1
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
OR
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
Commission file number 000-22766
QUORUM HEALTH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1406040
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
103 CONTINENTAL PLACE, BRENTWOOD, TENNESSEE 37027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(615) 371-7979
(COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, PAR VALUE $.01
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $893,427,019 as of December 14, 2000. The number of Shares of
Common Stock outstanding as of such date was 71,549,033.
The following sections are included in this amendment to Form 10-K:
Part III, Items 10, 11, 12 and 13.
2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
Russell L. Carson(1)(3) 57 1989 Mr. Carson has been Chairman of the Board since July
1989. Since 1979 he has been a general partner of
Welsh, Carson, Anderson & Stowe, an investment firm
that specializes in the acquisition of companies in the
information services and health care industries. Mr.
Carson serves on the Board of Directors of U.S.
Oncology, Inc., a physician practice management company
that focuses on cancer services, and several private
companies.
James E. Dalton, Jr. 58 1990 Mr. Dalton became President, Chief Executive Officer
and a director of the Company on May 1, 1990. Prior to
joining the Company, he served as Regional Vice
President, Southwest Region for HealthTrust, Inc.,
division Vice President of HCA, and Regional Vice
President of HCA Management Company. Mr. Dalton is on
the board of directors and is past chairman of the
Nashville Health Care Council and the Federation of
American Health Systems. He is a trustee of the
American Hospital Association and Universal Health
Realty Income Trust. He also serves on the board of
directors of AmSouth Bancorporation, the Nashville
Branch of the Federal Reserve Bank of Atlanta, and U.S.
Oncology, Inc. Mr. Dalton is a Fellow of the American
College of Healthcare Executives.
S. Douglas Smith, Ph.D. 63 1989 Dr. Smith has been a director of Quorum since July,
1989. He was Vice Chairman of the Company from 1990
through 1992 and President of Quorum Health Resources
from 1989 through 1991. Dr. Smith earlier held
management positions with Hospital Corporation of
America, Duke University Medical Center, Greenville
Hospital System and Humana, Inc. He is a principal of
Evergreen Investments and Management LLC and is
Chairman of Passport Health Communications, Inc. He
served as Professor of Health Care Management, Owen
Graduate School of Management, Vanderbilt University
from 1995-1999. He serves on the Boards of ELI
Consulting, Abilene Christian University, and Quality
Data Management, Inc.
Sam A. Brooks, Jr.(2) 61 1989 Mr. Brooks has been a director of the Company since
July 1989. Mr. Brooks is Chairman, President and CEO of
Renal Care Group, a specialized provider of nephrology
services, and is President of MedCare Investment Corp.,
a health care investment company. He is a director of
Renal Care Group and PhyCor, Inc., an operator of
multi-specialty medical clinics. He was chairman of
MedSolutions (formerly known as National Imaging
Affiliates), a provider of radiology services, from
1992 to 1997.
2
3
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
Kenneth J. Melkus(2)(3) 54 1992 Mr. Melkus became a director of the Company in March
1992. Mr. Melkus serves as a Consultant to the venture
capital firm of Welsh, Carson, Anderson & Stowe which
specializes in healthcare investments. He served as
Chairman of the Board and Chief Executive Officer of
HealthWise of America, Inc., a managed care company,
from its founding in August 1993 until it was merged
into United HealthCare of Minneapolis in April, 1996.
From 1986 until assuming his position with HealthWise,
he served as Vice Chairman and President of Surgical
Care Affiliates, Inc. Mr. Melkus currently serves on
the Boards of Directors of OrthoLink, Inc., Cardiology
Partners of America, Accredo Health, Inc., Emerald
Health Network, Physicians Healthcare Plans, Inc.,
United Surgical Partners, and Behavioral Health.
Rocco A. Ortenzio(1) 67 1992 Mr. Ortenzio has been a director of the Company since
March 1992. He is Chairman and CEO of Select Medical
Corporation, which is developing a national network of
specialized health care facilities and services. He was
the co-founder, Chairman and Chief Executive Officer of
Continental Medical Systems, Inc. until its merger with
Horizon HealthCare Corporation. He was a Consultant to
Horizon/CMS Healthcare Corporation, a leading post-
acute healthcare provider in the United States from
1995 to 1997.
Thomas S. Murphy, Jr. 41 1993 Mr. Murphy has been a director of the Company since
December 1993. He is managing director of Goldman,
Sachs & Co., where he served as Vice President from
1990 - 1997, after joining the firm in 1986. Mr.
Murphy is also a director of Bridge Information
Systems, Inc.
Joseph C. Hutts(1)(3) 59 1994 Mr. Hutts has been a director of the Company since
February 1994. He served as Chairman of the Board and
Chief Executive Officer of PhyCor, Inc., which owns and
operates physician organizations from 1988 to June,
2000, and continues to serve on its board of directors.
Mr. Hutts served at HCA from 1977 to 1986 in various
positions, including Vice President, Operations;
President, HCA Management Company, Inc., Senior Vice
President, Western Operations; and President of HCA
Health Plans, a managed care subsidiary of HCA. Mr.
Hutts was Vice Chairman and Chief Operating Officer of
EQUICOR-Equitable HCA Corporation, an employee benefits
company, from October 1986 until June 1987. Mr. Hutts
serves on the Board of Directors of Renal Care Group,
a provider of dialysis and nephrology services.
C. Edward Floyd, M.D. 66 1995 Dr. Floyd has been a director of the Company since June
1995. He is Board Certified in general and vascular
surgery and serves on the medical staffs of Carolinas
Hospital System and other local hospitals. He is
chairman emeritus of the University of South Carolina's
Board of Trustees; he was its Chairman from 1993 - 1996
and its Vice-Chairman from 1989 - 1993. He is founder
and director of Vascular Laboratory of Florence, Inc.
In addition to serving on several medical boards, Dr.
Floyd is clinical professor of surgery at the
University of South Carolina Medical School as well as
clinical associate professor of surgery at the Medical
University of South Carolina. He served as a member of
the South Carolina State Commission on Higher
Education. He serves on the Board of Directors of
National Bank of South Carolina, Synovus Financial
Corporation and the Drs. Bruce and Lee Foundation. Dr.
Floyd is a diplomat of the American Board of Surgery
and a Fellow of the American College of Surgeons.
3
4
DIRECTOR BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS
- ---- --- -------- ----------------------
Colleen Conway Welch, 56 1997 Dr. Conway Welch became a director of the Company in
Ph.D., R.N.(2) April 1997. She is Dean and Professor of the Vanderbilt
University School of Nursing. She has served as a
member of the National Bipartisan Commission on the
Future of Medicare, the Lasker Foundation's Funding
First Board of Directors, and currently serves as a
member of the Healthcare Leadership Council Board of
Governors, and is a founding member and former
president of Friends of the National Institute for
Nursing Research, National Institute of Health. Other
board memberships include American Physicians'
Network and Healthstream. She is a member of the
Board of Directors of Rehab Group, Inc. which
provides rehabilitation care and services.
- ----------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
EXECUTIVE OFFICERS
The following table contains certain information concerning our
executive officers. Each is elected by the Board of Directors to serve until he
or she resigns or his or her successor is elected and qualified.
SERVED
NAME AGE SINCE POSITION
- ---- --- ------ --------
James E. Dalton, Jr. 58 1990 President, Chief Executive Officer and Director
Ashby Q. Burks 43 1997 Vice President/General Counsel and Secretary
Ashley M. Crabtree 36 2000 Vice President and Treasurer
J. Dennis Green 38 1998 Vice President-Internal Audit
Karen Harrison 44 1999 Vice President-Controller
Margaret C. Mazzone 47 1998 Vice President-Ethics and Business Conduct
C. Thomas Neill 56 1992 Senior Vice President-Corporate Services
Terry Allison Rappuhn 44 1996 Senior Vice President and Chief Financial Officer
Roland P. Richardson 53 1990 Senior Vice President-Acquisitions and Development
Michael D. Wiley 54 1992 Vice President-Corporate Relations
Mr. Dalton became President, Chief Executive Officer and a director of
the Company on May 1, 1990. Prior to joining the Company, he worked in various
health care management roles for 25 years. Mr. Dalton is on the board of
directors and is past chairman of the Nashville Health Care Council and the
Federation of American Hospitals. He is a trustee of the American Hospital
Association and Universal Health Realty Income Trust. He also serves on the
board of directors of AmSouth Bancorporation and U.S. Oncology, Inc. Mr. Dalton
is a Fellow of the American College of Healthcare Executives.
Mr. Burks joined the Company as Vice President/General Counsel and
Secretary in April 1997. Prior to joining the Company, he was an independent
health care consultant from January 1996 through March 1997. He served as Vice
President and Assistant General Counsel of Columbia/HCA from April 1994 through
December 1995. From 1984 through April 1994, he was Senior Counsel for
Columbia/HCA and its predecessor, Hospital Corporation of America.
Ms. Crabtree joined the Company in May, 2000 as Vice President and
Treasurer. Prior to that time, she worked for more than 13 years in banking,
most recently as Managing Director of Healthcare Finance for Bank of America.
Mr. Green has been Vice President-Internal Audit since February, 1998.
He worked from 1984 to 1998 for Columbia/HCA and its predecessor, Hospital
Corporation of America, serving in internal audit positions from 1984 to 1996
and as Assistant Vice President-Management Reporting from 1996 to 1998.
Ms. Harrison became Vice President and Controller of the Company in
July, 1999. She has worked for the Company since its inception in 1989. She
served as Corporate Controller from October, 1990 to July, 1996, and as
4
5
Assistant Vice President of Accounting from July, 1996 to July, 1999. She is a
member of the American Institute of CPAs, Illinois Society of CPAs and
Healthcare Financial Management Association.
Ms. Mazzone became Vice President-Ethics and Business Conduct in
January 1998. She is responsible for managing and implementing the Company's
Business Ethics Program. From December 1996 to December 1997, Ms. Mazzone was
Vice President/Assistant General Counsel for the Company. From July 1993 to
November 1996, she served as Senior Associate Counsel to the Company.
Mr. Neill has been Vice President-Corporate Services since January 1,
1992. He is responsible for the Company's administrative operations, including
human resources, information systems, purchasing, government relations, and
insurance and risk management programs. Prior to joining the Company, he was
affiliated with HealthTrust, Inc., serving in administrative and human resource
positions since 1987. Mr. Neill's previous health care employment includes ten
years with HCA and General Care Corporation. He is on the board of directors of
the Federation of American Hospitals, chairman of FedPac, and a member of the
house of delegates of the American Hospital Association.
Ms. Rappuhn became Senior Vice President and Chief Financial Officer in
1999 after serving as Vice President, Assistant Treasurer and Controller since
1996 and Vice President of Internal Audit from 1993 to 1996. From 1978 to 1993,
she served a wide range of healthcare clients for Ernst & Young LLP. Ms. Rappuhn
serves on the Board of Directors of Healthcare Financial Management Association
and the Board of Governors of Federation of American Hospitals. She is a member
of the American Institute of CPAs, the Tennessee Society of CPAs, the Healthcare
Financial Management Association and Financial Executives International.
Mr. Richardson joined the Company at its inception in 1989. He is
responsible for all of Quorum's acquisition activities. He worked from 1973 to
1989 for HCA where his positions included serving as vice president of finance
and administration for HCA Management Company and district vice president with
multi-facility operational responsibility.
Mr. Wiley joined the Company in 1989 and became Vice President of
Corporate Relations in 1992. He is responsible for investor, analyst, media
industry and consumer communications. Prior to joining Quorum, he was director
of marketing for HCA and was director of marketing with HCA Management Company.
Previous positions include serving as vice president of marketing for both South
Carolina National Bank (Wachovia) and First National Bank of South Carolina. He
is a member of the National Investor Relations Institute.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Such executive
officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of Forms 3, 4 and 5 furnished to
us, any amendments thereto, and written representations from executive officers
and directors, all Section 16(a) filing requirements applicable to its executive
officers and directors were complied with during fiscal year 2000 with the
following exceptions: James E. Dalton, Jr. filed a late Form 5 to report the
acquisition of a stock option granted in December, 1999; and Thomas S. Murphy
filed a late Form 5 to report the acquisition of a stock option granted in July,
1999.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation for
services provided to us in all capacities for the fiscal year ended June 30,
2000, and the two previous fiscal years of those persons who were, at June 30,
2000, our Chief Executive Officer and the four other most highly compensated
executive officers who were serving as such on the last day of the fiscal year
(individually, an "NEO", and collectively, the "NEOs").
5
6
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- -------------------------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER RESTRICTED LONG-TERM
ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND PRINCIPAL SALARY(1) BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) (2) ($) ($) (#) ($) (3) ($)
---------- ---- --------- ----- ------------ ---------- -------- --------- ------------
James E. Dalton, Jr. 2000 $ 637,275 -0- -- -0- 170,000 -0- $7,548
President and CEO 1999 589,010 -0- -- -0- 632,666 -0- 7,559
1998 587,206 -0- -- -0- 202,580 -0- 7,560
Roland P. Richardson 2000 $ 341,113 -0- -- -0- 97,000 -0- $7,548
Senior Vice 1999 315,396 -0- -- -0- 286,111 -0- 7,559
President - 1998 313,644 -0- -- -0- 100,000 -0- 7,560
Acquisitions and
Development
Terry Allison Rappuhn 2000 $ 289,442 -0- -- -0- 103,127 -0- $7,548
Senior Vice 1999 197,237 -0- -- -0- 228,666 -0- 6,808
President and 1998 187,696 -0- -- -0- 61,523 -0- 6,541
Chief Financial
Officer
C. Thomas Neill 2000 $ 277,975 -0- -- -0- 102,637 -0- $7,548
Vice President - 1999 245,851 -0- -- -0- 194,326 -0- 7,559
Corporate Services 1998 245,126 -0- -- -0- 65,400 -0- 7,487
Ashby Q. Burks 2000 $ 231,408 -0- -- -0- 85,000 -0- $7,246
Vice President/ 1999 213,957 -0- -- -0- 152,904 -0- 7,131
General Counsel 1998 211,672 -0- -- -0- 65,000 -0- 1,540
and Secretary
- --------------
(1) "Salary" includes each NEO's base salary plus amounts paid by the
Company to a cafeteria plan for the benefit of the NEO: Mr. Dalton
$7,275; Mr. Richardson $7,050; Ms. Rappuhn $6,942; Mr. Neill $5,171;
Mr. Burks $7,236.
(2) Perquisites for each NEO are in amounts which do not require
disclosure.
(3) The aggregate amounts set forth under "All Other Compensation" are made
up of the following: (i) for matching 401(k) plan contributions made by
the Company: $4,000 for each of the NEOs;(ii) for contributions to the
Company's Non-Qualified Retirement Plan: $3,538 each for Mr. Dalton,
Mr. Richardson, Ms. Rappuhn and Mr. Neill; $3,236 for Mr. Burks; and
(iii) $10 for each NEO for premiums paid by the Company in respect of
life insurance policies for the benefit of each NEO.
1997 STOCK OPTION PLAN
The table below provides information on grants of stock options
pursuant to our 1997 Stock Option Plan (the "1997 Plan") during the fiscal year
ended June 30, 2000, to the NEOs. The 1997 Plan was approved by our stockholders
at their annual meeting on November 10, 1997. No further shares remain available
for grant under our former plan, the Restated Stock Option Plan. We grant no
stock appreciation rights ("SARs").
6
7
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------------------- -----------------------------
NUMBER % OF TOTAL
OF SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------- -------------- ----------- ---------- ----------- -------------
James E. Dalton, Jr. 50,000 2.0261 $ 8.50 12/07/06 $173,017.68 $ 403,204.77
120,000 4.8627 $ 8.31 12/17/07 405,960.54 946,060.69
------- ------ ----------- -------------
Total 170,000 6.8888 $578,978.22 $1,349,265.46
======= ====== =========== =============
Roland P. Richardson 25,000 1.0130 $ 8.50 12/07/06 $ 86,508.84 $ 201,602.38
72,000 2.9176 $ 8.31 12/17/07 243,576.32 567,636.42
------- ------ ----------- -------------
Total 97,000 3.9306 $330,085.16 $ 769,238.80
======= ====== =========== =============
Terry Allison Rappuhn 30,000 1.2156 $ 8.50 12/07/06 $103,810.61 $ 241,922.86
1,127 0.0456 $10.44 01/11/10 7,399.50 18,751.78
72,000 2.9176 $ 8.31 02/17/07 243,576.32 567,636.42
------- ------ ----------- -------------
Total 103,127 4.1788 $354,786.43 $ 828,311.06
======= ====== =========== =============
C. Thomas Neill 25,000 1.0130 $ 8.50 12/07/06 $ 86,508.84 $ 201,602.38
5,637 0.2284 $10.44 01/11/10 37,010.62 93,792.19
72,000 2.9176 $ 8.31 02/17/07 243,576.32 567,636.42
------- ------ ----------- -------------
Total 102,637 4.1590 $367,095.78 $ 863,030.99
======= ====== =========== =============
Ashby Q. Burks 25,000 1.0130 $ 8.50 12/07/06 $ 86,508.84 $ 201,602.38
60,000 2.4313 $ 8.31 02/17/07 202,980.27 473,030.35
------- ------ ----------- -------------
Total 85,000 3.4443 $289,489.11 $ 674,632.73
======= ====== =========== =============
STOCK EXERCISES IN FISCAL YEAR 2000
The table below provides information on exercises of options during the
fiscal year ended June 30, 2000 by the named executive officers reflected in the
Summary Compensation Table and the year-end value of unexercised options held by
such officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
EXERCISE REALIZED OPTIONS/SARS AT SARS AT 2000 FISCAL
(#) ($) 2000 FISCAL YEAR-END (#) YEAR END ($)(1)
-------- -------- ------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
James E. Dalton, Jr. -0- -0- 623,853/388,815 $858,644/$584,740
Roland P. Richardson -0- -0- 104,932/203,346 $272,257/$311,287
Terry Allison Rappuhn 1,308 $1,884 106,197/220,183 $114,350/$289,281
C. Thomas Neill 6,540 $9,418 146,900/173,525 $317,195/$269,092
Ashby Q. Burks -0- -0- 77,931/159,973 $ 95,113/$251,393
- ----------------
(1) Options are classified as "in-the-money" if the fair market value of
the underlying Common Stock exceeds the exercise price of the option.
The value shown represents the difference between the closing market
price on June 30, 2000, of $10.19 per share and the respective exercise
prices of the options at June 30, 2000. Such amounts may not
necessarily be
7
8
realized. Actual values which may be realized, if any, upon the
exercise of such options will be based on the market price of the
Common Stock at the time of any such exercise and thus are dependent
upon future performance of the Common Stock.
EMPLOYMENT CONTRACTS
Mr. Dalton, our President, Chief Executive Officer and a director, has
an agreement with us under which Mr. Dalton receives a base salary and is
eligible to receive a bonus. Under the agreement, Mr. Dalton received options to
purchase 500,000 shares of Common Stock at an exercise price of $1.00 per share
and he has purchased all of such shares. Mr. Dalton executed an Executive
Employment Agreement as described below under the heading "Change in Control
Agreements."
CHANGE IN CONTROL AGREEMENTS
We have entered into Severance Agreements with certain of our
employees. The Severance Agreements provide certain benefits upon termination of
employment following a change in control of the Company (as defined in the
Severance Agreements and described below). Pursuant to the Severance Agreements,
if a covered employee's employment is terminated within twelve months after the
date of a change in control for any reason other than death, disability,
retirement or for cause, or if the employee terminates his or her employment for
"Good Reason" (as defined in the Severance Agreement), the executive is entitled
to severance pay and certain other benefits. The severance payments are based on
the executive's annual compensation, multiplied by a factor of two. We also
agreed to indemnify the executive for any excise taxes in the event that
benefits paid pursuant to a change in control trigger adverse tax consequences
to the executive.
Effective January 1998, Mr. Dalton and each other executive officer
executed an Executive Employment Agreement with us. The current Employment
Agreements provide for a two-year term of employment (three years in the case of
Messrs. Burks, Dalton, Green, Neill and Richardson and Ms. Rappuhn). The
Employment Agreements automatically renew for additional terms unless we or the
Executive gives a termination notice at least 90 days prior to the renewal date.
The executive officer agrees not to compete with us for one year following
termination of his or her employment.
If the executive's employment is terminated without cause, including
termination without cause if we fail to renew the Employment Agreement, the
executive will receive a payment equal to twice his or her salary (three times
in the case of Messrs. Burks, Dalton, Green, Neill and Richardson and Ms.
Rappuhn), and all or a portion of the executive's options will vest. Voluntary
termination by the executive, termination due to death, disability or
retirement, and termination by us for cause result in no additional payments to
the executive. "Cause" includes, among other things, violation of civil or
criminal law or any of our written rules and policies governing ethical
corporate conduct by officers and employees of the Company. Following a change
in control of the Company (as defined below), the terms of the Employment
Agreements are substantially identical to those of the Severance Agreements as
described above.
Under the Severance Agreements and the Executive Employment Agreements,
a change in control occurs when: (a) any person (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
beneficial owner of 50% or more of the combined voting power of our then
outstanding securities; (b) a majority of the individuals comprising our Board
of Directors have not served in such capacity for the entire two-year period
immediately preceding such date; (c) we combine (by merger, share exchange,
consolidation or otherwise) with another corporation and, as a result of such
consolidation, less than 50% of the outstanding securities of the surviving or
resulting corporation are owned in the aggregate by our former stockholders; or
(d) we sell, lease or otherwise transfer all or substantially all of its
properties or assets to another person or entity.
DIRECTOR'S COMPENSATION
Our non-management directors are paid $3,000 per quarter plus $1,500
per Board meeting actually attended and $750 per other committee meetings
actually attended. In addition, our Directors Stock Option Plan provides for
automatic annual grants to such directors of stock options to acquire 5,001
shares of our Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is composed of Russell L. Carson,
Joseph C. Hutts, and Rocco A. Ortenzio. None of these persons is an employee of
the Company.
8
9
COMPENSATION COMMITTEE REPORT
The following Compensation Committee Report is not deemed to be part of
a document filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be deemed
incorporated by reference in any documents filed under the Securities Act or
Exchange Act without the express consent of the persons named below.
The Compensation Committee (the "Committee") of the Company's Board of
Directors reviews and approves compensation levels for the Company's management
personnel, including the Named Executive Officers identified in the Summary
Compensation Table appearing elsewhere herein. The Committee is composed
entirely of non-employee directors. It is the responsibility of the Committee to
assure the Board that the Company's executive compensation programs are
reasonable and appropriate, meet their stated purpose and effectively serve the
interests of the Company's stockholders and the Company.
COMPENSATION PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICERS
The Committee believes that the primary objectives of the Company's
executive compensation policy should be:
- To attract and retain talented executives critical to both the
short-term and long-term success of the Company by providing
compensation that is competitive with compensation provided to
executives of comparable position at similar U.S. healthcare
companies, while maintaining compensation levels that are
consistent with the Company's financial objectives and
operating performance.
- To reinforce strategic financial and operating performance
objectives through the use of appropriate annual incentive
programs.
- To create mutuality of interest between executive officers and
stockholders by providing long-term incentives through the use
of stock options.
The Committee believes that the Company's executive compensation policy
should be reviewed annually in relation to the Company's financial performance,
annual budgeted financial goals and its position in the healthcare industry. The
compensation of certain individuals is reviewed annually by the Committee in
light of its executive compensation policy for that year.
The Committee believes that in addition to corporate performance, it is
appropriate to consider in setting and reviewing executive compensation the
level of experience and responsibilities of each executive as well as the
personal contributions a particular individual may make to the success of the
Company. Such factors as leadership skills, analytical skills and organizational
development are deemed to be important qualitative factors to take into account
in considering levels of compensation. No relative weight is assigned to these
qualitative factors, which are applied subjectively.
The Committee and the Board of Directors periodically discuss
alternative compensation arrangements, but believe that the current programs
permit the broadest range of participation in the success of the Company.
BASE SALARIES
The base salaries of the Company's NEOs are listed in the Summary
Compensation Table. These and all other executive officer salaries are evaluated
annually. The Company participates in and reviews the results of several
national surveys that report on the compensation levels and methods of
compensation in various industries, including the healthcare industry, the
hospital industry and other industries of similar revenue size. The Company
reviews the Hay Healthcare Management Survey and such other surveys as it deems
relevant to determine appropriate levels of compensation for various members of
management, selecting which surveys to review for any particular member of
management based upon the duties he or she performs for the Company. Generally,
management salaries for the 2000 fiscal year were competitive with those
reflected in the surveys reviewed. Since the Company believes that its
competitors for executive talent are often more numerous than the entities
included in its peer group index (See "Stock Performance Graph"), its comparison
of compensation according to these surveys is generally more broadly based.
9
10
Based on survey results, past internal pay practices, and such
subjective factors as may be deemed relevant, management salaries are proposed
by Company management as part of the Company's annual budgeting process. The
Committee reviews, suggests revisions if appropriate, and approves the salaries
proposed for executive management personnel, including the NEOs, and the entire
Board approves the Company's budget.
ANNUAL INCENTIVE PROGRAM
Annual cash incentive awards are designed to give the Company's
executive officers an incentive to cause the Company to meet or exceed the
Company's performance goals. The Incentive Program provides for cash bonuses to
be paid to executive officers and other management employees if the targeted
earnings per share ("EPS") of the Company meets or exceeds the EPS target set by
the Board of Directors for the Company. The maximum bonus which any NEO, other
than the Chief Executive Officer and Chief Operating Officer, is eligible to
earn is an amount equal to 40% of his or her base salary. The NEOs may choose to
receive 0%, 50% or 100% of their bonus in nonqualified stock options granted
under the Company's 1997 Stock Option Plan pursuant to the Company's Discounted
Stock Option Program. Such options have ten-year terms and exercise prices equal
to 75% of the fair market value of the Company's Common Stock on either the last
day of the fiscal year or their date of grant. The dollar value of the 25%
discount equals the dollar value of the amount of the bonus chosen to be paid in
options. No bonuses were paid to any NEO for fiscal year 2000.
The Committee is empowered to authorize discretionary bonuses to
executives of the Company based on the superior performance of the executive's
business unit and/or the executive's contribution to the overall performance of
the Company. No such discretionary bonuses were paid to the NEOs for fiscal
2000.
LONG-TERM INCENTIVES
The Company's 1997 Stock Option Plan is designed to provide long-term
incentives. Incentive stock options and non-qualified stock options are
available for grant under the Restated Stock Option Plan. Stock option grants
provide an incentive that focuses the executive's attention on managing the
Company from the perspective of an owner with an equity stake in the business.
These grants also help ensure that operating decisions are based on long-term
results that benefit the Company and ultimately the stockholders. The Company's
executive officers are periodically granted stock options under the stock option
plan on terms similar to those granted to other management employees. In
addition, the Company may grant options from time to time in connection with the
employment of new management personnel in order to make the Company's recruiting
efforts competitive.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Dalton, the Company's chief executive officer, is eligible to
participate in the same executive compensation plans available to other
executive officers that are described above. The chief executive officer's base
salary and incentive compensation are determined in accordance with the same
procedures used by the Company to set the compensation of other management
personnel. Specifically, base salary is determined based on analysis of
compensation surveys, past internal pay practices and relevant subjective
factors, while incentive compensation is based on the Company's overall
performance as measured by whether the Company attains the targeted EPS
established by the Compensation Committee. The Committee may also grant
discretionary bonuses to Mr. Dalton in order to reward him for the Company's
performance vis-a-vis other companies in the industry or to keep his overall
compensation competitive with other executive officers in companies of similar
size in the healthcare industry.
Mr. Dalton's annual base salary for the 2000 fiscal year was $637,275.
The Company believes Mr. Dalton's current base salary to be in the range of the
average market salaries paid to chief executive officers of comparable
businesses based on The Hay Healthcare Management Survey and other survey and
proxy data from comparable healthcare companies. Under the annual incentive
program described above, the maximum bonus which Mr. Dalton was eligible to earn
is an amount equal to 55% of his base salary.
CERTAIN TAX REGULATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for executive
compensation in excess of $1 million excluding compensation which is
"performance based," as defined in Section 162(m). The Compensation Committee
10
11
expects to pay all compensation earned by an executive officer, even if such
compensation exceeds $1 million, even though such compensation may not be
"performance based," under the provisions of Section 162(m). The Company's
Annual Incentive Program currently does not satisfy such requirements.
STOCK PERFORMANCE GRAPH
The stock price performance graph depicted below is not deemed to be
part of a document filed with the Securities and exchange Commission pursuant to
the Securities Act or the Exchange Act and is not to be deemed incorporated by
reference in any documents filed under the Securities Act or the Exchange Act,
without the express consent of the Company.
The graph below compares the cumulative total return of the Company's
Common Stock with securities of entities comprising the NASDAQ Index and a peer
group index. Cumulative return assumes $100 invested in the Company or
respective index on June 30, 1995, with dividend reinvestment through June 30,
2000. The peer group includes HCA - The Healthcare Company, Health Management
Associates, Inc., Tenet Healthcare Corporation and Universal Health Services.
The graph presents information since the date of the Company's initial
public offering. To date, the Company had not directly tied executive
compensation to stock performance. The future impact of stock performance on
executive compensation will be determined by the Compensation Committee.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
6/95 6/96 6/97 6/98 6/99 6/00
- ---------------------------------------------------------------------
QUORUM 100.00 130.25 176.54 196.30 93.06 76.39
HEALTH GROUP,
INC.
- ---------------------------------------------------------------------
NASDAQ STOCK 100.00 128.39 156.14 205.58 296.03 437.27
MARKET (U.S.)
- ---------------------------------------------------------------------
PEER GROUP 100.00 129.93 152.13 140.02 96.65 130.16
- ---------------------------------------------------------------------
* $100 INVESTED ON 6/30/95 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JUNE
THE FOREGOING REPORT IS SUBMITTED BY ALL THE CURRENT MEMBERS OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS ARE
RUSSELL L. CARSON, ROCCO A. ORTENZIO, AND JOSEPH C. HUTTS.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 15, 2000, the number and percentage
of outstanding shares of the Company's Common Stock owned by all persons known
to the Company to be holders of 5% or more of the issued and outstanding shares
of Common Stock, by each director and certain executive officers of the Company,
and by the officers and directors of the Company as a group.
NUMBER OF SHARES BENE- PERCENTAGE OF
NAME FICIALLY OWNED(1) TOTAL SHARES(2)
- ---------------------------------------------------------------------------------------------------------
Welsh, Carson Anderson & Stowe VIII, L.P.(3) ....... 19,068,162 21.05%
320 Park Avenue, Suite 2500
New York, NY 10022
Russell L. Carson(4, 5) ............................ 20,959,273 22.67%
James E. Dalton, Jr.(6) ............................ 959,273 *
Sam A. Brooks, Jr.(7) .............................. 186,006 *
Ashby Q. Burks(8) .................................. 102,188 *
C. Edward Floyd, M.D.(9) ........................... 20,576 *
Joseph C. Hutts(10) ................................ 32,502 *
Kenneth J. Melkus(11) .............................. 111,969 *
Thomas S. Murphy, Jr.(12) .......................... 12,501 *
C. Thomas Neill(13) ................................ 227,148 *
Rocco A. Ortenzio(14) .............................. 55,636 *
Terry Allison Rappuhn(15) .......................... 131,024 *
Roland P. Richardson(16) ........................... 147,344 *
S. Douglas Smith(17) ............................... 364,422 *
Colleen Conway Welch(18) ........................... 26,100 *
All current directors and officers as a group (a
total of 19 persons) ............................... 23,585,912 24.81%
11
12
- ---------
* Less than one percent.
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property
laws, where applicable.
(2) The percentages shown are based on 71,498,695 shares of Common Stock
outstanding on October 15, 2000, plus, as to each individual and group
listed, unless otherwise noted, the number of shares of Common Stock
deemed to be owned by such holder pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, assuming exercise of options held by
such holder that are exercisable within 60 days of October 15, 2000 and
conversion of 6% Convertible Senior Subordinated Debentures held by
Welsh, Carson, Anderson and Stowe VIII, L.P. and certain of its
associates that are exercisable at any time.
(3) Includes 12,698,412 shares issuable upon conversion of certain
convertible debentures; does not include shares held individually by
Mr. Carson.
(4) Mr. Carson, Chairman of the Board of the Company, has voting power over
6,369,750 shares of outstanding common stock owned by Welsh, Carson,
Anderson & Stowe VIII, L.P. ("WCAS") and will have voting power over an
additional 12,698,412 shares upon conversion of certain convertible
debentures owned by WCAS. Because Mr. Carson is deemed to beneficially
own such shares under Rule 13d-3, they are included in his totals and
in the shares shown as being owned by "All directors and officers as a
group."
(5) Includes options to purchase a total of 12,501 shares and certain
debentures convertible to 119,613 shares.
(6) Includes options to purchase a total of 518,644 shares.
(7) Includes options to purchase a total of 12,501 shares.
(8) Includes options to purchase a total of 84,181 shares.
(9) Includes options to purchase a total of 12,501 shares.
(10) Includes options to purchase 12,501 shares.
(11) Includes options to purchase 11,251 shares, and 60,525 shares owned by
Melkus Partner Ltd.
(12) Includes options to purchase 12,501 shares.
(13) Includes options to purchase 127,702 shares.
(14) Includes options to purchase a total of 12,501 shares and 10,000 shares
owned in the name of an irrevocable trust, beneficial ownership of
which Mr. Ortenzio disclaims.
(15) Includes options to purchase 103,191 shares.
(16) Includes options to purchase 103,237 shares.
(17) Includes options to purchase 12,501 shares, and 73,322 shares held by a
charitable foundation.
(18) Includes options to purchase 22,500 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C. Edward Floyd, M.D., a director, is a practicing physician and serves
as a member of the advisory board of Carolinas Hospital system, a hospital we
have owned since February 1, 1995. During
12
13
fiscal 2000, the hospital paid Dr. Floyd approximately $16,000 in fees and
benefits for his role on its advisory board. Until May 2000, Dr. Floyd also
provided various professional services at the vascular laboratory under contract
with the hospital. During fiscal 2000, the hospital paid Dr. Floyd approximately
$86,000 for these services.
In fiscal 1996 we agreed to make contributions to the University of
South Carolina of $1,000,000 over a five year period. As of the date of this
report, the Company has made contributions of $750,000. Dr. Floyd is chairman
emeritus of the Board of Trustees of the University.
In August 1999 we purchased assets related to certain primary care
physician practices in Minot, North Dakota from PhyCor, Inc. We paid
approximately $1,100,000 for those assets. We also retained PhyCor to manage the
physician practices and paid approximately $3.4 million during the fiscal year
for management services, office rent and certain operating expenses of the
practices. The management agreement had a term of ten years.
In July 2000 we purchased assets related to certain specialist
physician practices, an ambulatory surgery center, a pharmacy and a durable
medical equipment business in Minot, North Dakota from PhyCor. We paid
approximately $2.3 million for those assets. We cancelled the remainder of the
management agreement. We continue to lease office space from PhyCor for
approximately $1.5 million per year under a lease which expires June 30, 2009.
Joseph C. Hutts, a director, was Chairman and Chief Executive Officer of PhyCor,
Inc. until June 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUORUM HEALTH GROUP, INC.
Date: January 5, 2001 By: /s/ Terry Allison Rappuhn
----------------------------
Terry Allison Rappuhn
Senior Vice President/
Chief Financial Officer
13