distribution and that, during the
lifetime of a Participant, the Award shall be exercised only by such
Participant or by the Participant's guardian or legal representative.
(b) Termination of Employment. A provision describing the
treatment of an Award in the event of the Retirement, Disability,
death, or other termination of a Participant's employment with the
Company, including but not limited to terms relating to the vesting,
time for exercise, forfeiture, or cancellation of an Award in such
circumstances.
(c) Rights of Shareholder. A provision that a Participant
shall have no rights as a shareholder with respect to any securities
covered by an Award until the date the Participant becomes the holder
of record. Except as provided in Section 8 hereof, no adjustment shall
be made for dividends or other rights, unless the Award Agreement
specifically requires such adjustment, in which case, grants of
dividend equivalents or similar rights shall not be considered to be a
grant of any other shareholder right.
(d) Withholding. A provision requiring the withholding of
applicable taxes required by law from all amounts paid in satisfaction
of an Award. In the case of an Award paid in cash, the withholding
obligation shall be satisfied by withholding the applicable amount and
paying the net amount in cash to the Participant. In the case of Awards
paid in shares of Stock or other securities of the Company, a
Participant may satisfy the withholding obligation by paying the amount
of any taxes in cash or, with the approval of the Committee, shares of
Stock or other securities may be deducted from the payment to satisfy
the obligation in full or in part as long as such withholding of shares
does not violate any applicable laws, rules or regulations of federal,
state, or local authorities. The number of shares to be deducted shall
be determined by reference to the Fair Market Value of such shares of
Stock on the applicable date.
<PAGE>
(e) Holding Period. In the case of an Award to an Insider:
(i) of an equity security, a provision stating (or
the effect of which is to require) that such security must be
held for at least six months (or such longer period as the
Committee in its discretion specifies) from the date of
acquisition; or
(ii) of a derivative security with a fixed exercise
price within the meaning of Section 16, a provision stating
(or the effect of which is to require) that at least six
months (or such longer period as the Committee in its
discretion specifies) must elapse from the date of acquisition
of the derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion)
or its underlying equity security; or
(iii) of a derivative security without a fixed
exercise price within the meaning of Section 16, a provision
stating (or the effect of which is to require) that at least
six months (or such longer period as the Committee in its
discretion specifies) must elapse from the date upon which
such price is fixed to the date of disposition of the
derivative security (other than by exercise or conversion) or
its underlying equity security.
SECTION 4.3 OPTIONAL TERMS. Award Agreements may include the
following terms:
(a) Replacement, Substitution, and Reloading. Any provisions
(i) permitting the surrender of outstanding Awards or
securities held by the Participant in order to exercise or
realize rights under other Awards, under similar or different
terms (including the grant of reload options), or,
(ii) requiring holders of Awards to surrender
outstanding Awards as a condition precedent to the grant of
new Awards under the Plan.
(b) Other Terms. Such other terms as are necessary and
appropriate to effect an Award to the Participant including but not
limited to the term of the Award, vesting provisions, deferrals, any
requirements for continued employment with the Company or a Subsidiary,
any other restrictions or conditions (including performance
requirements) on the Award and the method by which restrictions or
conditions lapse, the effect on the Award of a Change of Control as
defined in Article VIII, or the price, amount, or value of Awards.
<PAGE>
ARTICLE V
SHARES OF STOCK
SUBJECT TO THE PLAN
SECTION 5.1 GENERAL. Subject to the adjustment provisions of Article
VII hereof, the number of shares of Stock for which Awards may be granted under
the Plan shall not exceed one million three hundred thousand (1,300,000) shares.
SECTION 5.2 ADDITIONAL SHARES. Any unexercised or undistributed portion
of the terminated, expired, exchanged, or forfeited Award or Awards settled in
cash in lieu of shares of Stock shall be available for further Awards in
addition to those available under Section 5.1 hereof.
SECTION 5.3 COMPUTATION RULES. For the purpose of computing the total
number of shares of Stock granted under the Plan, the following rules shall
apply to Awards payable in shares of Stock or other securities, where
appropriate:
(a) except as provided in subsection (e) hereof, each Stock
Option shall be deemed to be the equivalent of the maximum number of
shares that may be issued upon exercise of the particular Stock Option;
(b) except as provided in subsection (e) hereof, each other
Stock-based Award payable in some other security shall be deemed to be
equal to the number of shares to which it relates;
(c) except as provided in subsection (e) hereof, where the
number of shares available under the Award is variable on the date it
is granted, the number of shares shall be deemed to be the maximum
number of shares that could be received under that particular Award;
(d) where one or more types of Awards (both of which are
payable in shares of Stock or another security) are granted in tandem
with each other, such that the exercise of one type of Award with
respect to a number of shares cancels an equal number of shares of the
other, each joint Award shall be deemed to be the equivalent of the
number of shares under the other; and
(e) each share awarded or deemed to be awarded under the
preceding subsections shall be treated as shares of Stock, even if the
Award is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate.
<PAGE>
SECTION 5.4 SHARES TO BE USED. The shares of Stock which may be issued
pursuant to an Award under the Plan may be authorized but unissued Stock or
Stock that may be acquired, subsequently or in anticipation of the transaction,
in the open market to satisfy the requirements of the Plan.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 GENERAL. The Plan and all Awards pursuant thereto shall be
administered by the Committee so as to permit the Plan to comply with Rule
16b-3. A majority of the members of the Committee shall constitute a quorum. The
vote of a majority of a quorum shall constitute action by the Committee.
SECTION 6.2 DUTIES. The Committee shall have the duty to administer the
Plan, and to determine periodically the Participants in the Plan and the nature,
amount, pricing, timing, and other terms of Awards to be made to such
individuals.
SECTION 6.3 POWERS. The Committee shall have all powers necessary to
enable it to carry out its duties under the Plan properly, including without
limitation the power to interpret and administer the Plan. All questions of
interpretation with respect to the Plan, the number of shares of Stock or other
security, Stock Appreciation Rights, or units granted, and the terms of any
Award Agreements shall be determined by the Committee, and its determination
shall be final and conclusive upon all parties in interest. In the event of any
conflict between an Award Agreement and the Plan, the terms of the Plan shall
govern. In addition, the Committee may delegate to the officers or employees of
the Company the authority to execute and deliver such instruments and documents,
to do all such acts and things, and to take all such other steps deemed
necessary, advisable or convenient for the effective administration of the Plan
in accordance with its terms and purpose, except that the Committee may not
delegate any discretionary authority with respect to substantive decisions or
functions regarding the Plan or Awards thereunder as those relate to Insiders
including but not limited to decisions regarding the timing, eligibility,
pricing, amount or other material term of such Awards.
SECTION 6.4 INTENT TO AVOID INSIDER TRADING. It is the intent of the
Company that the Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
the applicable requirements of Rule 16b-3, so that such persons will be entitled
to the benefits of Rule 16b-3 or other exemptive rules under Section 16 and will
not be subjected to avoidable liability thereunder. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the intent expressed
in this Section 6.4, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to insiders.
<PAGE>
ARTICLE VII
ADJUSTMENTS UPON CHANGES
IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock dividend,
exchange of Stock, combination of Stock, merger, consolidation or any other
change in corporate structure of the Company affecting the Stock, or in the
event of a sale by the Company of all or a significant part of its assets, or
any distribution to its shareholders other than a normal cash dividend, the
Committee may make appropriate adjustment in the number, kind, price and value
of shares of Stock authorized by this Plan and any adjustments to outstanding
Awards as it determines appropriate so as to prevent dilution or enlargement of
rights.
ARTICLE VIII
CHANGES OF CONTROL
SECTION 8.1 GENERAL. In the event of a Change of Control of the
Company, in addition to any action required or authorized by the terms of an
Award Agreement, the Committee may, in its discretion, recommend that the Board
of Directors take any of the following actions as a result of, or in
anticipation of, any such event to assure fair and equitable treatment of the
Plan Participants:
(a) accelerate time periods for purposes of vesting in,
or realizing gain from, an outstanding Award made pursuant to the Plan;
(b) offer to purchase any outstanding Award made pursuant to
this Plan from the holder for its equivalent cash value, as determined
by the Committee, as of the date of the Change of Control; or
(c) make adjustments or modifications to outstanding Awards as
the Committee deems appropriate to maintain and protect the rights and
interests of Plan Participants following such Change of Control.
Any such action approved by the Board of Directors shall be conclusive and
binding on the Company, a Subsidiary, and all Plan Participants.
SECTION 8.2 DEFINITION OF CHANGE OF CONTROL. For the purposes of this
Section, a "Change of Control" shall mean the earliest date on which either of
the following events shall occur:
(a) An individual, entity, or group shall acquire after the
date this Plan is approved by the Board, otherwise than directly from
the Company, beneficial ownership of 20% or more of the outstanding
common stock or voting power of the Company, provided that no such
individual, entity or group shall be deemed to beneficially own any
securities held by:
<PAGE>
(i) the Company or any of its subsidiaries, or
(ii) any employee benefit plan of the Company or
any of its subsidiaries; or
(b) The persons who were directors of the Company on the date
30 days after the effective date of the Plan (Article XI), together
with those who subsequently became directors of the Company and whose
election, or nomination for election by the Company's shareholders, was
approved by the vote of at least a majority of the directors who were
directors on the date 30 days after the effective date of the Plan
(Article XI), or directors whose nomination or election was approved as
provided above (the "Continuing Directors"), shall cease to constitute
a majority of the Board or of its successor by merger, consolidation,
or sale of assets.
However, a majority of the Continuing Directors may approve any event described
in Section 8.2(a) and determine that, for purposes of this Plan, a Change of
Control has not occurred.
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT OF PLAN. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan and any or all Award Agreements under the
Plan to the extent permitted by law for whatever reason(s) the Company may deem
appropriate; provided, however, no amendment may be effective, without the
approval of the shareholders of the Company, if approval of such amendment is
required in order that transactions in Company securities under the Plan be
exempt from the operation of Section 16(b) of the Securities Exchange Act of
1934 and if such amendment:
(a) increases the number of shares of Stock which may be
issued under the Plan, except as provided for in Article VII;
(b) materially modifies the requirements as to eligibilit
for participation;
(c) materially increases the benefits accruing to
Participants under the Plan; or
(d) extends the duration beyond the date approved by the
shareholders.
<PAGE>
SECTION 9.2 TERMINATION OF PLAN. The Company expressly reserves the
right, at any time, to suspend or terminate the Plan and any or all Award
Agreements under the Plan to the extent permitted by law for whatever reason(s)
the Company may deem appropriate, including, without limitation, suspension or
termination as to any participating Subsidiary, Employee, or class of Employees.
SECTION 9.3. EFFECTIVE DATE AND PROCEDURE FOR AMENDMENT OR TERMINATION.
Any amendment to the Plan or termination of the Plan may be retroactive to the
extent not prohibited by applicable law. Any amendment to the Plan or
termination of the Plan shall: (i) be made by the Company by formal action of
the Board, (ii) be executed by an officer or person authorized to act on behalf
of the Company, and (iii) not require the approval or consent of any Subsidiary,
Participant, or Beneficiary in order to be effective to the extent permitted by
law.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 RIGHTS OF EMPLOYEES. Status as an eligible Employee shall
not be construed as a commitment that any Award will be made under the Plan to
such eligible Employee or to eligible Employees generally. Nothing contained in
the Plan (or in any other documents related to this Plan or to any Award) shall
confer upon any Employee or Participant any right to continue in the employ or
other service of the Company or constitute any contract or limit in any way the
right of the Company to change such person's compensation or other benefits or
to terminate the employment of such person with or without cause.
SECTION 10.2 COMPLIANCE WITH LAW. No certificate for Stock
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended from time to time
or any successor statute, the Exchange Act and the requirements of the market
systems or exchanges on which the Company's Stock may, at the time, be traded or
listed.
<PAGE>
SECTION 10.3 UNFUNDED STATUS. The Plan shall be unfunded. Neither the
Company nor the Board of Directors shall be required to segregate any assets
that may at any time be represented by Awards made pursuant to the Plan. Neither
the Company, the Committee, nor the Board of Directors shall be deemed to be a
trustee of any amounts to be paid under the Plan.
SECTION 10.4 LIMITS ON LIABILITY. Any liability of the Company to any
Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Agreement. Neither the Company nor
any member of the Board of Directors or the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any action taken or not taken, in good faith under
the Plan and that do not constitute willful misconduct. To the extent permitted
by applicable law, the Company shall indemnify and hold harmless each member of
the Board of Directors and the Committee from and against any and all liability,
claims, demands, costs, an expenses (including the costs and expenses of
attorneys incurred in connection with the investigation or defense of claims) in
any manner connected with or arising out of any actions or inactions in
connection with the administration of the Plan except for such actions or
inactions which are not in good faith or which constitute willful misconduct.
SECTION 10.5 SECTION REFERENCES. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan unless
specifically noted otherwise.
ARTICLE XI
EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date, following adoption of the Plan by
the Board, on which the Company first has a class of shares registered under
Section 12 of the Securities Exchange Act of 1934, as amended (15 U.S.C. '781)
provided, however, the effectiveness of this Plan is subject to its approval and
ratification by the shareholders of the Company within one year from the date of
adoption hereof by the Company. The Committee shall have authority to grant
Awards hereunder until one day before the ten year anniversary of the date of
adoption of the Plan by the Board, subject to the ability of the Company to
terminate the Plan as provided in Article IX.
<PAGE>
MEDCATH INCORPORATED
OMNIBUS STOCK PLAN
Table of Contents
Section Page
ARTICLE I - Name, Purpose and Definitions 1
1.1 Name 1
1.2 Purpose 1
1.3 Definitions 1
ARTICLE II - Eligibility 3
ARTICLE III - Award 3
3.1 General 3
3.2 Stock Options 4
3.3 Stock Appreciation Rights 4
3.4 Restricted Stock 5
3.5 Performance Awards 5
3.6 Other Awards 5
ARTICLE IV - Award Agreements 5
4.1 General 5
4.2 Required Terms 5
4.3 Optional Terms 7
ARTICLE V - Shares of Stock Subject to the Plan 7
5.1 General 7
5.2 Additional Shares 7
5.3 Computation Rules 7
5.4 Shares to be Used 8
ARTICLE VI - Administration
6.1 General 8
6.2 Duties 8
6.3 Powers 8
6.4 Intent to Avoid Insider Trading 9
ARTICLE VII - Adjustments Upon Changes in Capitalization 9
ARTICLE VIII - Changes of Control 9
8.1 General 9
8.2 Definition of Change of Control 10
ARTICLE IX - Amendment and Termination 10
9.1 Amendment of Plan 10
9.2 Termination of Plan 11
9.3 Effective Date and Procedure for Amendment or Termination 11
ARTICLE X - Miscellaneous 11
10.1 Rights of Employees 11
10.2 Compliance with Law 11
10.3 Unfunded Status 12
10.4 Limits On Liability 12
10.5 Section References 12
ARTICLE XI - Effective Date of Plan 12
