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 to Rule 14a-11(c) or Rule 14a-12
UNIVERSAL HEALTH SERVICES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fees paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
UHS LOGO
UNIVERSAL HEALTH SERVICES, INC.
April 12, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Universal Health Services, Inc. to be held at the offices of the Company,
Universal Corporate Center, 367 South Gulph Road, King of Prussia,
Pennsylvania, on May 15, 2002, at 10:00 a.m., Eastern Daylight Time, for the
following purposes:
(1) the election of a director by the holders of Class A and Class C
Common Stock;
(2) the election of a director by the holders of Class B and Class D
Common Stock; and
(3) the adoption of the Universal Health Services, Inc. Executive
Incentive Plan.
Detailed information concerning these matters is set forth in the attached
Notice of Annual Meeting of Stockholders and Proxy Statement.
Whether or not you plan to attend the meeting, please either vote by
telephone, internet, or promptly sign and return your proxy card in the
enclosed envelope. If you then attend and wish to vote your shares in person,
you still may do so. In addition to the matters noted above, we will discuss
the business of the Company and be available for Stockholders' comments and
discussion relating to the Company.
I look forward to seeing you at the meeting.
Sincerely,
/s/ Alan B. Miller
Alan B. Miller
Chairman, President and
Chief Executive Officer
UHS LOGO
UNIVERSAL HEALTH SERVICES, INC.
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 15, 2002
Notice is hereby given that the Annual Meeting of Stockholders of Universal
Health Services, Inc. (the "Company") will be held on Wednesday, May 15, 2002
at 10:00 a.m., at the offices of the Company, Universal Corporate Center, 367
South Gulph Road, King of Prussia, Pennsylvania for the following purposes:
(1) To have the holders of Class A and Class C Common Stock elect one Class
III director, to serve for a term of three years until the annual
election of directors in the year 2005 and election and qualification
of their respective successors.
(2) To have the holders of Class B and Class D Common Stock elect one Class
III director, to serve for a term of three years until the annual
election of directors in the year 2005 and the election and
qualification of his successor.
(3) To have the holders of Class A, B, C and D Common Stock vote upon the
proposal to adopt the Universal Health Services, Inc. Executive
Incentive Plan.
(4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on April 4, 2002, are
entitled to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person. IN
ANY EVENT, PLEASE VOTE BY TELEPHONE, INTERNET OR MARK YOUR VOTES, THEN DATE
AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL
MEETING. YOU MAY REVOKE YOUR PROXY IF YOU DECIDE TO ATTEND THE ANNUAL MEETING
AND WISH TO VOTE YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Steve G. Filton
STEVE G. FILTON, Secretary
King of Prussia, Pennsylvania
April 12, 2002
UNIVERSAL HEALTH SERVICES, INC.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
PROXY STATEMENT
GENERAL
This Proxy Statement and enclosed forms of Proxy (first mailed to
stockholders on or about April 12, 2002) are furnished in connection with the
solicitation by the Board of Directors of Universal Health Services, Inc. (the
"Company") of proxies for use at the Annual Meeting of Stockholders, or at any
adjournment thereof. The meeting will be held on Wednesday, May 15, 2002 at
10:00 a.m., at the offices of the Company, Universal Corporate Center, 367
South Gulph Road, King of Prussia, Pennsylvania. The Annual Meeting is being
held (1) to have the holders of Class A and C Common Stock elect one Class III
director of the Company, to serve for a term of three years until the annual
election of directors in 2005 and the election and qualification of his
successor; (2) to have the holders of Class B and D Common Stock elect one
Class III director, to serve for a term of three years until the annual
election of directors in 2005 and the election and qualification of his
successor; (3) to have the holders of Class A, B, C and D Common Stock vote
upon the adoption of the Universal Health Services, Inc. Executive Incentive
Plan; and (4) to transact such other business as may properly be brought
before the meeting or any adjournment thereof.
A copy of the Company's Annual Report to Stockholders, including financial
statements for the year ended December 31, 2001 is enclosed herewith.
A separate form of Proxy applies to the Company's Class A and Class C Common
Stock and a separate form of Proxy applies to the Company's Class B and Class
D Common Stock. Enclosed is a Proxy for the shares of stock held by you on the
record date. Unless otherwise indicated on the Proxy, shares represented by
any Proxy will, if the Proxy is properly executed and received by the Company
prior to the Annual Meeting, be voted FOR each of the nominees for directors.
Any Proxy executed and returned to the Company is revocable by delivering a
later signed and dated Proxy or other written notice to the Secretary of the
Company at any time prior to its exercise. A Proxy is also subject to
revocation if the person executing the Proxy is present at the meeting and
chooses to vote in person.
VOTING
Only stockholders of record as of the close of business on April 4, 2002 are
entitled to vote at the Annual Meeting. On that date, 3,848,886 shares of
Class A Common Stock, par value $.0l per share, 387,848 shares of Class C
Common Stock, par value $.0l per share, 55,678,643 shares of Class B Common
Stock, par value $.0l per share, and 38,533 shares of Class D Common Stock,
par value $.0l per share, were outstanding.
The Company's Restated Certificate of Incorporation provides that, with
respect to the election of directors, holders of Class A Common Stock vote as
a class with the holders of Class C Common Stock, and holders of
Class B Common Stock vote as a class with holders of Class D Common Stock,
with holders of all classes of Common Stock entitled to one vote per share.
Each holder of Class A Common Stock may cumulate his votes for directors
giving one candidate a number of votes equal to the number of directors to be
elected, multiplied by the number of shares of Class A Common Stock, or he may
distribute his votes on the same principle among as many candidates as he
shall see fit. For a holder of Class A Common Stock to exercise his cumulative
voting rights, the stockholder must give notice at the meeting of his
intention to cumulate his votes.
As to matters other than the election of directors, including the adoption
of the Universal Health Services, Inc. Executive Incentive Plan, the Company's
Restated Certificate of Incorporation provides that holders of Class A, Class
B, Class C and Class D Common Stock all vote together as a single class,
except as otherwise provided by law. Each share of Class A Common Stock
entitles the holder thereof to one vote; each share of Class B Common Stock
entitles the holder thereof to one-tenth of a vote; each share of Class C
Common Stock entitles the holder thereof to 100 votes (provided the holder of
Class C Common Stock holds a number of shares of Class A Common Stock equal to
ten times the number of shares of Class C Common Stock that holder holds); and
each share of Class D Common Stock entitles the holder thereof to ten votes
(provided the holder of Class D Common Stock holds a number of shares of Class
B Common Stock equal to ten times the number of shares of Class D Common Stock
that holder holds). In the event a holder of Class C or Class D Common Stock
holds a number of shares of Class A or Class B Common Stock, respectively,
less than ten times the number of shares of Class C or Class D Common Stock
that holder holds, then that holder will be entitled to only one vote for
every share of Class C, or one-tenth of a vote for every share of Class D
Common Stock, which that holder holds in excess of one-tenth the number of
shares of Class A or Class B Common Stock, respectively, held by that holder.
The Board of Directors, in their discretion, may require beneficial owners to
provide satisfactory evidence that such owner holds ten times as many shares
of Class A or Class B Common Stock as Class C or Class D Common Stock,
respectively, if such facts are not apparent from the stock records of the
Company.
Stockholders entitled to vote for the election of directors can withhold the
authority to vote for any one or more nominees.
As of April 4, 2002, the shares of Class A and Class C Common Stock
constituted 7.1% of the aggregate outstanding shares of the Company's Common
Stock, had the right to elect six members of the Board of Directors and
constituted 82.2% of the general voting power of the Company; and as of that
date the shares of Class B and Class D Common Stock (excluding shares issuable
upon exercise of options), constituted 92.9% of the outstanding shares of the
Company's Common Stock, had the right to elect two members of the Board of
Directors and constituted 17.8% of the general voting power of the Company.
As of March 31, 2002, the Company's current directors and officers as a
group owned of record or beneficially 3,841,486 shares of Class A Common
Stock, 1,202,178 shares of Class B Common Stock (excluding shares issuable
upon exercise of options), 387,088 shares of Class C Common Stock and 1,260
shares of Class D Common Stock, representing 99.8%, 2.2%, 99.8% and 3.3%
respectively, of the outstanding shares of each class and constituting 82.4%
of the general voting power of the Company on that date.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 2002, the number of shares of
equity securities of the Company and the percentage of each class owned
beneficially, within the meaning of Securities and Exchange Commission Rule
13d-3, and the percentage of the general voting power of the Company currently
held, by (i) all stockholders known by the Company to own more than 5% of any
class of the Company's equity securities, (ii) all directors and nominees of
the Company who are stockholders, (iii) the executive officers named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. Except as otherwise specified, the named beneficial owner has sole
voting and investment power.
Percentage
Class A Class B Class C Class D of General
Name and Address of Common Common Common Common Voting
Beneficial Owner(1) Stock(2) Stock(2) Stock(2) Stock(2) Power(3)
------------------- --------- ------------- -------- -------- ----------
Leatrice Ducat 14,500(5)(9) (5)
National Disease
Research Interchange
645 N. Michigan Avenue
Ste. 800
Chicago, IL 60611
John H. Herrell 24,300(5)(9) (5)
1021 10th Street, S.W.
Rochester, MN 55902
Robert H. Hotz 47,500(5)(9) (5)
UBS Warburg LLC
299 Park Avenue, 39th
Fl.
New York, NY 10171
Alan B. Miller 3,807,782(6) 5,915,702(4)(6)(9) 382,892 81.1%
(98.9%) (10.6%) (98.7%)
Anthony Pantaleoni 8,904(5) 39,396(4)(5)(7)(9) 1,096(5) 560(5) (5)
Fulbright & Jaworski
L.L.P.
666 Fifth Avenue
New York, NY 10103
-
John F. Williams, Jr., 2,800(5) (5)
M.D.
George Washington
University
2300 Eye Street, N.W.
Suite 713E
Washington, DC 20037
3
Percentage
Class A Class B Class C Class D of General
Name and Address of Common Common Common Common Voting
Beneficial Owner(1) Stock(2) Stock(2) Stock(2) Stock(2) Power(3)
------------------- --------- --------- -------- -------- ----------
Debra K. Osteen 88,940(5)(9) (5)
Kirk E. Gorman 117,850(5)(9) (5)
Steve G. Filton 125,144(5)(9) (5)
Richard C. Wright 24,800(5) 66,880(4)(5)(9) 3,100(5) 700(5) (5)
Westport Asset 3,283,550(8) (5)
Management, Inc.
253 Riverside Avenue (5.9%)
Westport, CT 06880
All directors & 3,841,486 6,443,012(4)(9) 387,088 1,260 82.4%
executive officers
as a group (10 persons) (99.8%) (10.6%) (99.8%) (3.2%)
----------
(1) Unless otherwise shown, the address of each beneficial owner is c/o
Universal Health Services, Inc., Universal Corporate Center, 367 South
Gulph Road, King of Prussia, PA 19406.
(2) Each share of Class A, Class C and Class D Common Stock is convertible
at any time into one share of Class B Common Stock.
(3) As to matters other than the election of directors, holders of Class A,
Class B, Class C and Class D Common Stock vote together as a single
class. Each share of Class A Common Stock entitles the holder thereof to
one vote; each share of Class B Common Stock entitles the holder thereof
to one-tenth of a vote; each share of Class C Common Stock entitles the
holder thereof to 100 votes (provided the holder of Class C Common Stock
holds a number of shares of Class A Common Stock equal to ten times the
number of shares of Class C Common Stock that holder holds); and each
share of Class D Common Stock entitles the holder thereof to ten votes
(provided the holder of Class D Common Stock holds a number of shares of
Class B Common Stock equal to ten times the number of shares of Class D
Common Stock that holder holds).
(4) Includes shares issuable upon the conversion of Classes A, C and/or D
Common Stock.
(5) Less than 1%.
(6) Includes 200,000 shares of Class A Common Stock which are beneficially
owned by Mr. Miller and are held by Mr. Miller in trust for the benefit
of his spouse; and 1,500,000 shares which are held by A. Miller Family,
LLC whose members are three trusts of which Mr. Miller and Mr.
Pantaleoni are trustees, for the benefit of Mr. Miller's family. The
trustees have appointed Marc Miller (who is the son of Alan B. Miller)
as the manager of the A. Miller Family, LLC. During the tenure of such
appointment (which is at the discretion of the trustees), Marc Miller
has voting and disputive power with respect to the Class A Common Stock
held by the A. Miller Family, LLC.
(7) Includes 5,780 shares of Class B Common Stock and 560 shares of Class D
Common Stock which are beneficially owned by Mr. Pantaleoni and are held
by Mr. Pantaleoni in trust for the benefit of certain members of his
family.
(8) These securities are held by Westport Asset Management, Inc., a
registered investment advisor. Information is based on Amendment No. 2
to Schedule 13G dated February 15, 2002.
(9) Includes 1,011,000 shares issuable pursuant to stock options to purchase
Class B Common Stock held by directors and officers of the Company and
exercisable within 60 days of March 31, 2002 as follows: Leatrice Ducat
(12,500), John H. Herrell (17,500), Robert H. Hotz (17,500); Alan B.
Miller (832,500); Anthony Pantaleoni (17,500); John F. Williams, Jr.,
M.D. (2,500); Kirk E. Gorman (35,000); Steve G. Filton (25,000); Richard
C. Wright (27,500) and Debra K. Osteen (23,500).
4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for a Board of
Directors of not fewer than three members nor more than nine members. The
Board of Directors is currently fixed at six members, and is divided into
three classes, with members of each class serving for a three-year term. At
each Annual Meeting of Stockholders, directors are chosen to succeed those in
the class whose term expires at such Annual Meeting. Under the Company's
Restated Certificate of Incorporation, holders of shares of the Company's
outstanding Class B and Class D Common Stock are entitled to elect 20% (but
not less than one) of the directors, currently two directors, one in each of
Class II and Class III, and the holders of Class A and Class C Common Stock
are entitled to elect the remaining directors, currently four directors, two
in Class I, one in Class II, and one in Class III.
The persons listed below currently constitute the Company's Board of
Directors. The term of the Class III directors, Mr. Alan B. Miller and Dr.
John F. Williams, Jr., expires at the 2002 Annual Meeting. Mr. Alan B. Miller
has been nominated to be elected by the holders of Class A and Class C Common
Stock and Dr. John F. Williams, Jr. has been nominated to be elected by the
holders of Class B and Class D Common Stock. The Company has no reason to
believe that any of the nominees will be unavailable for election; however, if
any nominee becomes unavailable for any reason, the shares represented by the
Proxy will be voted for the person, if any, who is designated by the Board of
Directors to replace the nominee. All nominees have consented to be named and
have indicated their intent to serve if elected.
The following information is furnished with respect to each of the nominees
for election as a director and each member of the Board of Directors whose
term of office will continue after the meeting.
Class of Principal Occupation
Class of Stockholders During the Last Director
Name Director Entitled to Vote Age Five Years Since
---- -------- ---------------- --- -------------------- --------
NOMINEES WHOSE TERMS
EXPIRE IN 2002
--------------------
Alan B. Miller.......... III A Common 64 Chairman of the Board, President 1978
C Common and Chief Executive Officer of
the Company since 1978. Prior
thereto, President, Chairman of
the Board and Chief Executive
Officer of American Medicorp,
Inc. Trustee of Universal Health
Realty Income Trust. Director of
Penn Mutual Life Insurance
Company, CDI (NYSE) Corp. and
Broadlane, Inc.
John F. Williams, Jr., III B Common 53 Vice President for Health Affairs 1999
M.D., Ed.D............. D Common and Dean of George Washington
University since 1997; Prior
thereto, Medical Director of The
George Washington University
Hospital, and Associate Vice
President for Graduate Medical
Education at the School of
Medicine and Health Sciences;
Member of the American Public
Health Association, the American
Medical Association, the New York
Academy of Sciences, the American
Society of Anesthesiologists and
the Society of Critical Care
Medicine.
5
Class of Principal Occupation
Class of Stockholders During the Last Director
Name Director Entitled to Vote Age Five Years Since
---- -------- ---------------- --- -------------------- --------
DIRECTORS WHOSE TERMS
EXPIRE IN 2003
---------------------
John H. Herrell......... I A Common 61 Chairman of Mayo Foundation 1993
C Common Investment Committee; President
of Mayo Foundation for Medical
Education and Research; former
Vice President of Mayo Foundation
from January through mid-February
2002 and former Vice President
and Administrative Officer of
Mayo Foundation from 1993 through
2001; Chief Financial Officer of
Mayo Foundation from 1984 until
1993 and various other capacities
since 1968.
Leatrice Ducat.......... I A Common 69 President and Founder, National 1997
C Common Disease Research Interchange
since 1980; President and
Founder, Human Biological Data
Interchange since 1988; Founder,
Juvenile Diabetes Foundation,
National and International
Organization of the Juvenile
Diabetes Foundation.
DIRECTORS WHOSE TERMS
EXPIRE IN 2004
---------------------
Anthony Pantaleoni...... II A Common 62 Of Counsel to the law firm of 1982
C Common Fulbright & Jaworski L.L.P., New
York, New York. Director of AAON,
Inc. and Westwood Corporation.
The Company utilized during the
year ended December 31, 2001 and
currently utilizes the services
of Fulbright & Jaworski L.L.P. as
outside counsel.
Robert H. Hotz.......... II B Common 57 Senior Vice Chairman and Managing 1991
D Common Director of Corporate Finance in
the Americas for UBS Warburg LLC.
Vote Required
The nominee receiving the highest number of affirmative votes of the shares
of Class A and Class C Common Stock, voting as a class and Class B and Class D
Common Stock, voting as a class, respectively, present in person or
represented by proxy and entitled to vote, a quorum being present shall be
elected as the Class III Directors. Only votes cast for a nominee will be
counted, except that the accompanying proxy will be voted for all nominees in
the absence of instruction to the contrary. Abstentions, broker non-votes and
instructions on the accompany proxy card to withhold authority to vote for one
or more nominees will result in the respective nominees receiving few votes.
However, the number of votes otherwise received by the nominee will not be
reduced by such action.
The Board of Directors recommends a vote FOR the election of these nominees
as Directors
6
PROPOSAL NO. 2
ADOPTION OF THE UNIVERSAL HEALTH SERVICES, INC.
EXECUTIVE INCENTIVE PLAN
Section 162(m) of the Internal Revenue Code imposes an annual $1,000,000
limitation on the amount of compensation the Company may deduct with respect
to each of its five most highly paid executives. It is intended that the
Universal Health Services, Inc. Executive Incentive Plan, if approved by the
stockholders of the Company, will enable the Company to avoid the deduction
limitation with respect to annual incentive compensation awards pursuant to a
performance-based compensation exception afforded by the Internal Revenue
Code. The proposed Executive Incentive Plan is substantially similar to and
updates and replaces an existing executive incentive plan.
Executive Incentive Plan
The following summary describes the principal features of the proposed
Executive Incentive Plan and is qualified in its entirety by reference to the
plan document, a copy of which is attached hereto as Exhibit A.
The purpose of the Executive Incentive Plan is to provide annual
performance-based incentive compensation to senior management and other
executive officers that is exempt from the deduction limitation under Section
162(m) of the Internal Revenue Code.
Annual incentive compensation may be awarded under the Executive Incentive
Plan to members of senior management and other executive officers of the
Company and its affiliates. The Executive Incentive Plan will be administered
by a committee of two or more directors appointed by the Board of Directors,
all of whom will qualify as "non-employee directors" under SEC Rule 16b-3 and
as "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code. The Board of Directors has appointed a subcommittee of the Stock
Option and Compensation Committee comprised of Mr. Herrell and Ms. Ducat to
administer the Executive Incentive Plan.
For each calendar year, the Committee will establish annual performance
targets based upon an increase in "net income" from the preceding calendar
year and/or "return on capital," as determined by the Committee. For this
purpose, "net income" means the net income of the Company or of an affiliate,
division, hospital or other unit and "return on capital" means net income
divided by the quarterly average net capital of the Company or of an
affiliate, division, hospital or other unit. For each calendar year, the
Committee will also establish potential bonus amounts, expressed as a
percentage of each participant's base salary, which will be payable to a
participant if the performance targets are met. The performance targets and
potential bonus amounts may vary from year to year and from participant to
participant, all as determined by the Committee.
If a participant's performance targets for a calendar year are achieved,
then the participant will be entitled to receive an incentive payment equal to
100% of the participant's potential bonus amount for the year. No incentive
compensation will be payable for a year if neither performance target is
achieved, and a performance bonus (which may be greater than 100% of a
participant's base bonus amount) may be payable if either or both performance
targets are exceeded for a calendar year.
7
After the end of each calendar year, the Committee, based upon the Company's
financial statements for the year, will determine the amount, if any, of the
incentive compensation payable to each participant for the calendar year. A
participant's incentive award for a calendar year will be paid to the
Participant at such time as the Committee determines after written
certification by the Committee that the performance goals were in fact
satisfied. The Committee may also establish a procedure pursuant to which
payment of all or a portion of a participant's incentive award for a calendar
year will be deferred. Unless the Committee determines otherwise, no incentive
award will be payable to a participant with respect to a calendar year if the
participant's employment with the Company and its affiliates terminates at any
time prior to the payment thereof. In no event may a participant receive an
incentive award under the Executive Incentive Plan in excess of $5,000,000 for
any year.
The Board may amend or terminate the Executive Incentive Plan at any time.
Unless sooner terminated by the Board, the Executive Incentive Plan will
continue through the date of the first meeting of stockholders of the Company
(or any adjournment thereof) in 2007.
The awards that would be received by participants in the proposed Executive
Incentive Plan are not determinable at this time. Pursuant to the terms of
this Plan, executive officers would have received the same annual incentive
awards they received under the prior executive incentive plan, as follows:
Amount of Incentive
Compensation
Name and Position Awarded($)
----------------- -------------------
Alan B. Miller, Chairman of the Board, President and Chief
Executive Officer........................................ $1,200,000
Kirk E. Gorman, Senior Vice President, Treasurer and Chief
Financial Officer........................................ 248,000
Debra K. Osteen, Vice President........................... 42,000
Steve G. Filton, Vice President, Controller and
Secretary................................................ 158,000
Richard C. Wright, Vice President......................... 35,000
All other current Executives as a group................... 0
Non-Executive Director Group.............................. 0
Non-Executive Officer Employee Group...................... 0
Vote Required.
The affirmative vote of the holders of a majority of the shares of the
common stock votes present in person or represented by proxy is required for
the adoption of the proposal set forth above. Broker non-votes with respect to
this matter will be treated as neither a vote "for" nor a vote "against" the
matter, although they will be counted for determining whether there is a
quorum. Abstentions will not be voted, although they will be counted for
purposes of determining whether there is a quorum. Therefore, an abstention
will have the same legal effect as a vote "against" the matter because it
represents a share present or represented at the meeting and entitled to vote,
and thereby increases the number of affirmative votes required to approve this
proposal.
The Board of Directors recommends a vote FOR the adoption of the Universal
Health Services, Inc. Executive Incentive Plan.
8
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. A Form 4 was not filed on a timely
basis for Mr. Richard C. Wright regarding a transaction in the Company's Stock
in March 2001 but this transaction has subsequently been reported.
9
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company as well as certain other compensation paid or accrued, during the
fiscal years indicated, to the Chairman of the Board, President, and Chief
Executive Officer and the four highest paid executive officers of the Company
for such period in all capacities in which they served.
In April, 2001, the Company declared a two-for-one stock split in the form
of a 100% stock dividend which was paid on June 1, 2001 to stockholders of
record as of May 16, 2001. All classes of common stock participated on a pro
rata basis and all references to share quantities for all periods presented
have been adjusted to reflect the two-for-one stock split.
SUMMARY COMPENSATION TABLE
Long-term
Annual compensation compensation awards
-------------------------------------- ---------------------
Restricted Securities All other
Other Annual stock Underlying compen-
Name and principal Fiscal Compensation ($) awards ($) Options sation ($)
position Year Salary ($) Bonus ($) (a) (b) (#) (c)
------------------ ------ ---------- ---------- ---------------- ---------- ---------- ----------
Alan B. Miller, Chairman
of the Board,
President, and Chief
Executive Officer...... 2001 $1,000,000 $1,200,000 $ 0 $ 31,390 1,000,000 $92,924
2000 947,600 507,590 819,548 1,004,667 90,000 80,280
1999 920,000 0 1,996,327 24,342 440,000 56,139
Kirk E. Gorman, Senior
Vice President,
Treasurer and Chief
Financial Officer.... . 2001 $ 310,375 $ 248,000 $ 498,727 $ 6,224 120,000 $ 3,400
2000 293,906 209,000 325,186 111,616 40,000 3,400
1999 282,719 0 160,025 5,684 60,000 1,600
Debra K. Osteen, Vice
President ............. 2001 $ 265,000 $ 241,000 $ 174,622 $ 2,977 80,000 $ 3,400
2000 222,000 206,000 96,975 3,205 34,000 3,400
1999 186,000 195,300 100,516 2,760 12,000 1,600
Steve G. Filton, Vice
President, Controller
and Secretary.......... 2001 $ 247,650 $ 208,000 $ 351,298 $ 3,698 80,000 $ 3,400
2000 226,950 129,000 186,948 62,168 25,000 3,400
1999 213,450 0 133,670 3,542 42,000 1,600
Richard C. Wright, Vice
President ............. 2001 $ 218,525 $ 165,000 $ 521,277 $ 812 80,000 $ 3,400
2000 210,125 195,000 160,228 2,564 25,000 3,400
1999 203,333 15,000 104,233 8,526 30,000 1,600
10
----------
(a) Other annual compensation for Mr. Alan B. Miller includes: (i) $0 in 2001,
$814,992 in 2000 and $1,991,771 in 1999 which represents forgiveness of
principal under Option Loans, and; (ii) $4,556 in 2000 and $4,556 in 1999
for other compensation. Other annual compensation for Messrs. Gorman,
Filton, Wright and Ms. Osteen in 2001, 2000 and 1999 represents
forgiveness of principal under Option Loans.
(b) Restricted stock awards represent (i) the portion of additional restricted
shares ("Premium Shares") equal to 20% of the Bonus Shares issued in prior
years which vested in 2001, 2000 and 1999; and (ii) the value of the Class
B Common Shares issued in connection with the 1990 Employees' Restricted
Stock Purchase Plan (the "1990 Plan") and the 2001 Employees' Restricted
Stock Purchase Plan (the "2001 Plan"). Restrictions on one-half of the
Bonus Shares and the Premium Shares lapse after one year from date of
grant and restrictions on the remaining Bonus Shares and Premium Shares
lapse two years after the date of grant.
Restricted stock awards for Mr. Alan B. Miller include: (i) $31,390 in
2001, $20,632 in 2000 and $24,342 in 1999 representing the value of the
vested portion of the Premium Shares. In May of 2000, Mr. Alan B. Miller
was granted an award of 18,000 shares of the Company's Class B Common Stock
(market value of $482,625 on the date of grant), under the 1990 Plan, on
which restrictions will lapse on May 17, 2002. Additionally, included as
part of his compensation in 2000, in March of 2001, Mr. Alan B. Miller was
granted an award of 11,600 shares of the Company's Class B Common Stock
(market value of $501,410 on the date of grant), under the 2001 Plan, on
which restrictions lapsed on March 7, 2002.
Restricted stock awards for Mr. Kirk E. Gorman include: (i) $6,224 in 2001,
$4,366 in 2000 and $5,684 in 1999 representing the value of the vested
portion of the Premium Shares. In May of 2000, Mr. Kirk E. Gorman was
granted an award of 4,000 shares of the Company's Class B Common Stock
(market value of $107,250 on the date of grant), under the 1990 Plan, on
which restrictions will lapse on May 17, 2002. Restricted stock awards for
Ms. Debra K. Osteen include: (i) $2,977 in 2001, $3,205 in 2000 and $2,760
in 1999 representing the value of the vested portion of the Premium Shares.
Restricted stock awards for Mr. Steve G. Filton include: (i) $3,698 in
2001, $2,644 in 2000 and $3,542 in 1999 representing the value of the
vested portion of the Premium Shares. In May of 2000, Mr. Steve G. Filton
was granted an award of 2,220 shares of the Company's Class B Common Stock
(market value of $59,524 on the date of grant), under the 1990 Plan, on
which restrictions will lapse on May 17, 2002. Restricted stock awards for
Mr. Richard C. Wright include: (i) $812 in 2001, $2,564 in 2000 and $8,526
in 1999 representing the value of the vested portion of the Premium Shares.
There were no Bonus Shares issued in 2001, 2000 or 1999.
(c) All other compensation includes the Company's match of each officer's
contributions to the Company's 401(k) plan of $3,400 in 2001, $3,400 in
2000 and $1,600 in 1999, and, for Mr. Alan B. Miller, the total includes
$9,572 in 2000 and 1999 related to term life insurance premiums paid for
by the Company and $89,524 in 2001, $67,308 in 2000 and $44,967 in 1999
related to imputed interest income to Mr. Miller resulting from a split
dollar, second to die insurance agreement covering two policies with a
combined $16.0 million face value entered into in October of 1998. In
January of 2002, the Company entered into two additional split dollar life
insurance agreements covering policies with a combined face value of $30.5
million (see Split Dollar Life Insurance Agreements for additional
disclosure).
11
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of
Securities Total Exercise Stock Price
Underlying Options Price Appreciation for
Options Granted to Per Option Term
Granted Employees in Share Expiration -----------------------
Name (#) (a) Fiscal Year ($/SH) Date 5%($) 10%($)
---- ---------- ------------- -------- ---------- ----------- -----------
Alan B. Miller........ 1,000,000 50.7% $42.4063 1/17/06 $11,716,013 $25,889,470
Kirk E. Gorman........ 120,000 6.1% $42.4063 1/17/06 $ 1,405,922 $ 3,106,736
Debra K. Osteen....... 80,000 4.1% $42.4063 1/17/06 $ 937,281 $ 2,071,158
Steve G. Filton....... 80,000 4.1% $42.4063 1/17/06 $ 937,281 $ 2,071,158
Richard C. Wright..... 80,000 4.1% $42.4063 1/17/06 $ 937,281 $ 2,071,158
----------
(a) Options are exercisable as follows: 25% one year after date of grant and an
additional 25% in each of the second, third and fourth years after date of
grant. The options expire five years after the date of grant.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options at in-the-Money Options at
Shares Value Fiscal Year-End (#) Fiscal Year-End ($) (2)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ---------- ----------- ------------- ----------- -------------
Alan B. Miller.......... 0 $ 0 547,500 1,362,500 $12,618,992 $9,606,984
Kirk E. Gorman.......... 47,000 $1,121,587 0 191,000 $ 0 $1,682,784
Debra K. Osteen......... 4,500 $ 161,313 14,500 114,000 $ 280,044 $ 660,086
Steve G. Filton......... 39,250 $ 900,160 0 127,250 $ 0 $1,100,070
Richard C. Wright....... 28,750 $ 596,636 0 121,250 $ 0 $ 869,609
----------
(1) Based on the difference between the exercise price and the closing sale
price of the Class B Common Stock on the New York Stock Exchange on the
date of exercise.
(2) Based on the difference between the exercise price and the closing sale
price of the Class B Common Stock on the New York Stock Exchange on
December 31, 2001 of $42.78 per share.
12
Employment Agreement
The Company and Alan B. Miller have entered into an amended and restated
employment agreement as of November 14, 2001 (the "Employment Agreement")
pursuant to which Mr. Miller will act as President and Chief Executive Officer
of the Company until December 31, 2007 or, if the Company or Mr. Miller so
elects, until December 31, 2012. In addition, the Employment Agreement
provides for a five-year consulting arrangement commencing upon the expiration
of the term of Mr. Miller's active employment, during which period he will be
paid an annual fee equal to one-half of his base salary in effect at the
expiration of the term of active employment. During the period of his active
employment, Mr. Miller is entitled to a salary of $1,000,000 for the year
ended December 31, 2001, to be increased in each year thereafter by an amount
equal to not less than the percentage increase in the consumer price index
over the previous year. Mr. Miller is also entitled to an annual bonus of at
least $100,000, payment of insurance premiums, other fringe benefits
previously enjoyed in accordance with past practice, as well as such other
compensation as the Board of Directors may determine in its discretion. Mr.
Miller may be discharged only for cause or permanent disability. In connection
with the Employment Agreement, Mr. Miller has agreed not to compete with the
Company during the term of the Employment Agreement and for a period of one
year after termination if he is terminated for cause.
Executive Retirement Income Plan
In October, 1993, the Board of Directors adopted the Executive Retirement
Income Plan pursuant to which certain management or other highly compensated
employees designated by the Board of Directors who have completed at least 10
years of active employment with the Company may receive retirement income
benefits. The monthly benefit is payable to a participant who retires after he
or she reaches age 62 and is equal to 3% of the employee's average monthly
base salary over the three years preceding retirement multiplied by the number
of full years (not to exceed 10) of the participant's active employment with
the Company. Payment of the benefit will be made in 60 monthly installments
following the participant's retirement date. Under certain circumstances, the
participant may be entitled to elect to receive the present value of the
payments in one lump sum or receive payments over a period of 10 years. The
estimated annual benefits payable (for the 60 months in which the participant
receives benefits) upon retirement at age 65 for each of Alan B. Miller, Kirk
E. Gorman, Steve G. Filton, Richard C. Wright and Ms. Debra K. Osteen assuming
their annual compensation increases by 4% annually, would be $312,000,
$149,000, $157,000, $93,000 and $155,000 respectively. If an employee ceases
employment with the Company prior to age 62, no retirement income will be
payable to the participant unless the Board of Directors determines otherwise.
Split Dollar Life Insurance Agreements
In October 1998, UHS entered into split dollar life insurance agreements,
with a combined face value of $16.0 million, in connection with second to die
insurance policies issued on the lives of Alan B. Miller and his wife and
owned by the Alan B. Miller 1998 Dual Life Insurance Trust (the "1998 Trust").
This agreement and the related collateral assignment were assumed by and
assigned to the Company in October 1998. As currently in force, this agreement
requires the Company to make annual premium payments on the policies and gives
the Company an economic interest in the policies. In 2002, the Company will
make premium payments pursuant to this agreement of $270,500, and the 1998
Trust will reimburse the Company the one-year term cost of the insurance
protection to which the 1998 Trust is entitled under the insurance policies
pursuant to the terms of such split dollar life insurance agreement as such
cost is determined under the principles established by
13
applicable U.S. Treasury Department pronouncements, rulings and regulations
which shall be the lesser of an amount determined in accordance with
applicable U.S. Treasury Department pronouncements, rulings and regulations in
effect for such insurance protection; or the current published one-year term
rates available to all standard risks of the insurance company issuing such
insurance. The Company is entitled to receive a portion of the death proceeds
equal to its share of the aggregate premium payments. The Company's interest
in each policy is secured by a collateral assignment of the policy.
UHS entered into two additional split dollar life insurance agreements, with
a combined face value of $30.5 million, in connection with life insurance
policies issued on the life of Alan B. Miller and owned by the Alan B. Miller
2002 Trust (the "2002 Trust") in January 2002. These agreements and the
related collateral assignments were assumed by and assigned to the Company in
January 2002. As currently in force, these agreements require the Company to
make annual premium payments on the policies and give the Company an economic
interest in the policies. In 2002, the Company will make premium payments
pursuant to these agreements of $942,274, and the 2002 Trust will reimburse
the Company the one-year term cost of the insurance protection to which the
2002 Trust is entitled under the insurance policies pursuant these split
dollar life insurance agreements, as such cost is determined under the
principles established by applicable U.S. Treasury Department pronouncements,
notices, rulings and regulations in effect for determining such costs for
insurance protection, which, subject to and until changed, shall be the lesser
of the current published one-year term rates of the issuing insurance company
pursuant to the guidelines set forth in Rev. Rul. 66-110 and Rev. Rul. 67-154
or the Table 2001 set forth in IRS Notice 2002-8. The Company is entitled to
receive a portion of the death proceeds equal to its share of the aggregate
premium payments. The Company's interest in each policy is secured by a
collateral assignment of the policy.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock Option and Compensation Committee Interlocks and Insider Participation
Anthony Pantaleoni is Of Counsel to Fulbright & Jaworski L.L.P., the law
firm used by the Company as its principal outside counsel. This law firm also
provides personal legal services to the Company's Chief Executive Officer. Mr.
Pantaleoni is also the trustee of certain trusts for the benefit of the Chief
Executive Officer and his family. Robert Hotz, is Senior Vice Chairman and
Managing Director of Corporate Finance in the Americas of UBS Warburg LLC, the
investment banking firm which provided consulting services and brokerage
services for the Company's share buy-back program and acted as one of the
Company's initial purchasers for convertible debentures issued in 2000.
COMMITTEE REPORT TO SHAREHOLDERS
The report of the Stock Option and Compensation Committee shall not be
deemed incorporated by reference by any general statement incorporating by
reference to this proxy statement into any filing under the Securities Act of
1933, as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
14
Compensation Philosophy
The Committee regularly reviews and, with any changes it believes
appropriate, approves the Company's compensation program. The Company believes
that executive compensation should be closely related to the value delivered
to stockholders. This belief has been adhered to by developing incentive pay
programs which provide competitive compensation and reflect Company
performance. Both short-term and long-term incentive compensation are based on
Company performance and the value received by stockholders.
In designing its compensation programs, the Company follows its belief that
compensation should reflect the value created for stockholders while
supporting the Company's strategic business goals. In doing so, the
compensation programs reflect the following themes:
. Compensation should encourage increased stockholder value.
. Compensation programs should support the short-term and long-term
strategic business goals and objectives of the Company.
. Compensation programs should reflect and promote the Company's values,
and reward individuals for outstanding contributions toward business
goals.
. Compensation programs should enable the Company to attract and retain
highly qualified professionals.
Pay Mix and Measurement
The Company's executive compensation is based on three components, each of
which is intended to serve the overall compensation philosophy.
Base Salary
The Company's salary levels are intended to be consistent with competitive
pay practices and level of responsibility, with salary increases reflecting
competitive trends, the overall financial performance of the Company, the
performance of the individual executive and general economic conditions.
Short-Term Incentives
In May 1994, the Company's stockholders approved the adoption of the
Company's Executive Incentive Plan. At this year's Annual Meeting of
Stockholders, the Stockholders are being asked to approve a replacement
Executive Incentive Plan. See "Proposal No. 2--Adoption of the Universal
Health Services, Inc. Executive Incentive Plan." Pursuant to that Plan, at the
start of each fiscal year, target levels of net income and return on assets
for the Company as a whole ("Company Targets") and target levels of net income
for each of the Company's individual divisions and facilities ("Division
Targets") are recommended by senior management of the Company and approved by
the Committee of the Board of Directors which administers the Plan. In
accordance with the Plan, a subcommittee consisting of Mr. Herrell and Ms.
Ducat established salary and bonus targets in March 2001 for the 2001 calendar
year. Similarly, a subcommittee will establish salary and bonus targets for
future years in accordance with tax law requirements. The Committee expects to
continue the basic policies outlined below. All senior executives of the
Company, including heads of divisions and facilities, have the opportunity to
earn as a bonus for a fiscal year an amount equal to a portion of their base
salary for that fiscal year, depending on whether and to what extent the
Company Targets and/or the Division Targets are achieved. For fiscal 2001, (i)
Alan B. Miller, the Company's
15
Chairman and President, was entitled to a bonus of 120% of his base salary
based on the achievement of Company Targets, (ii) Kirk E. Gorman, a Senior
Vice President of the Company, was entitled to a bonus of 80% of his base
salary based on the achievement of Company Targets, (iii) Steve Filton, a Vice
President at the Company was entitled to a bonus of 64% of his base salary
based on the achievement of Company Targets , separately, Mr. Filton received
a $50,000 bonus for heading the Acute Care Division, on an interim basis
during 2001, (iv) Debra K. Osteen, a Vice President of the Company, was
entitled to a bonus of 91% of her base salary based on the achievement of
Company Targets and the Division Targets, and; (v) Richard C. Wright, Vice
President of the Company, was entitled to a bonus of 16% of his base salary
based on the achievement of Company Targets, plus $130,000 related to
completed hospital acquisitions. Seventy-five percent (75%) of the bonus of
Ms. Osteen was determined based on the achievement of the Division Targets and
the remaining 25% of such bonuses were determined based on the achievement of
Company Targets. Depending upon the actual performance of the Company and the
Divisions compared to Company Targets and/or the Division Targets, the senior
executives can receive bonuses up to 150% of their base salaries.
Long-Term Incentives
Stock options are granted from time to time to reward key employees'
contributions. The grant of options is based primarily on a key employee's
potential contribution to the Company's growth and profitability. Options are
granted at the prevailing market value of the Company's Common Stock and will
only have value if the Company's stock price increases. Generally, grants of
options vest in equal amounts over four years and executives must be employed
by the Company for such options to vest.
2001 Compensation
The base salary for the Chairman and President was increased during 2001 to
$1,000,000. This represents a 5.5% increase over 2000.
The Stock Option and Compensation Committee believes that linking executive
compensation to corporate performance results in a better alignment of
compensation with corporate business goals and stockholder value. As
performance goals are met or exceeded, resulting in increased value to
stockholders, executives are rewarded commensurately. The Stock Option and
Compensation Committee believes that compensation levels during 2001
adequately reflect the Company's compensation goals and policies.
The Committee intends that compensation awarded to individuals will be to
the extent practicable eligible for deduction under Section 162(m) of the
Internal Revenue Code but will in certain circumstances award compensation not
eligible for such deductions.
STOCK OPTION AND COMPENSATION COMMITTEE
John H. Herrell Robert H. Hotz
Leatrice Ducat Anthony Pantaleoni
16
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(The Company, S&P 500 and Peer Group)
[GRAPH]
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------ ------
-
Universal Health Services-
CLB $100.00 $175.98 $181.22 $125.76 $390.39 $298.90
S & P 500 Index $100.00 $133.36 $171.48 $207.56 $188.66 $166.24
Peer Group $100.00 $92.85 $79.50 $79.32 $131.33 $130.36
The total cumulative return on investment (change in the year end stock
price plus reinvested dividends) for each of the periods for the Company, the
peer group, the old peer group and the S&P 500 Composite is based on the stock
price or composite index at the end of fiscal 1996.
The above graph compares the performance of the Company with that of the S&P
500 Composite and a group of peer companies, where performance has been
weighted based on market capitalization. Companies in the peer group, which
consist of companies in the S&P Health Care Hospital Management Index (in
which the Company is also included), are as follows: Tenet Healthcare
Corporation, HCA-Healthcare Corporation, Health Management Associates,
Province Healthcare Company, Triad Hospitals, Inc. and Lifepoint Hospitals,
Inc.
17
COMPENSATION OF DIRECTORS
The non-employee directors are compensated for their service on the Board of
Directors and Committees of the Board on an annual basis at $20,000 each.
During 1998, the Company adopted the Deferred Compensation Plan for UHS Board
of Directors (the "Plan"). The Plan allows the Company's Board of Directors to
elect: (i) the amount of their compensation to be deferred; (ii) the future
date when the deferred amounts should be paid; (iii) the method of
distribution to be used when the deferred amounts are paid, and; (iv) the
investment measure to be used for crediting earnings on deferred amounts
during the period held pursuant to the Plan. As of December 31, 2001, three
members of the Company's Board of Directors are participating in this Plan.
On January 17, 2001, all non-employee directors of the Company received an
option to purchase 10,000 shares of the Company's Class B Common Stock at an
exercise price of $42.4063 per share. All the above options are exercisable as
follows: 25% one year after date of grant and an additional 25% in each of the
second, third and fourth years after date of grant. The options expire five
years after the date of grant.
BOARD OF DIRECTORS
Meetings of the Board. Regular meetings of the Board are generally held
every other month, while special meetings are called when necessary. Before
each Board or Committee meeting, directors are furnished with an agenda and
background materials relating to matters to be discussed. During 2001, there
were six Board meetings. All current directors attended more than 75% of the
meetings of the Board and of committees of the Board on which they served.
The Executive Committee, the Stock Option and Compensation Committee, the
Audit Committee, and the Finance Committee are the standing committees of the
Board of Directors, and may meet concurrently with the Board of Directors'
meetings.
Executive Committee. The Executive Committee has the responsibility, between
meetings of the Board of Directors of the Company, to advise and aid the
officers of the Company in all matters concerning the management of the
business and, while the Board is not in session, has the power and authority
of the Board to the fullest extent permitted under law. The Executive
Committee met three times in 2001. Members of the Committee are Alan B.
Miller, Robert H. Hotz, and Anthony Pantaleoni.
Stock Option and Compensation Committee. The Stock Option and Compensation
Committee has responsibility for reviewing and recommending to the Board of
Directors the compensation levels of officers and directors of the Company and
its subsidiaries and the administration of the 1992 Corporate Ownership
Program, As Amended, the Amended and Restated 1992 Stock Bonus Plan, the Stock
Purchase Plan, the Amended and Restated 1992 Stock Option Plan, the Stock
Compensation Plan and the 2001 Employees' Restricted Stock Purchase Plan. This
Committee either met or took action through unanimous written consent four
times in 2001. The members of this Committee are Anthony Pantaleoni, Robert H.
Hotz, John H. Herrell and Leatrice Ducat. A subcommittee of the Stock Option
and Compensation Committee, comprised of Mr. Herrell and Ms. Ducat, will
administer the Executive Incentive Plan and the various stock plans.
18
Audit Committee. The Audit Committee is responsible for providing assistance
to the Board of Directors in fulfilling its responsibilities relating to
corporate accounting and reporting practices and to maintain a direct line of
communication between the directors and the independent accountants. It
recommends the firm to be appointed independent auditor, reviews the scope and
results of the audit with the independent auditors and considers the adequacy
of the internal accounting and control procedures of the Company. The Audit
Committee met twice in 2001. Members of this Committee are John H. Herrell,
Leatrice Ducat and John F. Williams, Jr., M.D.
Finance Committee. The Finance Committee is responsible for reviewing the
Company's cash flow and capital commitments and is charged with overseeing its
long-term financial planning. The Finance Committee did not meet in 2001.
Members of this Committee are Alan B. Miller and Robert H. Hotz.
AUDIT COMMITTEE REPORT
The Board of Directors of the Company is committed to the accuracy and
integrity of its financial reporting. The Audit Committee takes an involved
and active role in delivering on this commitment.
The Audit Committee provides independent, objective oversight of the
Company's accounting functions and internal controls. The Committee is
composed solely of independent directors who are qualified for service under
the New York Stock Exchange listing standards. It acts under a written charter
first adopted and approved by the Board of Directors in 2000.
The Audit Committee evaluates and recommends to the Board an accounting firm
to be engaged as the Company's independent auditors. Additionally, and as
appropriate, the Committee reviews and evaluates, and discusses and consults
with the Company's management, internal audit personnel and the independent
auditors about the following:
. the plan for, and the independent auditors' report on, each audit of the
Company's financial statements;
. changes in the Company's accounting practices, principles, controls or
methodologies, or in the Company's financial statements;
. significant developments in accounting rules;
. the adequacy of the Company's internal accounting controls, and
accounting, financial and auditing personnel; and
. the establishment and maintenance of an environment at the Company that
promotes ethical behavior.
The Audit Committee recommends to the Board that the Company's financial
statements be included in the Company's annual report. The Committee took a
number of steps in making this recommendation for 2001:
. First, the Committee discussed with the Company's independent auditors
the overall scope and plans for their audits.
19
. Second, the Committee met with the independent auditors, without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality
of the Company's financial reporting.
. Third, the Committee reviewed the audited financial statements in the
Annual Report with management including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness
of significant judgments, and the clarity of disclosures in the
financial statements.
. Fourth, the Committee reviewed with the independent auditors their
judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required
to be discussed with the Committee under auditing standards generally
accepted in the United States.
. Finally, the Committee discussed with the independent auditors the
auditors' independence from management and the Company, including the
matters in the written disclosures required by the Independence
Standards Board, and considered the compatibility of non-audit services
with the auditors' independence.
The Audit Committee reviewed the Company's financial statements with the
Board and discussed with Arthur Andersen LLP during the 2001 fiscal year, the
matters required to be discussed by Statement of Auditing Standard No. 61. The
Audit Committee received from Arthur Andersen LLP, the written disclosures
required by Independence Standards Board Standard No. 1 and discussed with
them their independence. Based on these discussions with Arthur Andersen LLP
and the financial statement review, and such other matters deemed relevant and
appropriate by the Audit Committee, the Audit Committee recommended to the
Board that the financial statements be included in the Company's 2001 Annual
Report on Form 10-K.
Audit Committee
John H. Herrell
Leatrice Ducat
John F. Williams, Jr., M.D.
20
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has been retained by the Board of Directors, on the
recommendation of the Audit Committee, to perform all accounting and audit
services during the 2002 fiscal year. The Audit Committee is continuing to
evaluate the Company's engagement of Arthur Andersen, LLP. It is anticipated
that representatives of the Company's independent public accountants will be
present at the Annual Meeting and will have an opportunity to make a
statement, if they desire to do so, and to respond to any appropriate
inquiries of the stockholders or their representatives.
During 2001, the Company retained Arthur Andersen LLP, to provide services
in the following categories and amounts:
Audit fees $ 579,500
Financial information,
system design &
implementation fees 0
All other fees 1,797,490
----------
Total Fees $2,376,990
==========
The Audit Committee has considered and determined that the provision of non-
audit services by the Company's principal auditor is compatible with
maintaining auditor independence.
EXPENSES FOR PROXY SOLICITATION
The principal solicitation of proxies is being made by mail; however,
certain officers, directors and employees of the Company, none of whom will
receive additional compensation therefor, may solicit proxies by telegram,
telephone or other personal contact. The Company will bear the cost of the
solicitation of the proxies, including postage, printing and handling and will
reimburse the reasonable expenses of brokerage firms and others for forwarding
material to beneficial owners of shares.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
FOR PRESENTATION AT THE 2002 ANNUAL MEETING
Any proposal that a stockholder wishes to present for consideration at the
2003 Annual Meeting must be received by the Company no later than December 13,
2002. This date provides sufficient time for inclusion of the proposal in the
2003 proxy materials.
21
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors knows of no
other business to be presented for action at the Annual Meeting. As for any
business that may properly come before the Annual Meeting, the Proxies confer
discretionary authority in the persons named therein. Those persons will vote
or act in accordance with their best judgment with respect thereto.
YOU ARE URGED TO VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE YOUR PROXY BY TELEPHONE OR INTERNET AT
YOUR EARLIEST CONVENIENCE, WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE
ANNUAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Steve G. Filton
STEVE G. FILTON, Secretary
King of Prussia, Pennsylvania
April 12, 2002
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE SENT WITHOUT
CHARGE TO ANY STOCKHOLDER REQUESTING IT IN WRITING FROM: INVESTOR RELATIONS,
UNIVERSAL HEALTH SERVICES, INC., UNIVERSAL CORPORATE CENTER, 367 SOUTH GULPH
ROAD, P.O. BOX 61558, KING OF PRUSSIA, PENNSYLVANIA 19406-0958.
22
EXHIBIT A
UNIVERSAL HEALTH SERVICES, INC.
EXECUTIVE INCENTIVE PLAN
1. Purpose. The purpose of the Plan is to foster the ability of the Company
and its Affiliates to attract, retain and motivate highly qualified senior
management and other executive officers of the Company and its Affiliates
through the payment of performance-based incentive compensation.
2. Definitions. Wherever used herein, the masculine includes the feminine,
the singular includes the plural, and the following terms have the following
meanings unless a different meaning is clearly required by the context.
(a) "Affiliate" means any entity (whether or not incorporated) which is
required to be aggregated with the Company under Section 414(b) or 414(c)
of the Internal Revenue Code of 1986, as amended (the "Code").
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the administrative committee appointed by the Board
in accordance with the provisions hereof.
(d) "Company" means Universal Health Services, Inc.
(e) "Compensation" means the base salary of a Participant for a calendar
year, determined as of the beginning of the calendar year and without
regard to increases, if any, made during the calendar year.
(f) "Net Income" means the net income of the Company or of an Affiliate,
division, hospital or other unit, as determined by the Committee.
(g) "Participant" means, with respect to any calendar year, an individual
who is designated by the Committee as eligible to receive an incentive
award for the year upon achievement of the applicable performance
conditions.
(h) "Plan" means the incentive compensation plan as set forth herein and
any amendments thereto.
(i) "Return on Capital" means Net Income divided by the quarterly average
net capital of the Company or of an Affiliate, division, hospital or other
unit, as determined by the Committee.
3. Administration. The Plan will be administered by a committee consisting
of at least two directors appointed by and serving at the pleasure of the
Board. Each member of the Committee will be a "non-employee director" within
the meaning and for the purposes of Rule 16b-3 issued by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, and an "outside
director" within the meaning of Section 162(m) of the Code. Subject to the
provisions of the Plan, the Committee, acting in its sole and absolute
discretion, will have full power and authority to interpret, construe and
apply the provisions of the Plan and to take such action as may be necessary
or desirable in order to carry out the provisions of the Plan. A majority of
the members of the Committee will constitute a quorum. The Committee may act
by the vote of a majority of its members present at a meeting at which there
is a quorum or by unanimous written consent. The Committee will
A-1
keep a record of its proceedings and acts and will keep or cause to be kept
such books and records as may be necessary in connection with the proper
administration of the Plan. The Company shall indemnify and hold harmless each
member of the Committee and any employee or director of the Company or an
Affiliate to whom any duty or power relating to the administration or
interpretation of the Plan is delegated from and against any loss, cost,
liability (including any sum paid in settlement of a claim with the approval
of the Board), damage and expense (including legal and other expenses incident
thereto) arising out of or incurred in connection with the Plan, unless and
except to the extent attributable to such person's fraud or wilful misconduct.
4. Eligibility. Annual incentive compensation may be awarded under the Plan
to any person who is a member of the senior management of the Company and to
other executive officers of the Company or an Affiliate. Subject to the
provisions hereof, the Committee will select the persons to whom incentive
compensation may be awarded for any calendar year and will fix the terms and
conditions of each such award.
5. Annual Performance Bonus. The amount of a Participant's incentive award
for a year will be equal to the Participant's base bonus amount (described in
(a) below) multiplied by the applicable performance factor (described in (b)
below).
(a) Base Bonus Amount. For each calendar year, the Committee will
establish the amount of bonus ("base bonus amount") which will be payable
to a Participant if the performance goals for the year are met. A
Participants' base bonus amount will be expressed as a percentage of the
Participant's Compensation, which percentage may vary from year to year and
may be different for each Participant or class of Participants, all as
determined by the Committee.
(b) Applicable Performance Factor. For each calendar year, the Committee
will establish performance targets based upon the following business
criteria: increase in Net Income from the preceding calendar year, and
Return on Capital. As to any Participant or class of Participants, the
performance targets may be based upon either or both of such criteria and
on company-wide figures, local or divisional figures, or a combination
thereof. If a Participant's performance targets for a calendar year are
achieved, then the Participant will be entitled to receive an incentive
payment equal to 100% of the Participant's base bonus amount for the year.
No incentive compensation will be payable for a year if neither performance
target is achieved, and a performance bonus (which may be greater than 100%
of a Participant's base bonus amount) may be payable if either or both
performance targets are exceeded for a calendar year, all in accordance
with the Company performance matrix established by the Committee.
(c) Performance Conditions to be Pre-Established. Performance targets, as
well as percentage factors used to determine base bonus amounts and
performance percentages with respect to any calendar year will be
established in writing by the Committee before the beginning of that
calendar year; provided, however, that the Committee may establish any one
or more of said factors during the calendar year if and to the extent
permitted by the Treasury Department pursuant to Section 162(m) of the
Code.
(d) Limitation on Amount of Incentive Awards. Notwithstanding anything to
the contrary contained herein, the maximum incentive award which any
Participant may earn hereunder for any calendar year shall not exceed $5
million.
6. Calculation and Payment of Performance Bonus. As soon as practicable
after the end of each calendar year, the Committee, based upon the Company's
financial statements for the year, will determine the amount, if
A-2
any, of the incentive compensation payable to each Participant for that
calendar year. A Participant's incentive award for a calendar year will be
paid to the Participant at such time as the Committee determines; provided,
however, that the Committee certifies in writing prior to payment that the
performance goals were in fact satisified, and provided further that the
Committee may establish a procedure pursuant to which payment of all or a
portion of a Participant's incentive award for a calendar year will be
deferred. Unless the Committee determines otherwise, no incentive award will
be payable to a Participant with respect to a calendar year if the
Participant's employment with the Company and its Affiliates terminates at any
time prior to the payment thereof.
7. Amendment or Termination. The Board may amend or terminate the Plan at
any time. The Plan supersedes the executive incentive plan heretofore
maintained by the Company.
8. Term of the Plan. The Plan will become effective as of January 1, 2002,
subject to approval by the stockholders of the Company. Unless sooner
terminated by the Board, the Plan will continue through the date of the first
meeting of stockholders of the Company (or any adjournment thereof) in 2007.
9. Governing Law. The Plan and each award made under the Plan shall be
governed by the laws of the State of Delaware, without regard to its
principles of conflicts of law, it being understood, however, that annual
incentive compensation awarded and paid under the Plan are intended to
constitute "performance-based compensation" within the meaning of Section
162(m) of the Code, and the provisions of the Plan and any award made
hereunder will be interpreted and construed accordingly.
10. No Rights Conferred. Nothing contained herein will be deemed to give any
person any right to receive an incentive compensation award under the Plan or
to be retained in the employ or service of the Company or any Affiliate or
interfere with the right of the Company or any Affiliate to terminate the
employment or other service of any person for any reason.
11. Decisions of Board or Committee to be Final. Any decision or
determination made by the Board pursuant to the provisions hereof and, except
to the extent rights or powers under the Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee
hereunder, shall be final and binding.
A-3
PROXY CLASS B
COMMON STOCK
CLASS D
COMMON STOCK
UNIVERSAL HEALTH SERVICES, INC.
This Proxy Solicited By The Board Of
Directors For The Annual Meeting Of
Stockholders To Be Held On May 15, 2002
Alan B. Miller and Steve Filton and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote, as designated
below, all shares of Class B Common Stock and Class D Common Stock of Universal
Health Services, Inc. held of record by the undersigned on April 4, 2002, at the
Annual Meeting of Stockholders to be held at 10:00 a.m. on Wednesday, May 15,
2002 at the offices of the Company, Universal Corporate Center, 367 South Gulph
Road, King of Prussia, Pennsylvania and at any adjournment thereof. Any and all
proxies heretofore given are hereby revoked.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY,
OR VOTE BY TELEPHONE USING THE INSTRUCTIONS ON THE REVERSE SIDE.
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FOLD AND DETACH HERE
Annual Meeting
of
Universal Health Services, Inc. Stockholders
Wednesday, May 15, 2002
10:00 a.m.
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA.
================================================================================
| |
| Agenda |
| ------ |
| |
| * Election of a Director by the holders of Class A and Class C Common Stock |
| |
| * Election of a Director by the holders of Class B and Class D Common Stock |
| |
| * Adoption of the Universal Health Services, Inc. Executive Incentive Plan |
| |
| * Discussion on matters of current interest |
| |
================================================================================
Please mark your ----
vote as indicated | X |
in this example ----
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BELOW. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF JOHN F.
WILLIAMS, JR., M.D. AND THE ADOPTION OF THE UNIVERSAL HEALTH SERVICES, INC.
EXECUTIVE INCENTIVE PLAN
FOR WITHHELD
Election of John F. Williams, Jr., M.D. as a Director [ ] [ ]
Adoption of the Universal Health Services, Inc. FOR WITHHELD ABSTAIN
Executive Incentive Plan [ ] [ ] [ ]
Discretionary authority is hereby granted with respect to such other
matters as may properly come before the meeting.
Signature____________________ Signature ____________________ Date _________
IMPORTANT: Please sign exactly as name appears at the left. Each joint owner
shall sign. Executors, administrators, trustees, etc. should give full title.
The above-signed acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished therewith.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Your telephone or Internet vote authorizes the named proxies to vote
your shares in the same manner as if you marked, signed and
returned your proxy card.
------------------------------------- ------------------------------------------ -------------------------
Internet | | Telephone | | Mail |
http://www.eproxy.com/UHS | | 1-800-435-6710 | | |
Use the Internet to vote your | | Use any touch-tone telephone to | | Mark, sign and date |
proxy. Have your proxy card in | | vote your proxy. Have your proxy | | your proxy card |
hand when you access the web | OR | card in hand when you call. You will | OR | and |
site. You will be prompted to enter | | be prompted to enter your control | | return it in the |
your control number, located in | | number, located in the box below, | | enclosed postage-paid |
the box below, to create and sub- | | and then follow the directions given. | | envelope. |
mit an electronic ballot. | | | | |
------------------------------------- ------------------------------------------ -------------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
PROXY CLASS A
COMMON STOCK
CLASS C
COMMON STOCK
UNIVERSAL HEALTH SERVICES, INC.
This Proxy Solicited By The Board Of
Directors For The Annual Meeting Of
Stockholders To Be Held On May 15, 2002
Alan B. Miller and Steve Filton and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote, as designated
below, all shares of Class A Common Stock and Class C Common Stock of Universal
Health Services, Inc. held of record by the undersigned on April 4, 2002 at the
Annual Meeting of Stockholders to be held at 10:00 a.m. on Wednesday, May 15,
2002, at the offices of the Company, Universal Corporate Center, 367 South
Gulph Road, King of Prussia, Pennsylvania and at any adjournment thereof. Any
and all proxies heretofore given are hereby revoked.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PR0MPTLY.
PLEASE MARK YOUR CHOICE LIKE THIS IN BLUE OR BLACK INK
[_]_______________ ______________ ______________
ACCOUNT NUMBER CLASS A COMMON CLASS C COMMON
--------------------------------------------------------------------------------
I. The Election of Alan B. Miller as a Discretionary authority is hereby
Director. granted with respect to such other
[_] For [_] Withheld matters as may properly come before
the meeting.
II. The Adoption of the Universal
Health Services, Inc. Executive DATED: ____________________________
Incentive Plan
[_] For [_] Against [_] Abstain
SIGNATURE: ________________________
SIGNATURE: ________________________
-----------------------------------------
IMPORTANT: Please sign exactly as
name appears at the left. Each
joint owner shall sign. Executors,
administrators, trustees, etc.
should give full title.
--------------------------------------------------------------------------------
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE ABOVE, IF
NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR ELECTION OF ALAN B. MILLER
AS A DIRECTOR, AND FOR THE ADOPTION OF THE UNIVERSAL HEALTH SERVICES, INC.
EXECUTIVE INCENTIVE PLAN.
The above-signed acknowledges
receipt of the Notice of Annual
Meeting of Stockholders and the
Proxy Statement furnished
therewith.
--------------------------------------------------------------------------------