SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant Under Rule 14a-12
TRIAD HOSPITALS, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials:
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
TRIAD HOSPITALS, INC.
13455 Noel Road, 20th Floor
Dallas, Texas 75240
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 2001 AT 10:00 A.M., LOCAL TIME
----------------
To our stockholders:
The 2001 Annual Meeting of Stockholders of Triad Hospitals, Inc. will be
held at the Sheraton Park Central Hotel, 7750 LBJ Freeway, Dallas, Texas 75251
on Tuesday, May 29, 2001, beginning at 10:00 a.m., local time. The meeting will
be held for the following purposes:
1. To elect four directors to serve until the 2004 annual meeting of
stockholders, or until their respective successors shall have been duly
elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as our independent
auditors.
3. To consider and vote on an amendment to the Triad Hospitals, Inc.
Outside Directors Stock and Incentive Compensation Plan to increase the number
of authorized shares thereunder from 240,000 to 400,000.
4. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on April 23, 2001 are
entitled to notice of, and to vote at, the Annual Meeting. A complete list of
the stockholders entitled to vote at the Annual Meeting will be available for
examination by any stockholder at our executive offices, during ordinary
business hours, for a period of at least ten days prior to the Annual Meeting.
You are cordially invited to be present. Stockholders who do not expect to
attend in person are requested to sign and return the enclosed form of proxy in
the envelope provided, or vote by telephone or Internet (instructions are on
your proxy card). At any time prior to their being voted, proxies are revocable
by written notice to the Secretary of the Company or by voting at the meeting
in person.
By order of the Board of Directors
DONALD P. FAY
Executive Vice President,
General Counsel and Secretary
April 30, 2001
TRIAD HOSPITALS, INC.
13455 Noel Road, 20th Floor
Dallas, Texas 75240
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
To be held May 29, 2001
----------------
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Triad Hospitals, Inc. ("Triad" or the "Company")
from holders of the Company's outstanding shares of common stock entitled to
vote at the 2001 Annual Meeting of Stockholders of the Company (and at any and
all adjournments or postponements thereof) (the "2001 Annual Meeting") for the
purposes referred to below and set forth in the accompanying Notice of Annual
Meeting of Stockholders. Stockholders of record at the close of business on the
record date, April 23, 2001, are entitled to notice of and to vote at the 2001
Annual Meeting. This Proxy Statement and the accompanying proxy materials are
first being mailed to stockholders on or about April 30, 2001.
RECENT DEVELOPMENTS
On October 18, 2000, Triad entered into an agreement and plan of merger with
Quorum Health Group, Inc. ("Quorum") pursuant to which Quorum will merge with
and into Triad and Triad will be the surviving corporation (the "Merger"). On
April 26, 2001, the stockholders of both Triad and Quorum held special meetings
at which each approved the Merger. Upon consummation of the Merger, Quorum
stockholders will be entitled to receive $3.50 in cash and 0.4107 shares of
Triad common stock for each share of Quorum stock; Triad expects to issue
approximately 36.3 million shares of Triad common stock to Quorum stockholders.
Because these shares will be issued after the record date for the 2001 Annual
Meeting, they will not be eligible to vote at the 2001 Annual Meeting. At the
time this proxy statement was printed, the Merger was scheduled to close on or
about April 27, 2001.
Triad common stock has been traded under the symbol "TRIH" on the Nasdaq
National Market System since Triad became a publicly traded company. Triad has
received approval for listing from the New York Stock Exchange, and expects
that its common stock will commence trading under the symbol "TRI" on the New
York Stock Exchange on or about April 30, 2001. At that time, Triad common
stock will cease trading on the Nasdaq National Market System.
GENERAL INFORMATION ABOUT THE MEETING
Voting At The Annual Meeting
As of the record date, there were approximately 34,850,497 shares of the
Company's common stock outstanding and entitled to vote. Each share of common
stock entitles the holder to one vote on all matters presented at the 2001
Annual Meeting.
The presence at the meeting, in person or by proxy, of at least a majority
of the outstanding shares of common stock entitled to vote is necessary to
constitute a quorum to transact business at the 2001 Annual Meeting. The
affirmative vote of a plurality of the shares of common stock represented at
the 2001 Annual Meeting, in person or by proxy, is necessary for the election
of directors. Stockholders will determine any other matters submitted to them
by a majority of the votes present or represented by proxy and entitled to
vote,
provided that, in the case of the proposal to increase the number of shares
authorized under the Triad Hospitals, Inc. Outside Directors Stock and
Incentive Compensation Plan, the total votes cast on the proposal represents at
least a majority of the outstanding shares of common stock entitled to vote at
the 2001 Annual Meeting.
A stockholder who is present or represented by proxy at the 2001 Annual
Meeting will be counted for purposes of determining if a quorum exists even if
the stockholder abstains from voting. Votes withheld from the election of any
nominee for director and abstentions from any other proposal will not be
counted in the number of votes cast on any matter. If a broker does not receive
voting instructions from the beneficial owner of shares on a particular matter
and indicates on the proxy that it does not have discretionary authority to
vote on that matter, those shares will be considered as present and entitled to
vote with respect to that matter, but will not be counted in the number of
votes cast "for" or "against" the matter.
Shares of common stock represented by properly executed proxies will be
voted at the 2001 Annual Meeting according to the directions marked on the
proxies, unless they have previously been revoked. If the stockholders do not
give directions on the proxies, the proxy holder will vote them for the
election of each nominee named under "Election of Directors," for the
ratification of Ernst & Young LLP as our independent auditors, and for the
approval of the amendment to increase the number of shares authorized under the
Triad Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan.
Stockholders can vote their shares:
. through the Internet at the website shown on the proxy card;
. by telephone using the toll-free number shown on the proxy card;
. by returning the enclosed proxy card; or
. in person at the 2001 Annual Meeting.
Votes submitted through the Internet or by telephone must be received by
11:59 P.M., Eastern Time, on May 28, 2001. Internet and telephone voting are
available 24 hours a day, and a stockholder that uses one of these methods does
not need to return a proxy card. Voting in person at the meeting supersedes any
earlier voting instructions.
The beneficial owner of shares held in "street name" by a broker, bank or
other nominee is entitled to instruct the broker, bank or nominee, as the
record holder of the shares, how to vote those shares. The broker, bank or
nominee should have enclosed a voting instruction card to use in directing it
on how to vote such shares.
A stockholder may change his or her voting instructions at any time prior to
the vote at the 2001 Annual Meeting. For shares held directly, a vote may be
changed by granting a new proxy, through the Internet, by telephone or in
writing, which bears a later date (thereby automatically revoking the earlier
proxy) or by attending the 2001 Annual Meeting and voting in person. The proxy
holder's powers will be suspended if you attend the meeting in person and so
request, although attendance at the meeting will not by itself revoke a
previously granted proxy. For shares beneficially owned by a stockholder, but
held in "street name" by a broker, bank or other nominee, a vote may be changed
by submitting new voting instructions to the broker, bank or nominee.
Solicitation Expenses
Expenses in connection with the solicitation of proxies will be borne by
Triad. Brokers, custodians and fiduciaries will be requested to transmit proxy
material to the beneficial owners of common stock held of record by such
persons, at Triad's expense. Triad has retained Georgeson Shareholder
Communications Inc. to aid in the solicitation of proxies, and for its services
expects to pay fees of approximately $8,000 plus expenses.
2
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the ownership of
Triad's common stock by persons known by Triad to own more than 5% of its
outstanding common stock, Triad's directors and Triad's executive officers. The
stock ownership information presented in the table for Triad's directors and
executive officers is as of March 31, 2001. All other stock ownership
information is based on filings with the Securities and Exchange Commission
("SEC") that report stock ownership information as of December 31, 2000. The
table does not reflect the issuance of approximately 36.3 million shares of
Triad common stock in the Merger. After giving effect to such issuance, Triad
estimates that A I M Management Group, Inc., A I M Advisors, Inc. and A I M
Capital Management, Inc. would beneficially own approximately 5.1% of the
outstanding shares of Triad common stock. No other person listed below is
expected to beneficially own more than 5% of the outstanding shares of Triad
common stock after the Merger. In addition, Russell L. Carson, who is expected
to become a director of Triad after the merger, will beneficially own
approximately 12% of the outstanding shares of Triad common stock (including
shares owned by Welsh, Carson, Anderson & Stowe VIII, L.P., which he is deemed
to beneficially own pursuant to SEC rules and regulations).
Number of Percent of
Name of Beneficial Owner Shares(1)(2) Class
------------------------ ------------ ----------
Triad Hospitals, Inc. Retirement Savings Plan ........ 2,986,825 8.6%
A I M Management Group Inc., A I M Advisors, Inc., and
A I M Capital Management, Inc. (3)................... 3,599,800 10.3%
Barbara A Durand, R.N., Ed. D. (4).................... 5,926 *
Thomas F. Frist III (4)............................... 328,263 *
Donald B. Halverstadt, M.D (4)........................ 5,463 *
Dale V. Kesler (4).................................... 8,246 *
Thomas G. Loeffler, Esq. (4).......................... 8,991 *
Michael J. Parsons (4) ............................... 217,020 *
Uwe E. Reinhardt, Ph.D (4)............................ 6,500 *
Marvin T. Runyon (4).................................. 8,991 *
Gale E. Sayers (4).................................... 8,426 *
James D. Shelton (4).................................. 730,210 2.1%
Nicholas J. Marzocco (4) ............................. 98,856 *
Wayne G. McAlister (4) ............................... 72,047 *
Burke W. Whitman (4) ................................. 294,413 *
All Directors and Executive Officers as a Group (17
persons)(4).......................................... 2,155,538 6.2%
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* Less than one percent.
(1) Unless otherwise indicated, each stockholder shown on the table has sole
voting and investment power with respect to the shares beneficially owned.
The number of shares shown does not include the interest of certain persons
in shares held by family members in their own right.
(2) Each named person or group is deemed to be the beneficial owner of
securities which may be acquired within 60 days through the exercise or
conversion of options, warrants and rights, if any, and such securities are
deemed to be outstanding for the purpose of computing the percentage
beneficially owned by such person or group. Such securities are not deemed
to be outstanding for the purpose of computing the percentage beneficially
owned by any other person or group. Accordingly, the indicated number of
shares includes shares issuable upon conversion of convertible securities
or upon exercise of options (including employee stock options) held by such
person or group.
(3) The ownership given for A I M Management Group Inc., A I M Advisors, Inc.,
and A I M Capital Management, Inc. is based on information contained in the
Schedule 13G/A dated March 9, 2001, filed with the Commission by AIM
Management Group, Inc. in respect of its beneficial ownership of Triad
Hospitals, Inc. common stock. The address of A I M Management Group, Inc.
is 11 Greenway Plaza, Suite 100, and Houston, Texas 77046.
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(4) Of the shares reported for Drs. Durand, Halverstadt and Reinhardt, and
Messrs. Frist, Kesler, Loeffler, Parsons, Runyon, Sayers, Shelton,
Marzocco, McAlister and Whitman 5,000; 5,000; 6,500; 6,500; 6,500; 6,500;
131,366; 6,500; 6,500; 328,555; 52,947; 34,096; and 120,864 shares,
respectively, represent shares that are issuable pursuant to options that
are exercisable within 60 days. Of the shares reported for all directors
and executive officers as a group, 900,521 represent shares that are
issuable pursuant to options exerciseable within 60 days.
PROPOSAL 1--ELECTION OF DIRECTORS
The Company's certificate of incorporation provides that the Board of
Directors is to be divided into three classes of directors, which are required
to be as nearly equal in number as possible. At each annual meeting of
stockholders, one class of directors is elected to a term of three years.
Directors for Class II are to be elected at this 2001 Annual Meeting for three-
year terms expiring in 2004.
Marvin T. Runyon, James D. Shelton, Thomas F. Frist III and Gale E. Sayers
(the "Nominees") have been nominated by the Board of Directors for election as
Class II directors at the 2001 Annual Meeting, each to serve for a term of
three years, until the 2004 Annual Meeting of Stockholders or until his or her
successor is duly elected and qualified.
The Board of Directors recommends a vote "FOR" the election of these
nominees as directors.
Proxies in the enclosed form received from holders of common stock prior to
the 2001 Annual Meeting will be voted for the election of the four nominees
named above as directors of the Company unless stockholders indicate otherwise.
If any of the foregoing nominees is unable to serve for any reason (which event
is not anticipated), the shares represented by the enclosed proxy may be voted
for such other person or persons as may be determined by the holders of such
proxy unless stockholders indicate otherwise. Directors will be elected by the
affirmative vote of a plurality of the shares of common stock present in person
or represented by proxy and entitled to vote at the 2001 Annual Meeting. Thus,
those nominees who receive the four highest numbers of votes for their election
as directors will be elected, regardless of the number of shares that are not
voted for the election of such nominees. Shares with respect to which authority
to vote for any nominee or nominees is withheld will not be counted in the
total number of shares voted for such nominee or nominees.
Information concerning each of the nominees named for election as directors
along with information concerning the Class I and Class III directors, whose
terms of office will continue after the 2001 Annual Meeting, is set forth
below.
4
NOMINEES FOR ELECTION
CLASS II--TERM WILL EXPIRE IN 2004
MARVIN T. RUNYON Director since 1999 Age 76
Marvin T. Runyon served as the 70th Postmaster General of the United States
from 1992 through 1998. Mr. Runyon was Chairman of the Board of the Tennessee
Valley Authority from 1988 to 1992 and President and Chief Executive Officer of
Nissan Motor Manufacturing Corporation U.S.A. prior thereto. Mr. Runyon is a
Director of Stamps.com and several private entities.
JAMES D. SHELTON Director since 1999 Age 47
James D. Shelton has served as Chairman of the Board, President and Chief
Executive Officer of Triad since the date of the Company's spin-off from HCA--
The Healthcare Company("HCA"), then known as Columbia/HCA Healthcare
Corporation, on May 11, 1999 (the "Spin-Off"). From January 1, 1998 through May
11, 1999, he served as the President of the Pacific Group of HCA. Prior to that
time, Mr. Shelton served as President of the Central Group of HCA from June
1994 until January 1, 1998; Executive Vice President of the Central Division of
National Medical Enterprises, Inc. (now known as Tenet Healthcare Corporation)
from May 1993 to June 1994; and Senior Vice President of Operations of National
Medical Enterprises, Inc. prior thereto.
THOMAS F. FRIST III Director since 1999 Age 32
Thomas F. Frist III is the Co-founder of FS Partners, LLC, a private
investment firm formed in 1994. Prior to such time, he was assistant to a
principal at Rainwater, Inc., a private investment firm.
GALE E. SAYERS Director since 1999 Age 57
Gale E. Sayers is President and CEO of Sayers, a valued-added technology
provider, that he co-founded in 1984. Mr. Sayers manages Sayers and Sayers
Enterprises, a sport marketing and public relations firm. Mr. Sayers is a
director of American Century Mutual Funds.
DIRECTORS CONTINUING IN OFFICE
CLASS I--TERM WILL EXPIRE IN 2003
DALE V. KESLER Director since 1999 Age 62
Dale V. Kesler served as a partner at Arthur Andersen LLP until April 1996
and as Managing Partner of Arthur Andersen's Dallas/Fort Worth office from 1983
to 1994. Mr. Kesler is a director of CellStar Corporation, Elcor Corporation,
New Millenium Homes and Resource Services, Inc.
BARBARA A. DURAND, R.N., Ed.D.
Director since 2000 Age 63
Barbara A. Durand, R.N. has served as Professor and Dean of the Arizona
State University College of Nursing since 1993. Prior to such time, she was
Professor and Chairperson in the Department of Maternal-Nursing, Rush
University, Rush-Presbyterian-St. Luke's Medical Center. Dr. Durand is a fellow
of the American Academy of Nursing.
DONALD B. HALVERSTADT, M.D.
Director since 1999 Age 66
Donald B. Halverstadt, M.D. has served as Chief, Pediatric Urology Service,
Children's Hospital of Oklahoma, University of Oklahoma Health Science Center,
since 1967. He is also the Chairman of the University Board of Regents. Dr.
Halverstadt is a member of the corporate board of trustees of the Presbyterian
Health Foundation and the board of directors of Lincoln National Bank.
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CLASS III--TERM EXPIRES IN 2002
MICHAEL J. PARSONS Director since 1999 Age 45
Michael J. Parsons has served as Executive Vice President and Chief
Operating Officer and a Director of Triad since May 11, 1999. From January 1,
1998 through May 11, 1999, he served as the Chief Operating Officer of the
Pacific Group of HCA. Prior to that time, Mr. Parsons served as Chief Financial
Officer of the Central Group of HCA from July 1994 until January 1, 1998; and
Chief Financial Officer of the Central Group of National Medical Enterprises,
Inc. prior thereto.
THOMAS G. LOEFFLER, Esq. Director since 1999 Age 54
Thomas G. Loeffler, Esq. has served as a Partner at the law firm of Arter &
Hadden LLP since June 1993; he was an attorney and a consultant prior thereto.
Mr. Loeffler served as a member of the U.S. Congress from 1979 to 1987. Mr.
Loeffler is a Director of New Century Equity Holdings Corp., is Chairman of the
Board of Regents of the University of Texas System and serves as a member of
the Board of Directors of the University of Texas School of Law Foundation.
UWE E. REINHARDT, PH.D. Director since 1999 Age 61
Uwe E. Reinhardt, Ph.D. is the James Madison Professor of Political Economy
and Professor of Economics and Public Affairs at Princeton University. Mr.
Reinhardt is a Trustee of Duke University Health Center, H&Q Healthcare
Investors and H&Q Life Sciences Investors, a Member of the Board of the Center
for Healthcare Strategies, Inc. and a Member of the External Advisory Panel for
Health, Nutrition and Population, The World Bank.
DIRECTORS TO BE APPOINTED UPON COMPLETION OF THE MERGER
The Merger was scheduled to close on or about April 27, 2001 at the time
this proxy statement was printed. If the Merger is completed, the Company
expects that Russell L. Carson and James E. Dalton will thereafter serve as
directors. Mr. Carson will serve as a Class III director and Mr. Dalton will
serve as a Class I director. Information concerning Messrs. Carson and Dalton
is set forth below.
RUSSELL L. CARSON Age 57
Russell L. Carson was Chairman of the Board of Quorum from July 1989 until
the Merger. 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. Age 58
James E. Dalton, Jr. was President, Chief Executive Officer and a director
of Quorum from May 1, 1990 until the Merger. Prior to joining Quorum, 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,
Select Medical Corporation, and U.S. Oncology, Inc. Mr. Dalton is a Fellow of
the American College of Healthcare Executives.
6
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 5 meetings in 2000. Each director attended at
least seventy-five percent of the aggregate of (a) all meetings of the Board of
Directors and (b) all meetings of the committees of the Board of Directors on
which such director served.
The Board of Directors has a number of standing committees, including an
Executive Committee, an Audit and Compliance Committee, a Quality Committee and
a Compensation Committee. The Board of Directors does not have a standing
nominating committee, but rather acts as a committee of the whole to screen
candidates to be nominated for election thereto by the stockholders or chosen
to fill newly created directorships or vacancies on the Board of Directors.
The Executive Committee may exercise certain powers of the Board of
Directors regarding the management and direction of the business and affairs of
the Company when the Board of Directors is not in session. All action taken by
the Executive Committee is reported to and reviewed by the Board of Directors.
The members of the Executive Committee are Mr. Loeffler, Mr. Kesler and Mr.
Shelton, with Mr. Shelton serving as Chair. The Executive Committee held one
meeting in 2000.
The Audit and Compliance Committee of the Board of Directors reviews and
makes reports and recommendations to the Board of Directors with respect to the
selection of the independent auditors of the Company and its subsidiaries, the
arrangements for and the scope of the audits to be performed by them and the
internal audit activities, accounting procedures and controls of the Company,
and reviews the annual consolidated financial statements of the Company. The
Committee also monitors adherence to the Company's regulatory compliance
program. The members of the Audit and Compliance Committee are Dr. Reinhardt,
Mr. Kesler and Mr. Runyon, with Mr. Kesler serving as Chair. The Audit and
Compliance Committee held 13 meetings in 2000; certain of these meetings
related principally to the committee's compliance function.
The Quality Committee of the Board of Directors is responsible for reviewing
the quality of services provided to patients at various health care facilities
operated by the Company's subsidiaries. The members of the Quality Committee
are Mr. Parsons, Dr. Durand and Dr. James Magary, president of the Company's
National Physician Leadership Group, in an ex officio capacity. The Quality
Committee held 4 meetings in 2000.
The Compensation Committee of the Board of Directors is responsible for
approving compensation arrangements for executive management of the Company,
reviewing compensation plans relating to officers, grants of options and other
benefits under the Company's employee benefit plans and reviewing generally the
Company's employee compensation policy. The members of the Compensation
Committee are Mr. Sayers, Mr. Frist, Dr. Halverstadt and Mr. Loeffler, with Mr.
Loeffler serving as Chair. The Compensation Committee held 4 meetings in 2000.
COMPENSATION OF DIRECTORS
The annual retainer for outside directors who are neither officers nor
employees of the Company is $18,000 and the Board meeting fee is $1,500 per
meeting. Committee members receive a fee of $500 per meeting payable only for
attendance at committee meetings not held in conjunction with a meeting of the
Board of Directors. Directors also are reimbursed for expenses incurred
relating to attendance at meetings. Outside directors may elect to receive
deferred stock units convertible into common stock, in lieu of all or a
portion, in multiples of 25%, of their annual retainer. The payout of deferred
stock units may be deferred, at the outside director's election, for a period
of five years or until the end of such director's term of office.
New outside directors are awarded an initial option to acquire a number of
shares of common stock determined by the Board of Directors. In addition, each
outside director receives an annual option to acquire a number of shares of
common stock determined by the Board of Directors. Discretionary options may
also be
7
awarded by the Board of Directors to the outside directors. Initial options and
annual options become exercisable as to 25% of the shares covered by the option
on each of the four first anniversaries of the date of the grant. All options
have a maximum term of 10 years, are exercisable at the fair market value of
the common stock on the date of the grant, and become immediately exercisable
upon a change of control of Triad. On May 23, 2000, each of the six continuing
outside directors received an annual option grant covering 6,000 shares of
Triad common stock, and Drs. Durand and Halverstadt, as new directors, each
received an option grant covering 20,000 shares of Triad common stock, at an
exercise price of $19.4375 per share.
The Merger will constitute a "change of control" under the terms of the
Triad Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan.
Therefore, the outstanding and unvested stock options held by Triad directors
will become fully vested and exercisable at the effective time of the Merger.
The aggregate number of unvested options held by the non-employee directors of
Triad that will become fully vested and exercisable as result of the Merger is
approximately 166,000 shares, having a value of approximately $2,070,520. The
value is based on the closing price of a share of Triad common stock on the
Nasdaq National Market System on April 20, 2001 ($26.97), reduced by the per
share exercise price of the options (and assumes that the Merger is consummated
not later than May 23, 2001).
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
BURKE W. WHITMAN, age 45, has served as Executive Vice President, Chief
Financial Officer and Treasurer of the Company since May 11, 1999. From
February 1, 1999 through May 11, 1999, he served as Chief Financial Officer of
the Pacific Group of HCA. From May 1994 until January 31, 1999, he served as
President, Chief Financial Officer, Director and Co-founder of Deerfield
Healthcare Corporation. Prior to such time, Mr. Whitman served as Vice
President, Development and Finance of Almost Family, Inc., a wholly-owned
subsidiary of Caretenders Healthcorp.
DONALD P. FAY, age 57, has served as Executive Vice President, Secretary and
General Counsel of the Company since May 11, 1999. From January 1, 1998 through
May 11, 1999, he served as Senior Vice President of the Pacific Group of HCA.
Prior to that time, Mr. Fay served as Vice President--Legal of HCA from
February 1994 through December 1997, and Senior Counsel of HCA prior thereto.
CHRISTOPHER A. HOLDEN, age 37, has served as a Senior Vice President of the
Company since May 11, 1999. From January 1, 1998 through May 11, 1999, he
served as President--West Division of the Pacific Group of HCA. Prior to such
time, Mr. Holden was President of the West Texas Division of the Central Group
of HCA from September 1997 until January 1, 1998; Vice President of
Administration for the Central Group of HCA from August 1994 until September
1997; and Assistant Vice President--Administration of the Central Group of
National Medical Enterprises, Inc. prior thereto.
NICHOLAS J. MARZOCCO, age 46, has served as a Senior Vice President of the
Company since May 11, 1999. From January 1, 1998 through May 11, 1999, he has
served as President--East Division of the Pacific Group of HCA. Prior to that
time, Mr. Marzocco served as Chief Operating Officer of the Louisiana Division
of HCA from September 1996 until January 1, 1998; and Chief Executive Officer
of North Shore Regional Medical Center, a 310-bed hospital owned by National
Medical Enterprises, Inc. and located in Slidell, Louisiana, prior thereto.
G. WAYNE MCALISTER, age 54, has served as a Senior Vice President of the
Company since May 11, 1999. From March 15, 1999 through May 11, 1999, he served
as President--Central Division of the Pacific Group of HCA. Prior to such time,
Mr. McAlister was an independent senior hospital management consultant from
June 1997 until March 15, 1999; Regional Vice President of Paracelsus
Healthcare Corporation from June 1995 until May 1997; Vice President,
Operations, of Tenet Healthcare Corporation from August 1993 until May 1995;
and President/Chief Operating Officer and Vice President of Operations of
Healthcare International from February 1988 until November 1992.
8
W. STEPHEN LOVE, age 49, has served as Senior Vice President of Finance and
the Controller of the Company since May 11, 1999. From March 1, 1999 through
May 11, 1999, he served as Senior Vice President of Finance/Controller of the
Pacific Group of HCA. Prior to that time he served as Senior Vice President/
Corporate Chief Financial Officer--Operations of Charter Behavioral Health
Systems, L.L.C. (formerly Charter Medical System) from December 1997 until
March 1, 1999; Senior Vice President/Corporate Chief Financial Officer of
Charter Behavioral Health Systems, L.L.C. from June 1997 until December 1997;
and Vice President, Financial and Hospital Operations of Charter Medical System
prior thereto.
WILLIAM R. HUSTON, age 46, has served as Senior Vice President of Finance of
the Company since May 11, 1999. From January 1999 through May 11, 1999, he
served as Senior Vice President of Finance of the Pacific Group of HCA. Prior
to that time he served as Division Chief Financial Officer of various divisions
of the Central Group of HCA from April 1995 to December 1998; and Division
Chief Financial Officer of Tenet Healthcare Corporation prior thereto.
EXECUTIVE OFFICERS TO BE APPOINTED UPON COMPLETION OF THE MERGER
The Merger was scheduled to close on or about April 27, 2001 at the time
this proxy statement was printed. If the Merger is completed, the Company
expects that William L. Anderson and Marcia D. Powers, who are currently
officers of Quorum, will thereafter serve as executive officers of Triad.
WILLIAM L. ANDERSON, age 51, is presently President, Midwest Region of
Quorum and, after the Merger, is expected to become a Division President of
Triad. He has served as President, Midwest Region of Quorum since October 1997.
From September 1995 until October 1997, he served as Chief Executive Officer of
Lutheran Hospital of Indiana (a 437-bed hospital owned by Quorum and situated
in Fort Wayne, Indiana). From September 1987 until September 1995, he served as
Chief Executive Officer of Medical Center of Baton Rouge (a 371-bed hospital
then owned by Healthtrust, Inc. and situated in Baton Rouge, Louisiana).
MARCIA D. POWERS, age 47, is presently President, Southwest Region, of
Quorum and, after the Merger, is expected to become a Division President of
Triad. She has served as President, Southwest Region, for Quorum since March
1996. From January 1994 through March 1996, she served as Vice President,
Physician/Hospital Integration, of Quorum. From May 1989 through December 1993,
she served as Chief Executive Officer of Fort Bend Hospital (a 65-bed hospital
then owned by Epic Healthcare Group, Inc. and situated in Missouri City,
Texas).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Triad's
executive officers and directors, and persons who own more than ten percent of
the outstanding common stock of the Company, to file reports of ownership and
changes in ownership with the SEC and to provide Triad with copies of these
reports. To the Company's knowledge, based solely on its review of the copies
of such reports furnished to the Company and representations that no other
reports were required, all Section 16(a) filing requirements applicable to all
of its executive officers, directors and greater than ten-percent stockholders
were complied with during fiscal 2000, except that certain executive officers
inadvertently reported late de minimis sales of Triad common stock made on
their behalf by a third party to satisfy certain income tax withholding
obligations. Each of Messrs. Shelton, Parsons and Huston inadvertently reported
three such transactions late, Mr. Marzocco reported two such transactions late
and Mr. Fay reported one such transaction late.
9
EXECUTIVE COMPENSATION
The information under this heading relates to the chief executive officer
and the four other most highly compensated executive officers of the Company
serving as executive officers at the end of 2000, and reflects compensation
paid by the Company or, prior to the Spin-Off on May 11, 1999, by HCA.
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
----------------------------------- -----------------------
Other Restricted Securities All
Annual Stock Underlying Other
Name and Principal Salary Bonus Compensation Awards Options/SARS Compensation
Position Year ($) (1) ($) (2) (3) ($) (4) (#) (5)
------------------ ---- -------- -------- ------------ ---------- ------------ ------------
James D. Shelton........ 2000 $670,900 $353,154 $ -- $ -- 206,909 $ --
Chairman, President and 1999 614,528 245,884 -- -- 643,128 5,448
Chief Executive Officer 1998 529,125 -- -- 124,490 -- 9,448
Michael J. Parsons...... 2000 415,533 130,589 -- 28,712 103,455 --
Executive Vice
President and 1999 374,039 129,976 -- 13,926 296,482 2,505
Chief Operating Officer 1998 309,375 -- -- 37,493 -- 7,561
Burke W. Whitman........ 2000 385,979 125,566 -- 58,932 103,455 --
Executive Vice
President, 1999 293,754 78,605 -- 28,295 260,000 299
Chief Financial Officer
and Treasurer (6)
Nicholas J. Marzocco.... 2000 321,601 76,410 -- 29,538 41,832
Senior Vice President 1999 303,026 87,281 -- 16,216 113,431 4,846
1998 271,688 -- 34,488 51,745 -- 7,224
G. Wayne McAlister...... 2000 312,979 98,888 -- 19,028 41,382 --
Senior Vice President
(7) 1999 237,661 63,366 124,330 26,116 72,500 --
--------
(1) 1998 salary amounts do not include the value of restricted stock awards
granted in lieu of a portion of annual salary.
(2) Reflects bonus earned during the fiscal year. In some instances, all or a
portion of the bonus was paid during the following fiscal year. Each of the
executive officers identified in the table had the option to take all or
part of their 1998 bonus in shares of HCA restricted stock at a 25%
discount from the fair market value at the time of grant, which is
reflected in the Restricted Stock Awards column.
(3) The amounts reported for Mr. McAlister in 1999 and Mr. Marzocco in 1998
include relocation expenses and amounts paid for reimbursement of taxes in
respect of such amounts of $124,330 and $34,488, respectively.
(4) 1998 amounts represent the average of the closing prices of HCA shares
issued pursuant to HCA's amended and restated 1995 management stock
purchase plan in lieu of a portion of annual salary on trading days during
the deferral period. 1999 and 2000 amounts represent the dollar value of
the difference between amounts paid by the executive officer to purchase
shares of Triad common stock under Triad's Management Stock Purchase Plan
and the value of the purchased Triad common stock on the date of purchase.
As of December 31, 2000, Messrs. Shelton, Parsons, Whitman, Marzocco and
McAlister held an aggregate of 400,000; 83,413; 167,067; 43,650 and 33,154
shares of restricted Triad common stock, respectively. Pursuant to
Commission rules, after deducting the consideration paid therefor, the
shares held by Messrs. Shelton, Parsons, Whitman, Marzocco and McAlister
had a net pre-tax value of $9,278,000; $1,966,716; $3,941,302; $1,044,144
and $796,680, respectively. Dividends will be payable on shares of
restricted stock if and to the extent paid on Triad's common stock
generally, regardless of whether or not the shares are vested. The Merger
will constitute a "change of control" under the terms of the Triad
Hospitals, Inc. Executive Stock Purchase Plan, pursuant to which these
shares of restricted stock were purchased. Upon consummation of the Merger,
the restrictions will lapse and these shares will be fully vested and
transferable and no longer subject to forfeiture.
(5) Consists of contributions to the savings and investment plan, money
purchase plan and stock bonus plan.
(6) On May 11, 1999, the Company named Mr. Whitman as Executive Vice President,
Chief Financial Officer and Treasurer.
(7) On May 11, 1999, the Company named Mr. McAlister as Senior Vice President.
10
Option/SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------
Percent of
Total
Options/ Potential Realizable Value at
Number of SARs Assumed Annual Rates of Stock
Securities Granted to Price Appreciation for Securities
Underlying Employees Exercise or Option Term (4)
SARS/Options in Fiscal Base Price Expiration ---------------------------------
Name (#)(1) Year ($/sh) (2)(3) Date 5% ($) 10%($)
---- ------------ ---------- ------------- ---------- ---------------------------------
James D. Shelton........ 206,909 10.22% $17.07 4/28/10 $ 2,221,216 $ 5,628,997
Michael J. Parsons...... 103,455 5.11% 17.07 4/28/10 1,110,613 2,814,512
Burke W. Whitman........ 103,455 5.11% 17.07 4/28/10 1,110,613 2,814,512
Nicholas J. Marzocco.... 41,382 2.04% 17.07 4/28/10 444,245 1,125,805
G. Wayne McAlister...... 41,382 2.04% 17.07 4/28/10 444,245 1,125,805
--------
(1) Options to acquire Triad common stock.
(2) The option exercise price may be paid in shares of Triad common stock owned
by the executive officer, in cash, or a combination thereof.
(3) The options become exercisable with respect to 25% of the shares covered
thereby on the first, second, third and fourth anniversary dates following
the date of grant. The exercise price was equal to the fair market value of
the Triad common stock on the date of the grant.
(4) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Triad common stock over the term of the options. These
amounts do not take into account provisions of the options relating to
termination of the option following termination of employment, non-
transferability or vesting over periods of up to four years.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs at Fiscal Year Money Options/SARs at Fiscal
End (#) Year-End($)
------------------------------ ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable(1)
---- ------------- -------------- ----------- ----------------
James D. Shelton........ 276,828 573,209 $6,121,095 $11,238,048
Michael J. Parsons...... 105,502 294,435 2,274,384 5,688,307
Burke W. Whitman........ 95,000 268,455 2,128,200 5,204,918
Nicholas J. Marzocco.... 42,601 112,212 925,502 2,163,624
G. Wayne McAlister...... 23,750 90,132 523,378 1,690,878
--------
(1) The closing price for the Triad common stock, as reported by the NASDAQ, on
December 31, 2000 was $32.56 per share. Value is calculated on the basis of
the difference between the option exercise price and $32.56 per share,
multiplied by the number of shares of Triad common stock underlying the
option. The Merger will constitute a "change of control" under the terms of
the Triad Hospitals, Inc. 1999 Long-Term Incentive Plan, pursuant to which
the options reflected in the table were granted. Upon consummation of the
Merger, all of these options will become vested and exercisable. The
vesting of certain of these options has been waived, which waiver will
lapse upon receipt of a supplemental private letter ruling relating to
private letter rulings previously issued to HCA; the previous letter
rulings relate to the tax treatment of the spin-off of Triad and LifePoint
Hospitals, Inc. from HCA and the restructuring transactions that preceded
the spin-off.
11
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS
AND CHANGE IN CONTROL ARRANGEMENTS
None of the executive officers of the Company is subject to any employment
contract. All employees of the Company participate in the Company's severance
policy, under which, in certain circumstances, an employee whose employment
with the Company is involuntarily terminated may receive as a severance benefit
of up to 52 weeks of salary.
CERTAIN TRANSACTIONS
Triad made loans to certain executive officers in connection with such
officers' initial purchases of Triad common stock under the Triad executive
stock purchase plan, the principal balances as of the date hereof are as
follows: Mr. Shelton, $3,746,000; Mr. Parsons, $749,200; Mr. Marzocco,
$377,100; Mr. Holden, $377,100; Mr. Fay, $377,100; Mr. Huston, $377,100; Mr.
Love, $374,600; Mr. McAlister, $282,825; and Mr. Whitman, $1,498,400. Each loan
matures at the earlier of (i) the fifth anniversary of the loan, (ii) the
termination of the executive's employment with Triad, or (iii) the bankruptcy
of the executive. Each loan bears interest at 5.15%, compounded semi-annually
(equal to the applicable Federal rate in effect, under section 1274(d) of the
Internal Revenue Code of 1986, as amended, as of the date the loan was made).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation for the Company's executives are made by the
Compensation Committee of the Board of Directors. Each member of the
Compensation Committee is a non-employee director. No member of the
Compensation Committee is a current or former employee or officer of the
Company or any of its affiliates. The Compensation Committee is responsible for
approving compensation arrangements for executive management of the Company,
reviewing compensation plans relating to officers, grants of options and other
benefits under the Company's employee benefit plans and reviewing generally the
Company's employee compensation policy. Pursuant to certain rules of the
Securities and Exchange Commission designed to enhance disclosure of corporate
policies toward executive compensation, set forth below is a report submitted
by the Compensation Committee.
Compensation Philosophy and Policies of Executive Officers
The Company believes that the most effective executive compensation program
aligns the interests of stockholders and executives. The Company's primary
objective is to provide quality health care services while enhancing the
financial performance of the Company and long-term stockholder value. At the
Company there is a strong link between strategic business goals and
compensation and benefit goals.
Cash Compensation
The base salaries of the named executive officers are listed in the Summary
Compensation Table found under "Executive Compensation" in this Proxy
Statement. These salaries and the salaries of other executive officers are
evaluated annually. In determining appropriate salary levels and salary
increases, several factors are considered, including individual performance,
experience, level of responsibility and external pay practices.
The Triad Annual Incentive Plan provides for the payment of annual cash
bonuses following the close of each plan year to eligible employees based upon
the achievement of objective performance criteria. Annual incentive award
opportunities at the Company are designed to focus management attention on key
operational goals deemed important for the upcoming fiscal year, and to support
the Company's strategic goal for consistent growth by highlighting corporate
and business unit earnings as the main performance measure affecting incentive
bonus payments. Bonus awards are contingent upon meeting or exceeding certain
performance goals such as, for corporate office employees, attainment of the
Company's budgeted earnings before interest, taxes, depreciation and
amortization, and for hospital employees, additional attainment of budgeted
facility cash flow and target patient and physician satisfaction goals for such
plan year. The
12
Compensation Committee determines the participants and sets the target bonus
levels prior to the beginning of each year. The maximum award payable to any
individual for any plan year is $750,000.
Equity-Based Compensation
Equity based compensation may be provided in the form of stock options,
performance awards and restricted shares of common stock.
Stock option grants provide an incentive that focuses the executive's
attention on managing the business of our company from the perspective of an
owner with an equity stake in the business and helps ensure that operating
decisions are based on long-term results that benefit the business and
ultimately our stockholders. Specifically, the option grants to executive
officers provide the right to purchase shares of common stock at the fair
market value on the date of the grant. Usually, each stock option becomes
vested and exercisable only over a period of time, generally one to five years.
The number of shares covered by each grant reflects the executive's level of
responsibility and past and anticipated contributions.
Triad has granted stock options to certain of its executive and other
employees pursuant to its 1999 Long-Term Incentive Plan, as amended. The plan
also provides for the granting of restricted stock awards and various other
performance awards; however, Triad has not granted any of such other awards
under the plan.
Finally, certain officers may elect to receive up to a specified percentage
of their base salary (25% for senior vice presidents and above, and 10% for
corporate vice presidents and hospital chief executive officers) in restricted
shares of common stock. These restricted shares are granted at a 25% discount
from the fair market value of the common stock on the date of the grant. The
restricted period is generally three years from the date of grant. With certain
exceptions, if employment is terminated during the restricted period, the
employee receives a cash payment equal to the lesser of (a) the then-current
fair market value of the restricted shares or (b) the aggregate salary foregone
by the employee as a condition to receiving the restricted shares. Any
additional value is forfeited.
Chief Executive Officer Compensation
Mr. Shelton does not have an employment contract. During 2000 Mr. Shelton's
salary totaled $670,900. As Chief Executive Officer, Mr. Shelton's compensation
during 2000 consisted of the same components as for other executive officers,
namely base salary, Annual Incentive Plan bonus, and stock options. In
establishing Mr. Shelton's compensation, the Committee applied the principles
outlined above in the same manner as they were applied to other executives. The
Committee believes that the base salary paid to Mr. Shelton in 2000 was
appropriate in light of his significant critical contributions to the day-to-
day business operations of the Company, including the continued improvement in
the operations of the Company's "core" healthcare facilities, and Mr. Shelton's
leadership in formulating the Merger transaction and in negotiating the
definitive Merger agreements.
Section 162(m) of the Internal Revenue Code of 1986
The Revenue Reconciliation Act of 1993 added Section 162(m) to the Internal
Revenue Code of 1986, as amended. Section 162(m), which became effective for
tax years beginning January 1, 1994, disallows a deduction to the Company for
any compensation paid to a "covered employee" in excess of $1 million per year,
subject to certain exceptions. In general, "covered employees" include the
chief executive officer and the four other most highly compensated executive
officers of the Company who are in the employ of the Company and are officers
at the end of the tax year. Among other exceptions, the deduction limit does
not apply to compensation that meets the specified requirements for
"performance-based compensation." Those requirements include the establishment
of objective performance goals by a committee of the Board of
13
Directors composed solely of two or more outside directors, stockholder
approval of the material terms of the performance goals under which the
compensation is to be paid prior to payment of such compensation, and
certification by the committee that the performance goals have been achieved.
While the Compensation Committee believes that the Company should seek to
obtain maximum deductibility of compensation paid to executive officers, the
Compensation Committee also believes that the interests of the Company and its
stockholders are best served by assuring that appropriate compensation
arrangements are established to retain and motivate executive officers.
Because the Company establishes individual compensation based primarily upon
company performance and competitive considerations, executive officer
compensation may exceed $1 million in a given year. No executive officer whose
compensation is subject to this limit on deductibility was considered to
receive, for 2000 federal income tax purposes, base salary and other non
performance-based compensation in excess of $1 million.
Thomas G. Loeffler, Esq., Chairman
Thomas F. Frist III
Gale E. Sayers
Donald B. Halverstadt, M.D.
Members of the Compensation
Committee
14
PERFORMANCE GRAPH
The following graph compares at the end of 2000 the cumulative total
stockholder return on the Company's common stock, the cumulative total return
of the companies on the Standard & Poor's Midcap 400 Index (the "S&P Midcap
400") and the cumulative total return on the Standard and Poor's Hospital
Management Index (the "Hospital Index") over the same period.
[PERFORMANCE GRAPH]
FISCAL YEAR ENDING
-----------------------------------
COMPANY/INDEX/MARKET 5/07/1999 12/31/1999 12/29/2000
Triad Hospitals Inc 100.00 144.05 310.12
Health Care Hospital Mgmt 100.00 116.69 189.55
S&P MidCap Index 100.00 113.58 133.47
Note: Base price date is 05/07/1999
The foregoing performance graph assumes the investment of $100 on May 11,
1999 (the first day of regular trading of the common stock of the Company on
the NASDAQ), and the reinvestment of any cash dividend on the ex-dividend date
in respect of such dividend.
AUDIT COMMITTEE REPORT
The members of the Audit and Compliance Committee are independent as defined
in the New York Stock Exchange's listing standards, which provide, among other
things, that directors shall have no relationship with Triad that may interfere
with the exercise of their independence from management and Triad. The Audit
and Compliance Committee Charter is attached to this proxy statement as Exhibit
A.
The Audit and Compliance Committee has reviewed and discussed with
management Triad's audited financial statements as of December 31, 2000.
The Audit and Compliance Committee has discussed with Ernst & Young LLP,
Triad's independent auditors, the matters required to be discussed by Statement
on Auditing Standards No. 61, "Communication with Audit Committees," as
amended, as issued by the Auditing Standards Board of the American Institute of
Certified Public Accountants.
The Audit and Compliance Committee has received and reviewed the written
disclosures and the letter from Ernst & Young LLP required by Independence
Standard No. 1, as adopted by the Independence Standards Board, and has
discussed with Ernst & Young LLP its independence.
15
Based on the review and discussions referred to above, the Audit and
Compliance Committee has recommended to the Board of Directors that the audited
financial statements as of December 31, 2000 be included in Triad's Annual
Report on Form 10-K.
Dale V. Kesler, Chairman
Marvin T. Runyon
Uwe E. Reinhardt, Ph.D
Members of the Audit Committee
PROPOSAL 2--RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent certified
public accountants, as independent auditors for the Company for the year 2001.
A resolution will be submitted to stockholders at the meeting for ratification
of such selection. Although ratification by stockholders is not a prerequisite
to the ability of the Board of Directors to select Ernst & Young LLP as the
Company's independent auditors, the Company believes such ratification to be
desirable. If the stockholders do not ratify the selection of Ernst & Young
LLP, the selection of independent auditors will be reconsidered by the Board of
Directors; however, the Board of Directors may select Ernst & Young LLP
notwithstanding the failure of the stockholders to ratify its selection.
Ernst & Young LLP have been the Company's independent auditors since it
became a publicly traded company on May 11, 1999, except during the period from
November 22, 1999 to November 17, 2000 when PricewaterhouseCoopers LLP served
as the Company's independent auditors.
On November 17, 2000, Triad dismissed PricewaterhouseCoopers LLP and re-
engaged Ernst & Young LLP as its independent auditors. The decision to change
independent auditors was approved by the Audit and Compliance Committee of the
Board of Directors. The report of PricewaterhouseCoopers LLP on the financial
statements for the fiscal year ended December 31, 1999 did not contain an
adverse opinion or disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
Effective as of November 22, 1999, the Company and Ernst & Young LLP agreed
to the resignation of Ernst & Young LLP as the Company's independent auditors.
The decision to change independent auditors was approved by the Board of
Directors and the Audit and Compliance Committee. The report of Ernst & Young
LLP for the fiscal year ended December 31, 1998 did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
During the fiscal years in the period from January 1, 1997 to December 31,
2000, there were no disagreements with either Ernst & Young LLP or
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which if not
resolved to the satisfaction of such independent auditor, would have caused
either of them to make reference to the subject matter of the disagreement(s)
in their respective reports. In addition, during this period, there have been
no "reportable events" as listed in Item 304(a)(1)(v)(A-D) of Regulation S-K.
It is expected that a representative of Ernst & Young LLP will be present at
the meeting, will have an opportunity to make a statement if he or she desires
to do so, and will be available to respond to appropriate questions.
16
The following table summarizes the aggregate fees billed by Ernst & Young
LLP for services rendered for the year ended December 31, 2000:
Audit fees....................................................... $424,825
Financial information systems design and implementation fees..... 5,125
All other fees................................................... 199,914
--------
Total............................................................ $629,864
========
The amount shown for audit fees includes fees for professional services
rendered for the audit by Ernst & Young LLP of Triad's annual financial
statements for 2000 and for 1999 and the reviews by Ernst & Young LLP of
Triad's financial statements included in its Quarterly Reports on Form 10-Q
during 2000.
The Audit and Compliance Committee has considered whether the provision of
information technology and non-audit services are compatible with maintaining
the independence of Ernst & Young LLP.
The Board of Directors recommends a vote "FOR" this proposal.
PROPOSAL 3--AMENDMENT TO THE OUTSIDE DIRECTORS STOCK AND INCENTIVE COMPENSATION
PLAN
Set forth below is a description of the Triad Hospitals, Inc. Outside
Directors Stock and Incentive Compensation Plan, as amended (the "Plan"). The
Plan became effective on May 11, 1999, the date of the Spin-off. The Plan is
designed to encourage ownership of stock in the Company by directors who are
not also employees of the Company or any of its subsidiaries ("Outside
Directors"), to provide an incentive to such directors to continue to serve the
Company, and to aid the Company in attracting qualified director candidates in
the future. On March 23, 2001, the Company's Board of Directors amended the
Plan, subject to stockholder approval, to increase the number of shares of
common stock authorized for issuance under the Plan to 400,000 from 240,000. In
the event stockholder approval is not obtained, the Company will not increase
the number of shares authorized for issuance under the Plan, but awards may
continue to be made under the previously existing terms of the Plan. The Plan
has a term of ten years. A brief description of the material features of the
Plan is set forth below, but is qualified by reference to the full text of the
Plan attached as Exhibit B to this proxy statement.
DESCRIPTION OF THE PLAN
Administration
The Plan is administered by the Board of Directors. The Board of Directors
has broad authority in the administration of the Plan and is authorized, among
other things, to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to exercise all powers and authorities
either specifically granted under the Plan or necessary or advisable in the
administration of the Plan.
Reservation of Shares
On March 23, 2001, the Board of Directors amended the Plan, subject to
stockholder approval, to increase the number of shares of Triad common stock
authorized for issuance under the Plan to 400,000 from 240,000. The shares of
Triad common stock to be issued under the Plan will be made available from
authorized but unissued shares of Triad common stock or issued shares that have
been reacquired by Triad. If an option or a deferred stock unit award under the
Plan is canceled, terminates, expires unexercised or is exchanged for a
different award without the issuance of shares of Triad common stock, the
shares covered by the option or award will, to the extent of such termination
or non-use, again be available for awards thereafter granted during
17
the term of the Plan. In the event of a reorganization, recapitalization, or
other specified corporate events affecting Triad or Triad common stock, the
Board of Directors may make such adjustments or substitutions, as it may
determine is appropriate, in the number and kind of shares that may be
distributed in respect of options or deferred stock units under the Plan, as
well as the number and kind of shares under or representing outstanding options
or deferred stock units under the Plan.
Types of Awards
Four types of awards may be granted to Outside Directors under the Plan:
Initial Options, Annual Options, Discretionary Options and Deferred Stock
Units.
Options. An "Initial Option" is a one-time grant of an option to acquire a
number of shares of Triad common stock as is determined from time to time by
the Board of Directors, and it is given to every new Outside Director who joins
the Triad Board. An "Annual Option" is granted to each person who is an Outside
Director on the first business day of each board term and covers a number of
shares of Triad common stock as is determined from time to time by the Board of
Directors. "Discretionary Options" may be granted to Outside Directors from
time to time at the discretion of the Board of Directors.
The amount of each option is at the discretion of the Board of Directors.
Initial Options and Annual Options become exercisable as to 25% of the shares
covered by the option on each of the first four anniversaries of the date of
the grant. All such options have a term of 10 years, are exercisable at the
fair market value of the Triad common stock on the date of the grant, and
become fully and immediately vested and exercisable upon a change of control of
Triad (as defined in the Plan). Discretionary Options have such terms as to
vesting, exercisability and exercise price as the Board of Directors may
determine at the time of grant, provided that the term of the option may not
exceed 10 years from the grant date and the exercise price of the option may
not be less than the fair market value of Triad common stock on the grant date.
All options granted under the Plan are nontransferable except for certain
limited transfers to family members (as provided in the Plan) for estate
planning, tax planning, donative purposes or pursuant to a domestic relations
order.
Subject to certain terms and conditions, an option may be exercised in whole
or in part at any time during the period permitted for the exercise thereof by
written notice to Triad, together with payment of the exercise price for the
number of shares with respect to which the option is being exercised. Vested
options granted under the Plan will generally remain exercisable for 6 months
after the death or disability of the Outside Director and for 90 days after any
other termination of service as an Outside Director. Upon a change in control
of Triad (as defined in the Plan), each outstanding option will become fully
and immediately vested and exercisable.
Deferred Stock Units. Outside Directors may each elect to receive Deferred
Stock Units, in lieu of all or a portion, in 25% increments, of their annual
retainer. The number of Deferred Stock Units received is determined based on
the fair market value of Triad common stock on the grant date. The grant date
is the first business day of each Board term. Amounts equivalent to any
dividends that would have been paid to Outside Directors in respect of a number
of shares of Triad common stock equal to the number of Deferred Stock Units are
credited under the Plan and converted into additional Deferred Stock Units.
Deferred Stock Units are immediately and fully vested and are paid out, at the
election of the Outside Director, on either the fifth anniversary of the grant
date or on the date the Outside Director ceases to be a member of the Board.
Payment is made in Triad common stock of a number of shares equal to the number
of Deferred Stock Units.
18
FEDERAL INCOME TAX CONSEQUENCES
Stock Options
An Outside Director will not generally recognize taxable income upon the
grant of a nonqualified stock option to purchase shares of Triad common stock.
Upon exercise of the option, the Outside Director will generally recognize
ordinary income for Federal income tax purposes equal to the excess of the fair
market value for the shares over the exercise price. Triad will be entitled to
a Federal income tax deduction equal to the amount of ordinary income
recognized by the Outside Director. The deduction will be allowed at the same
time as the Outside Director recognizes the income.
Deferred Stock Units
An Outside Director who receives Deferred Stock Units will not generally
recognize taxable income upon the crediting or vesting of the units. Taxable
ordinary income will be recognized upon the payment of the Deferred Stock
Units, based on the fair market value at the time of payment of the shares of
Triad common stock received by the Outside Director. Triad will be entitled to
a Federal income tax deduction equal to the amount of ordinary income
recognized by the Outside Director.
New Plan Benefits
The number of options or Deferred Stock Units to be granted in the future to
Outside Directors is not determinable at this time. During 2000, stock options
to purchase an aggregate of 76,000 shares of Triad common stock at an exercise
price of $19.4375 per share were granted under the Plan to Outside Directors,
and Outside Directors elected to receive an aggregate of 5,556 Deferred Stock
Units in lieu of their annual retainers.
The Merger will constitute a "change of control" under the terms of the
Plan. Therefore, the outstanding and unvested stock options held by Outside
Directors will become fully vested and exercisable at the effective time of the
Merger. The aggregate number of unvested options held by Outside Directors that
will become fully vested and exercisable as result of the Merger is
approximately 166,000 shares, having a value of approximately $2,070,520. The
value is based on the closing price of a share of Triad common stock on the
Nasdaq National Market System on April 20, 2001 ($26.97), reduced by the per
share exercise price of the options (and assumes that the Merger is consummated
not later than May 23, 2001).
The Board of Directors recommends a vote "FOR" the approval of the amendment
to the Triad Hospitals, Inc. Outside Directors Stock and Incentive Compensation
Plan.
PROPOSAL 4--ALL OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of the date of this statement, the Board of Directors knows of no
business that will be presented for consideration at the meeting other than
that referred to above. As to other business, if any, that may come before the
meeting, proxies in the enclosed form will be voted in accordance with the
judgment of the person or persons voting the proxies.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Board of Directors will receive at any time and will consider from time
to time suggestions from stockholders as to persons to be nominated by the
Board of Directors for election thereto by the stockholders or to be chosen by
the Board of Directors to fill newly created directorships or vacancies on the
Board of Directors.
19
The Company's bylaws require that there be furnished to the Secretary of the
Company at the Company's principal executive offices written notice with
respect to the nomination of a person for election as a director (other than a
person nominated by or at the direction of the Board of Directors), as well as
the submission of a proposal (other than a proposal submitted by or at the
direction of the Board of Directors), at an annual meeting of stockholders. In
order for any such nomination or submission to be proper, the notice must
contain certain information concerning the nominating or proposing stockholder
and the nominee or the proposal, as the case may be, and must be delivered to
the Secretary of the Company at the Company's principal executive offices not
less than 90 days prior to the first anniversary of the preceding year's annual
meeting of stockholders; provided, however, that if the date of the annual
meeting is advanced more than 30 days prior to or delayed more than 60 days
after such anniversary date, notice by the stockholder to be timely must be
delivered not later than the close of business on the later of the 90th day
prior to such annual meeting or the tenth day following the day on which the
public announcement of the date of such meeting is first made.
In the event that the number of directors to be elected to the Board of
Directors is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of
Directors made by the Company at least 100 days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice required by the
Company's by-laws shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it is delivered not
later than the close of business on the tenth day following the day on which
such public announcement is first made by the Company.
Nominations by stockholders of persons for election to the Board of
Directors may be made at a special meeting of stockholders if the stockholder's
notice required by the Company's by-laws is delivered not later than the close
of business on the later of the 90 days prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
A copy of the applicable by-law provisions may be obtained, without charge,
upon written request to the Secretary of the Company at the Company's principal
executive offices.
In accordance with the rules of the Securities and Exchange Commission, any
proposal of a stockholder intended to be presented at the Company's 2002 Annual
Meeting of Stockholders must be received by the Secretary of the Company before
December 31, 2001 in order for the proposal to be considered for inclusion in
the Company's notice of meeting, proxy statement and proxy relating to the 2002
Annual Meeting, scheduled for Tuesday, May 21, 2002.
By order of the Board of Directors
Donald P. Fay
Executive Vice President, General
Counsel and Secretary
April 30, 2001
A copy of our Annual Report on Form 10-K for the year ended December 31,
2000, excluding certain of the exhibits thereto, is included with this proxy
statement.
20
EXHIBIT A
TRIAD HOSPITALS, INC.
Charter
Audit & Compliance Committee
of the Board of Directors
Purpose
The Audit & Compliance Committee is a committee of the Triad Hospitals, Inc.
Board of Directors. Its function is to assist the Board in fulfilling its
oversight responsibilities by:
. Monitoring the integrity of financial information that will be provided
to the shareholders and others.
. Reviewing areas of potential significant financial risk to the Company
including evaluation of the system of internal controls which management
and the Board of Directors has established.
. Monitoring the independence and performance of the Company's external
auditors and internal auditing function.
. Monitoring the effectiveness of the Company's legal compliance and
ethics programs.
. Reporting on all such matters to the Board of Directors.
Membership & Meetings
. Committee members shall meet the requirements of the New York Stock
Exchange.
. The Committee shall consist of not less than three independent directors
and will meet at least four times each year.
. All members of the Committee shall be financially literate and able to
read and understand fundamental financial statements. At least one
member of the Committee shall have accounting or related financial
management experience.
. The Committee should meet privately in executive session at least
annually with the Vice President of Audit Services, the Vice President
of Compliance, and the independent auditors to discuss any matters that
the Committee or each of these groups believes should be discussed.
Duties & Responsibilities
General
. Consider, in consultation with the external and internal auditors, the
audit scope and plan for the Company.
. Review with management and the external auditors the Company's annual
and quarterly financial results prior to release of earnings. Discuss
certain matters required to be communicated to audit committees in
accordance with Statement of Auditing Standards (SAS) No. 61.
. Review with management, the external auditors and the internal auditors,
significant issues concerning litigation, contingencies, claims, or
assessments and all material accounting issues that require disclosure
in the financial statements. This review should include a discussion of
recent FASB or other regulatory agency pronouncements that have a
material impact on the organization.
. Annually, prepare a report to the shareholders as required by the
Securities and Exchange Commission. The report should be signed by the
chair of the Committee and included in the Company's annual proxy
statement.
A-1
. State in the annual proxy statement that the company's audit committee
has adopted a written charter, and include a copy at least every three
years.
. Provide a report of Committee activities to the Board at regular
intervals.
. Review the Committee charter annually and recommend modifications to the
Board as needed.
Management
. Review with management the "Management's Discussion and Analysis"
section of the annual report to shareholders.
. Monitor instances where management seeks second opinions on significant
accounting matters.
. Review management's evaluation of the adequacy of the organization's
internal control structure and the extent to which significant
recommendations made by the external auditors and the internal auditors
have been implemented.
Internal Auditors
. Review the services provided by the internal auditing function,
including:
. The planned scope for the internal audit program, its objectives,
and the staff required to attain these objectives.
. Reports that detail the activities of the internal auditing
function.
. The working relationship between the internal auditing department
and the external auditors.
. The appointment and termination of the Vice President of Audit Services
(review and approve).
. Provide for periodic quality assurance reviews to ensure that the
internal auditing function is operating in accordance with The Institute
of Internal Auditors, Inc. Standards for the Professional Practice of
Internal Auditing.
Corporate Compliance
. Review the services provided by the Corporate Compliance function,
including:
. The planned scope for the Company's compliance program, its
objectives, and the staff required to attain these objectives.
. Reports that detail the activities of the corporate compliance
function.
. The appointment and termination of the Vice President of Compliance
(review and approve).
. Review the audit results of governmental and regulatory agencies, and
internal and external auditors engaged for specific purposes.
. Monitor compliance with the organization's Code of Conduct, including
compliance by senior management and the Board.
. Direct and supervise an investigation into any matter as deemed
necessary to discharge its duties and responsibilities. In connection
with any such investigation, the Committee shall have the authority to
utilize the internal auditing staff and to employ outside counsel or
consultants at organizational expense.
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External Auditors
. Recommend the external auditing firm for appointment by the Board.
. Review and approve the annual audit fees of the external auditing firm.
. Review the independence of the external auditing firm and management's
evaluation of this independence.
. Review and approve the scope of other professional services performed
(or to be performed) by any independent public accountants as well as
the related fees, and consider the possible effect that these services
could have on the independence of such accountant.
. Discuss with the external auditor the results of its audit from the
preceding year, including:
. A review of the audited financial statements and the memorandum
containing recommendations for improving accounting procedures and
internal controls.
. The adequacy of the organization's internal control structure.
. Management's cooperation with the external auditor.
. The quality of the organization's accounting principles and policies
and underlying estimates when compared to its industry in general.
. A determination that the organization's financial statements
constitute a full and meaningful report to its shareholders and
creditors.
. Ensure that the committee obtains from the external auditors a formal
written statement delineating all relationships between the auditor and
Triad, and its responsibility for discussing with the auditor any
disclosed relationships or services that may impact auditor objectivity
and independence (as set forth in Independence Standards Board No. 1).
. External auditors' ultimate accountability is to the Board and the Audit
& Compliance Committee, which have the ultimate authority and
responsibility to select, evaluate, and, where appropriate, replace the
external auditors.
A-3
EXHIBIT B
TRIAD HOSPITALS, INC.
OUTSIDE DIRECTORS STOCK AND INCENTIVE COMPENSATION PLAN
as amended through April 19, 2001
1. Introduction.
This Plan shall be known as the "Triad Hospitals, Inc. Outside Directors
Stock and Incentive Compensation Plan" and is hereinafter referred to as the
"Plan." The purposes of the Plan are to encourage ownership of stock in the
Company by Outside Directors, through the granting of non-qualified stock
options and deferred stock unit awards, to provide an incentive to such
directors to continue to serve the Company and to aid the Company in attracting
qualified director candidates in the future. Options granted under the Plan
will not be incentive stock options within the meaning of section 422 of the
Code.
The provisions of the Plan are intended to satisfy any applicable
requirements of Section 16(b) of the Exchange Act, and shall be interpreted in
a manner consistent with any such requirements thereof, as now or hereafter
construed, interpreted and applied by regulation, rulings and cases.
The terms of the Plan shall be as set forth below, effective as of the date
the Company's Common Stock is distributed to Columbia/HCA Healthcare
Corporation stockholders.
2. Definitions.
As used in the Plan, the following words and phrases shall have the meanings
indicated:
(a) "Agreement" shall mean a written agreement entered into between the
Company and a Participant in connection with an Option granted under the
Plan.
(b) "Annual Option" shall mean an Option granted pursuant to Section 5.1
hereof.
(c) "Annual Retainer" shall mean the annual fee earned by the
Participant for his service on the Board.
(d) "Black-Scholes Evaluation Method" shall mean the generally accepted
option pricing model based on the Black-Scholes valuation model as adapted
for use in valuing stock options and using such assumptions as are
determined and adopted from time to time by the Board.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Board Term" shall mean each Board year beginning on the date of an
annual meeting of the Company's shareholders and ending on the date
immediately preceding the next annual meeting of the Company's
shareholders.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company" shall mean Triad Hospitals, Inc., a Delaware corporation,
or any successor corporation.
(j) "Deferred Stock Unit" shall mean a bookkeeping unit entitling a
Participant to a Share on the Realization Date applicable under the Plan
(and shall include fractional units).
B-1
(k) "Deferred Stock Unit Account" shall mean a bookkeeping account
maintained by the Company reflecting the number of Deferred Stock Units
credited to a Participant pursuant to Section 6.2 hereof as a result of the
Participant's Stock Election.
(l) "Deferred Stock Unit Award" shall mean an award under Section 6.2
hereof of Deferred Stock Units as a result of a Participant's Stock
Election for a Board Term.
(m) "Disability" shall mean a Participant's total and permanent
inability to perform his or her duties with the Company or any Subsidiary
by reason of any medically determinable physical or mental impairment,
within the meaning of Code section 22(e)(3).
(n) "Discretionary Option" shall mean an Option granted pursuant to
Section 5.3.
(o) "Election Notice" shall mean a written election, in such form as the
Board shall prescribe, submitted by a Participant to the Company in
connection with a Stock Election under the Plan.
(p) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(q) "Fair Market Value" per Share or per Deferred Stock Unit as of a
given date shall mean the closing sales price of the Common Stock on the
New York Stock Exchange on the trading day immediately preceding the date
as of which the Fair Market Value is to be determined, or, in the absence
of any reported sales of Shares on such date, on the first preceding date
on which any such sale shall have been reported (in either case, as
reported in the Two Star Edition of The Wall Street Journal). If the Shares
are not listed on the New York Stock Exchange on the date as of which Fair
Market Value is to be determined, the Committee shall in good faith
determine the Fair Market Value in whatever manner it considers
appropriate.
(r) "Initial Option" shall mean an Option granted pursuant to Section
5.2 hereof.
(s) "Option" shall mean an Annual Option, Initial Option or
Discretionary Option, as the case may be.
(t) "Option Price" shall mean the price at which each Share subject to
an Option may be purchased, determined in accordance with Section 5.4
hereof.
(u) "Outside Director" shall mean any member of the Board who is not
also an employee of the Company (or any Subsidiary thereof).
(v) "Participant" shall mean any Outside Director who has received an
Option or other award (or credit) hereunder that has not yet terminated.
(w) "Realization Date" shall mean, as elected by the Participant, with
respect to any Deferred Stock Unit allocated to a Participant's Deferred
Stock Unit Account, the first business day following (i) the fifth
anniversary of the date such Deferred Stock Unit is credited to the
Participant's Deferred Stock Unit Account, or (ii) the date the Participant
ceases to be a member of the Board.
(x) "Shares" shall mean shares of Common Stock of the Company.
(y) "Stock Election" shall mean an election of the Participant to
receive, in lieu of all or part (in multiples of 25%) of his Annual
Retainer, a Deferred Stock Unit Award pursuant to Section 6.2 hereof.
(z) "Subsidiary" shall have the meaning set forth in Section 7.2.
B-2
3. Administration of the Plan.
3.1 General Authority. The Plan shall be administered by the Board. The
Board shall have plenary authority in its discretion, but subject to the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the details and provisions of
the Election Notices and Agreements and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The Board's
determinations on the foregoing matters shall be final and conclusive. No
member of the Board shall be liable for any action taken or determination made
in good faith with respect to the Plan or any grant hereunder.
4. Stock Subject to Plan.
4.1 Number of Shares. The maximum number of Shares which may be issued
pursuant to Options and other awards under the Plan shall be 400,000 Shares,
which number shall be subject to adjustment as provided in Section 8 hereof.
Such Shares may be either authorized but unissued Shares, or Shares that shall
have been or may be reacquired by the Company.
4.2 Reuse of Shares. If an Option or a Deferred Stock Unit Award under the
Plan is canceled, terminates, expires unexercised or is exchanged for a
different award without the issuance of Shares, the covered Shares shall, to
the extent of such termination or non-use, again be available for awards
thereafter granted during the term of the Plan.
5. Options.
5.1 Grant of Annual Options. Each person who is an Outside Director on the
first business day of any Board Term shall be granted an Annual Option on such
date as shall be selected by the Board which shall cover a number of Shares
determined by the Board. Such Annual Option shall become exercisable in four
cumulative installments, each of which shall relate to 25% of the Shares
covered by the Annual Option, beginning on the first anniversary of the date of
grant and the three next succeeding anniversary dates thereof, respectively.
5.2 Grant of Initial Options. In addition to Annual Options granted under
Section 5.1, upon commencement of service as an Outside Director, each Outside
Director shall be granted an Initial Option, as of such date as shall be
selected by the Board, which shall cover a number of shares determined by the
Board. Such Initial Option shall become exercisable in four cumulative
installments, each of which shall relate to 25% of the Shares covered by the
Initial Option, beginning on the first anniversary of the date of grant and the
three next succeeding anniversary dates thereof, respectively.
5.3 Discretionary Options. The Board may, from time to time, in its sole
discretion, designate Outside Directors who are to be granted Discretionary
Options and determine the number of shares subject to such Discretionary
Options. The Board, in its sole discretion, shall prescribe the time or times
at which, or the conditions upon which, a Discretionary Option or portion
thereof shall become vested and exercisable, and may accelerate the
exercisability of any Discretionary Option at any time.
5.4 Option Price. The Option Price of each Share subject to an Annual Option
or Initial Option shall be 100 percent of the Fair Market Value of a Share on
the date of grant. The Option Price of each Share under a Discretionary Option
shall be determined by the Board; provided, however, that the Option Price of
each Share under such Discretionary Option shall not be less than 100 percent
of the Fair Market Value of a Share on the date of grant.
B-3
5.5 Term. The term of any Option issued pursuant to the Plan shall be ten
years from the date of grant and may extend beyond the date of termination of
the Plan; provided, however, that the Board may, in the case of a Discretionary
Option, provide for a shorter exercise period in the Agreement.
5.6 Option Exercise. An Option may be exercised in whole or in part at any
time, with respect to whole Shares only, within the period permitted thereunder
for the exercise thereof, and shall be exercised by written notice of intent to
exercise the Option with respect to a specified number of Shares, delivered to
the Company at its principal office, and payment in full to the Company at said
office of the amount of the Option Price for the number of Shares with respect
to which the Option is then being exercised. Payment of the Option Price shall
be made (i) in cash or cash equivalents, (ii) in whole Shares valued at the
closing sales price of the Common Stock on the New York Stock Exchange on the
date of exercise (or next succeeding trading date, if the date of exercise is
not a trading date, in which case the exercise date shall instead be considered
to be such next trading date) or (iii) by a combination of such cash (or cash
equivalents) and such Stock; provided, however, that the optionee shall not be
entitled to tender Shares pursuant to successive, substantially simultaneous
exercises of an Option or any other stock option of the Company. Subject to
applicable securities laws, an Option may also be exercised by delivering a
notice of exercise of the Option and simultaneously selling the Shares thereby
acquired pursuant to a brokerage or similar agreement approved in advance by
proper officers of the Company, using the proceeds of such sale as payment of
the exercise price. Subject to the provisions of Section 9 hereof, the Company
shall issue a stock certificate for the Shares purchased by exercise of an
Option, in the name of the optionee (or other person exercising the Option in
accordance with the provisions of the Plan), as soon as practicable after due
exercise and payment of the aggregate Option Price for such Shares.
5.7 Limited Transferability of Options. All Options shall be nontransferable
except (i) upon the optionee's death, by the optionee's will or the laws of
descent and distribution or (ii) on a case-by-case basis, as may be approved by
the Board in its discretion, in accordance with the terms provided below. Each
Agreement shall provide that the optionee may, during his or her lifetime and
subject to the prior approval of the Board at the time of proposed transfer,
transfer all or part of the Option to a Family Member (as defined below),
provided that such transfer is made for estate planning, tax planning, donative
purposes or pursuant to a domestic relations order, and no consideration (other
than nominal consideration) is received by the Optionee. The transfer of an
Option shall be subject to such other terms and conditions as the Board may in
its discretion impose from time to time, including (without limitation) a
condition that the portion of the Option to be transferred be vested and
exercisable by the optionee at the time of the transfer and a requirement that
the terms of such transfer be documented in a written agreement (in such form
as the Board may prescribe). Subsequent transfers of an Option transferred
under this Section 5.7 shall be prohibited, other than by will or the laws of
descent and distribution upon the death of the transferee.
For purposes hereof, a "family member" shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the employee's household (other than a tenant or employee), a trust in
which these persons have more than fifty percent of the beneficial interest, a
foundation in which these persons (or the employee) control the management of
assets, and any other entity in which these persons (or the employee) own more
than fifty percent of the voting interests.
No transfer of an Option by the optionee by will or by laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of
the will and/or such other evidence as the Board may deem necessary to
establish the validity of the transfer. During the lifetime of an optionee,
except as provided above, the Option shall be exercisable only by the optionee,
except that, in the case of an optionee who is legally incapacitated, the
Option shall be exercisable by the optionee's guardian or legal representative.
In the event of any transfer of an Option to a Family Member in accordance with
the provisions of this Section 5.7, such Family Member shall thereafter have
all rights that would otherwise be held by such optionee (or by such optionee's
guardian, legal representative or beneficiary), except as otherwise provided
herein. Any attempted assignment, transfer, pledge,
B-4
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option, shall be null and void and without effect.
5.8 Death of Optionee. If an optionee dies while he is an Outside Director,
the executor or administrator of the estate of the decedent (or the person or
persons to whom an Option shall have been validly transferred in accordance
with Section 5.7) shall have the right, during the period ending six months
after the date of the optionee's death (subject to the provisions of Section
5.5 hereof concerning the maximum term of an Option), to exercise the Option to
the extent that it was exercisable at the date of such optionee's death and
shall not have been previously exercised.
5.9 Disability. If an optionee's service as an Outside Director shall be
terminated as a result of Disability, the optionee (or in the case of an
optionee who is legally incapacitated, his guardian or legal representative)
shall have the right, during a period ending six months after the date of his
disability (subject to the provisions of Section 5.5 hereof concerning the
maximum term of an Option), to exercise the Option to the extent that it was
exercisable at the date of such optionee's Disability and shall not have been
previously exercised.
5.10 Other Termination of Service. If an optionee's service as an Outside
Director shall be terminated for any reason other than death or Disability, the
optionee shall have the right, during the period ending ninety days after such
termination (subject to the provisions of Section 5.5 hereof concerning the
maximum term of an Option), to exercise the Option to the extent that it was
exercisable on the date of such termination of service and shall not have been
previously exercised.
6. Deferred Stock Unit Awards.
6.1 Stock Elections. For each Board Term during which the Plan is in effect,
a Participant may elect to receive, in lieu of all or any portion (in multiples
of 25%) of his Annual Retainer payable for such Board Term, a Deferred Stock
Unit Award pursuant to Section 6.2 hereof. Such an election shall be made for a
Board Term by filing an Election Notice with the Company, in accordance with
procedures adopted by the Board, prior to the commencement of the Board Term
for which such Annual Retainer is to be paid; provided, however, that in the
case of the Board Term beginning in 1999, such Election Notice must be filed on
or before May 31, 1999.
6.2 Deferred Stock Unit Awards. A Participant shall receive a Deferred Stock
Unit Award for each Board Term in respect of which he makes a Stock Election.
Such Deferred Stock Unit Award shall be granted as of the first business day of
the Board Term (except that in the case of the Board Term beginning in 1999,
such grant date shall be the twenty-first (21) trading date of the Company's
Common Stock) and shall be for a number of Deferred Stock Units determined by
dividing (A) the additional Annual Retainer amount that would have been payable
to the Participant in cash in the absence of his Stock Election, by (B) the
Fair Market Value of a Share on the date of grant.
6.3 Award Terms. Each Deferred Stock Unit Award granted under the Plan shall
have the following terms:
(a) Vesting. All Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account shall immediately be 100% vested.
(b) Dividend Equivalents. A Participant shall be credited with dividend
equivalents on all Deferred Stock Units credited to his Deferred Stock Unit
Account at the time of any payment of dividends on Shares to stockholders.
The amount of any such dividend equivalents shall equal the amount that
would have been payable to the Participant as a stockholder in respect of a
number of Shares equal to the number of Deferred Stock Units then credited
to him. Any such dividend equivalent shall be credited to the Participant's
Deferred Stock Unit Account as of the date on which such dividend would
have been payable and shall be converted into additional Deferred Stock
Units (which shall be immediately vested) based upon the Fair Market Value
of a Share on the date of such crediting.
B-5
(c) Payment of Awards. A Participant shall be entitled to payment, in
respect of Deferred Stock Units credited to him, on the Realization Date
for such Deferred Stock Units indicated by the Participant in the
applicable Election Notice. Subject to the provisions of Section 9, such
payment in respect of any Deferred Stock Units shall be made through the
issuance to the Participant of a stock certificate for a number of Shares
equal to the number of such Deferred Stock Units.
7. Change in Control.
7.1 Effect of Change in Control. Upon a "change in control" of the Company
(as defined below), each outstanding Option, to the extent that it shall not
otherwise have become exercisable, shall become fully and immediately
exercisable (without regard to the otherwise applicable provisions of Sections
5.1, 5.2 and 5.3 hereof concerning exercisability).
7.2 Definition. For purposes of Section 7.1 hereof, "change in control" of
the Company shall be deemed to have occurred upon the occurrence of any of the
following after the date on which the Corporation becomes a publicly-held
Corporation:
(a) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the
term Person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately
after which such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more
of the combined voting power of the then outstanding Voting Securities;
provided, however, that in determining whether a change in control has
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition
which would cause a change in control. A "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the Company (a
"Subsidiary") or (ii) the Company or any Subsidiary.
(b) The individuals who, as of the date the Company issues any class of
equity securities required to be registered under Section 12 of the 1934
Act, are members of the Board (the "Incumbent Board"), cease for any reason
to constitute at least two-thirds of the Board; provided, however, that if
the election, or nomination for election, by the Company's stockholders of
any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the Incumbent
Board if (1) such individual initially assumed office as a result of either
an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest or (2) such individual was
designated by a Person who has entered into an agreement with the Company
to effect a transaction described in clause (a) or (c) of this Section 7.2;
or
(c) Consummation, after approval by stockholders of the Company, of:
(1) A merger, consolidation or reorganization involving the Company,
unless,
(A) The stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization,
at least seventy-five percent (75%) of the combined voting power of
the outstanding Voting Securities of the corporation resulting from
such merger or consolidation or reorganization or its parent
corporation (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization;
B-6
(B) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the Surviving
Corporation; and
(C) No Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial Ownership of twenty
percent (20%) or more of the then outstanding Voting Securities) has
Beneficial Ownership of twenty percent (20%) or more of the combined
voting power of the Surviving Corporation's then outstanding Voting
Securities.
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a change in control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities outstanding,
increased the proportional number of shares Beneficially Owned by the
Subject Person, provided that if a change in control would occur (but for
the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company,
the Subject Person becomes the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a change in
control shall occur.
8. Antidilution Adjustments.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger or consolidation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, or any other change in the corporate structure or shares of
the Company, pursuant to any of which events the then outstanding Shares are
split up or combined, or are changed into, become exchangeable at the holder's
election for, or entitle the holder thereof to, other shares of stock, or in
the case of any other transaction described in section 424(a) of the Code, the
Board may make such adjustment or substitution (including by substitution of
shares of another corporation) as it may determine to be appropriate, in its
sole discretion, in (i) the aggregate number and kind of shares that may be
distributed in respect of Option exercises and/or awards under the Plan, (ii)
the number and kind of shares subject to outstanding Options and/or the Option
Price of such shares and (iii) the number and kind of shares represented by
Deferred Stock Units outstanding under the Plan.
9. Conditions of Issuance of Stock Certificates.
9.1 Applicable Conditions. The Company shall not be required to issue or
deliver any certificate for Shares under the Plan prior to fulfillment of all
of the following conditions:
(a) the completion of any registration or other qualification of such
Shares, under any federal or state law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, that the Board shall, in its sole discretion, deem
necessary or advisable;
(b) the obtaining of any approval or other clearance from any federal
or state governmental agency that the Board shall, in its sole discretion,
determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the event
triggering the obligation to distribute shares as the Board from time to
time may establish for reasons of administrative convenience; and
B-7
(d) if required by the Board, in its sole discretion, the receipt by the
Company from a Participant of (i) a representation in writing that the
Shares received pursuant to the Plan are being acquired for investment and
not with a view to distribution and (ii) such other representations and
warranties as are deemed necessary by counsel to the Company.
9.2 Legends. The Company reserves the right to legend any certificate for
Shares, conditioning sales of such shares upon compliance with applicable
federal and state securities laws and regulations.
10. No Rights to Continued Service.
Nothing in the Plan, in any grant made, or in any Election Notice or
Agreement entered into pursuant hereto shall confer upon any Participant the
right to continue service as a member of the Board or to be entitled to any
remuneration or benefits not set forth in the Plan, Election Notice or
Agreement.
11. No Rights to Assets of the Company.
Nothing in the Plan, in any grant made, or in any Election Notice or
Agreement entered into pursuant hereto shall confer upon any Participant any
right to any particular assets of the Company. A Participant's rights under the
Plan are limited to those rights of an unsecured creditor except to the extent
Shares are actually issued to such Participant.
12. Amendment and Termination of the Plan.
The Board, at any time and from time to time, may suspend, terminate, modify
or amend the Plan; provided, however, that an amendment which requires
stockholder approval for the Plan to continue to comply with any law,
regulation or stock exchange requirement shall not be effective unless approved
by the requisite vote of stockholders. No suspension, termination, modification
or amendment of the Plan shall adversely affect any grants previously made,
unless the written consent of the Participant is obtained.
13. Term of the Plan.
The Plan shall have a term of ten years. No grants or awards may be made
after such termination, but termination of the Plan shall not, without the
consent of any Participant who then holds Options or Deferred Stock Units,
alter or impair any rights or obligations in respect of such Options or
Deferred Stock Units.
14. Governing Law.
The Plan and the rights of all persons claiming hereunder shall be construed
and determined in accordance with the laws of the State of Texas without giving
effect to the choice of law principles thereof, except to the extent that such
laws are preempted by Federal law.
B-8
-----------------
Vote by Telephone
-----------------
Have your proxy card available when you call the Toll-Free number 1-800-250-9081
using a touch-tone telephone. You will be prompted to enter your Control Number.
Please follow the simple prompts that will be presented to you to record your
vote.
----------------
Vote by Internet
----------------
Have your proxy card available when you access the website
http://www.votefast.com. You will be prompted to enter your Control Number.
Please follow the simple prompts that will be presented to you to record your
vote.
------------
Vote by Mail
------------
Please mark, sign and date your proxy card and return it in the postage-paid
envelope provided or return it to: Stock Transfer Dept (TRIH) National City
Bank, P.O. Box 92301 Cleveland OH 44193-0900.
Vote by Telephone Vote by Internet Vote by Mail
Call Toll-Free using a Access the Website and Return your proxy
touch-tone telephone: cast your vote: in the Postage-Paid
1-800-250-9081 http://www.votefast.com envelope provided
Vote 24 hours a day, 7 days a week!
Your telephone or Internet vote must be received by 11:59 p.m. eastern daylight
time on May 28, 2001 in order to be counted in the final tabulation.
If you vote by telephone or internet, please do not send your proxy by mail.
============================================
YOUR CONTROL NUMBER IS:
============================================
Please sign and date this proxy where indicated below before mailing.
Please fold and detach card at perforation before mailing.
--------------------------------------------------------------------------------
PROXY TRIAD HOSPITALS, INC. PROXY
Proxy for Annual Meeting of Stockholders on May 29, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Donald P. Fay and Burke W. Whitman proxies, each
with the power to appoint his substitute and with authority in each to act in
the absence of the other, to represent and to vote all shares of stock of Triad
Hospitals, Inc. which the undersigned is entitled to vote at the 2001 Annual
Meeting of Stockholders of Triad Hospitals, Inc. to be held at the Sheraton Park
Central Hotel, 7750 LBJ Freeway, Dallas, Texas 75251 on May 29, 2001 at 10:00
a.m., local time, and any adjournments or postponements thereof, as indicated on
the proposals described in the Proxy Statement, and all other matters properly
coming before the 2001 Annual Meeting of Stockholders of Triad Hospitals, Inc.,
or any adjournment or postponement thereof. This proxy revokes all prior proxies
given by the undersigned.
_______________________________________________
Signature(s)
_______________________________________________
Signature(s)
Date: ___________________________________, 2001
Please sign exactly as your name or names appear hereon. For joint accounts,
both owners should sign. When signing as executor, administrator, attorney,
trustee or guardian, etc., please give your full title.
PROXY TRIAD HOSPITALS, INC. PROXY
________________________________________________________________________________
Please fold and detach card at perforation before mailing.
--------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Items 1 through 3. Please mark
---
vote in box in the following manner [X] using dark Ink only. This proxy will be
voted in accordance with specifications made. If no choices are indicated, this
proxy will be voted For Items 1 through 3.
---
1. ELECTION of Directors - NOMINEES are Marvin Runyon, James D. Shelton,
Thomas F. Frist III and Gale Sayers.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as listed to the contrary to vote for all nominees listed
below) above.
To withhold authority to vote for any individual nominee, write that
nominee's name on the line below.
_______________________________________________________________________________
2. RATIFICATION of Ernst & Young LLP as independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL of an amendment to the Triad Hospitals, Inc. Outside Directors Stock
and Incentive Compensation Plan to increase the number of authorized shares
thereunder from 240,000 to 400,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] Mark here if you plan to attend the 2001 Annual Meeting.
Important--This Proxy must be signed and dated on the reverse side.
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
TRIAD HOSPITALS, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 2001
VOTING INSTRUCTION FORM
Voting Instruction Solicited by the Trustee of
Triad Hospitals Employee Stock Ownership Trust
The undersigned participant in the Triad Hospitals, Inc. Retirement Savings
Plan (the "Plan") hereby instructs U.S. Trust Company, N.A., as Trustee of the
Triad Hospitals, Inc. Employee Stock Ownership Trust, to vote at the Annual
Meeting of Stockholders on May 29, 2001 or any adjournment thereof, all shares
of Common Stock that have been allocated to the account of the undersigned on
the Proposals more fully described in the enclosed Proxy Statement.
THIS FORM MUST BE PROPERLY COMPLETED, SIGNED, DATED AND RECEIVED BY THE
TRUSTEE NO LATER THAN 5:00 P.M. EASTERN TIME ON WEDNESDAY, MAY 23, 2001. IF YOUR
VOTING INSTRUCTIONS ARE NOT TIMELY RECEIVED, THE TRUSTEE WILL VOTE YOUR SHARES
IN THE SAME MANNER AND PROPORTION AS THOSE SHARES FOR WHICH INSTRUCTIONS ARE
TIMELY RECEIVED. YOUR VOTING INSTRUCTIONS TO THE TRUSTEE ARE CONFIDENTIAL, AS
EXPLAINED IN THE ACCOMPANYING NOTICE TO PLAN PARTICIPANTS.
________________________________________________________________________________
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
1. ELECTION of Directors Marvin Runyon, James D. Shelton,
Thomas F. First III and Gale Sayers.
[ ] For All [ ] Withhold All [ ] For All Except
WITHHOLD AUTHORITY: to withhold authority to vote for an individual
nominee, write that nominee's name in the following space:
_______________________________________________________________________
2. RATIFICATION of Ernst & Young LLP as independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL of an amendment to the Triad Hospitals, Inc. Outside Directors
Stock and Incentive Compensation Plan to increase the number of
authorized shares thereunder from 240,000 to 400,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
As a Participant in the Plan, I hereby acknowledge receipt of the Notice to
Participants and the accompanying Proxy Statement relating to the Annual Meeting
of Stockholders of Triad Hospitals, Inc., and hereby instruct the Trustee to
vote all shares credited to my Plan account as I have indicated above. If I
sign, date and return this form but do not specifically instruct the Trustee how
to vote, I understand that the Trustee will vote the shares credited to my
account in the same manner and proportion as those Shares for which timely
instructions from participants were received.
Dated: __________________________________________________________________, 2001
_______________________________________________________________________________
Signature
_______________________________________________________________________________
Signature if held jointly
_______________________________________________________________________________