# FILED

July 1, 1998 Cecil W. Crowson Appellate Cou rt Clerk W. HUDSON CONNERY, JR., ET. AL., ) ) Davidson Chancery Plaintiffs/Appellants

, ) No. 95-3865-I

) VS. ) ) COLUMBIA/HCA HEALTHCARE ) Appeal No. CORPORATION, ET. AL., ) 01A01-9709-CH-00529 ) Defendants/Appellee

s. )

IN THE COURT OF AP PEALS OF TENNESSEE AT NASHVILLE APPEAL FROM

THE CHANCERY COURT OF DAVIDSON COUNTY AT NASHVILLE, TENNESSEE HONORABLE IRVIN H. K ILCREASE, JR., CHANC ELLOR

Robert S. Patterson, #6189 Patricia Head Moskal, #11621 BOULT, CUMMIN GS, C ONNER S & BER RY, P LC 414 Union Street, Suite 1600 P.O. Box 198063 Nashville Tennessee 37219 ATTORNEYS FOR PLAINTIFF S/APPELLANTS

Paul S. Davidson, #11789 Charles W. Cook, III, #14274 STOKES & BARTHOLOMEW, P.A. 2800 SunTrust Center 424 Church Street Nashville Tennessee 37219 ATTORNEYS FOR DEFENDANTS/APPELLEES

XXXXXXX. HENRY F. TODD PRESIDING JUDGE, MIDDL E SECTION

CONCURS: WILLIA M C. KOCH, JR., JUDGE WIILLI AM B. CAIN, JUDGE-2-

W. HUDSON CONNERY, JR., ET. AL., ) ) Davidson Chancery Plaintiffs/Appellants

, ) No. 95-3865-I

) VS. ) ) COLUMBIA/HCA HEALTHCARE ) Appeal No. CORPORATION, ET. AL., ) 01A01-9709-CH-00529 ) Defendants/Appellee

s. )



## O P I N I O N

Twenty former employees of

“HealthTrust,”

a ____________ sue

d HealthTrust and

its
“successor

in interest,” Col umbia

Health Care Corporation, to recover share of stock (or the value thereof) which they had purchased with earned bonuse s and for the value of shares of stock due some of the plaintiffs due them upon discharge. Two of the plaintiffs nonsuited , l eaving eighteen.

Fourteenof the plaintiffs also sued on the theory t hat their rights w

ere based upon th

eir “discharge with cause.”

The plaintiffs sough

t a declaration o

f their rig hts and d amages for bre

ach of contrac

t, breach of fiduciary duty

and conversion.

All plaintiffs moved for summary judg ment in regard to their claims for declaratory relief, for breach of contract, and for the vesting of stock upon “change of contro l. ” The defend ants moved for summary judgment upon the same issues. The Trial Court overruled plaintiffs’ motion and sustained defendants’ motion.

The defendants moved for summary judgment upon the r emaining claims, i.e., the termination without cause basis of the suits of fourteen of the plaintiffs. The Tri al Co urt-3-

sustained the motion and dismissed the suits of all eighteen plaintiffs who have appealed and presented the fo

llowing issues:
I. Whether

the plaintiffs’ rights to the restricted stock at issue v ested upon the occurrence of the merger between HealthTrust notw ithstanding the fact that HealthTrust’s Compensation Committee det erm ined that the stock would notbest upon the occurrence of the merger and the plaintiffs were so notified orally and in writing. Also, in this regard: (a) Whether

HealthTrust ne gated the automa tic vesting provision in the 1990 Plan , whi ch provided that a participant’s right to restric ted stock vests aut

omatically u nless HealthTrust provides otherwise in an “A war d agr eement,” when on October 31, 1994, Health Trust’s Compensation Committee met and award e d the restricted stock subject to the condition that the plaintiff s’ rights would not best upon the merger, and HealthTrust sent memoranda, w orksheets, and held meetings with the plaintiffs wherei n i t informed them th at the restricted stock would not best upon the occurrence of the merger. (b) Whether

the Compensation C ommittee’s December

21, 1993, award of

(i) the plaintiffs’ targeted bonus amounts (the amount of bonu s they could e

arn at the en d of the following fiscal year) and (ii) the plaintiffs’ right to elect a percentage of

the actual bonus awa

rded at yea

r end to purchase restricted stock constituted an award of restricted stock so as to prevent the Compensa tion Committee from being able to override the automatic ves t ing provision notwithstanding the fact that the bonuses and awards of re stricted stock were not actually made until October 31, 1994, and the operative plan allows the Comp ensati on Commit tee th e right to override and/or amend vesting provisions.
II. Whether

plaintiffs Conner

y, Franci s, Hobbs, Hough, Ken ned y, Lambert, Martin, McCain, Moore, Price, Sluss er and Wallace were ter

minated without cause so as to trigger their besting in the r estrict ed stock at issue notwithstanding the fact that

they admit that they were offe red positions with Columbia, and they chose t o resign rather than accept such positions.
III. Whether, to the extent that plaintif fs Connery,

Francis, Hobbs, Hou gh, K enn edy, Lambert, Martin, McCain, Moore, Price, Slusser and Wallace seek to recover the restricted stock and/or its appreciated value based on the ci rcumstances of their termination

, they waive

d their right the restricted stock when they execute

d Severance Prot

ection Agreem

ents which provided that the benefits grant ed thereunder w

ere in lieu of any o the r se vera nce o r te rmi nat ion pay.-4- It is undisputed that the plaintiffs were employees o

f HealthTrust

during its 1994 fiscal
year which end ed August 31 , 1994, and were participants in a restricted stock purchase plans calledthe “Total Direc

t C o mpensation Plan,” the “Amended and Restated HealthTrust, Inc.,” and the “Hospital Company 1990 Stock Compensation Plan.”

On October 15, 1991, the board of direct ors of He alth Care created a “Compensation Committee of its members. According to the Compensation Plan:

The purpose of the [1990 Plan] is to advance the int erests of [Health Trust] and its shareholders by providing incentives to offic ers and other key employees or individuals

who contribute signi

ficantly to the strategic and long -term perform anc e objectives and growth of [Hea lthT rust] by their invention, ability

, in d ustry, loyalty

or exceptional service. The [199 0] P lan is intended not only as a me ans of attra cting and retaining outstanding management but also of promoting a close

identity of interests between [HealthTrust’s ] m anagement and it s stockholders

. The 1990 Plan defines an “Award” of restricted stock as “An award or grant of . . . Res tricted Sto ck . . . by the Committee to a p articipantunder the Plan.” 1990 Plan, § 2 (App.I, 18). Notwithstanding the existence of the 1990 Plan, the 1990 Plan states that, “No person shall haveany claim or right to be granted an

Award under the Plan, and no Participant shallhave any right under the Plan to be retained in the employ of the Company.” 1990 Plan, § 18(a) (App.I , 39). The 1990 Plan also prov ides t hat the Plan “shall be administered by the Committee, which shall have the power to interpr et the Plan and, sub ject to its provision

s, to prescribe, amend, waive and rescind rules and regu

lations, to determine the terms of Awar ds and to

make al l other dete rmina tions necessary or desirable for the Plan’s admi nistration.” 1990 Plan, § 3 (App.I , 22-23) (emphas

i s added). Moreover, “ all actiontaken by the Committee in the administration and interpretation of the Plan . . . shall be final and binding on all concerned.” 1990 Plan, § 3 (App.I, 22-23) (emphasis

added) . Th e Committee is also entitled to select the Participants to be granted Awar ds, determine the

amounts and type or types of Awards to be made , set forth the terms, conditions a nd lim itations applicable to each Award, and prescribe the form of the instruments embodying Awards-5- made under the plan . 1990 Plan, § 4 (App.I, 237) (emphasis added). With regard to Awards of restricted stock, such as the restricted stock at issue in this

case , Section 8 of the 1990 Plan provides spec

ifically as follows: (a) Awards of

Restricted Shares or R es tricted Units . Awards of Restricted Stock or Restricted Units may be granted under the Plan in such form and on such terms and conditions as th e Committee may from time to time a pp rove, including, without limitation, restrict ions on the s ale, assignment , transf ero r other disposition or encumbrance of such shares or un

its du ring the Restricted Period and the requirem

ent that t he Pa rticipant forfeit s uch share or units back to the Company upon termination of e mployment for specified r eas ons within the Restricted Period. Restricted Awards may be granted a l one, in addition to or in tandem w i th other Awards under the Plan. (b) Restricted Period. At the time an Award of Restric

ted Stock or Rest

ric ted Units is made, the Committee shall e stablish the Restricted Period ap p licable to such Restricted Stock or Restricted Units du ri ng which period of time

such Restricted Stock or Restricted Units are subject to a subs ta ntial risk of forfeiture in accordan c e with this Section and Section 13 hereof. During the Restricted Period, such Restricted Stock or Restricted Units may not be sold, assigned, transferred, made subject to gift, or otherwise dis posed of, mortgaged, pledged o r encumbered. Each Re stri cted Award may ha v e a different Restricted Period. The Committee may, in it

s so le discretion, at the time a Restrict ed Award is made prescribe conditions for the increme ntal l apse of restrictions during the Restricted period and f or the lapse or termination of restrict ion s upon the satisfaction of other condition than the expirati o n of the Restricte d Period with r e spect to all or any portion of the Restricted Stock or Restricted U ni ts. The Committee may also, in its sole discretion, shorten or termi nate the Restricted Period or waive any conditions for the lapse or Period or waive any conditions for the lapse or t erminatio n of rest ri ctions with respect to all or any portion of the Restricted

Stock or Restricte

d Units

.
- - - --6- As is stat e d in the TDC Plan, the actual bonus aw arded to each employee at the end of the fiscal y ear was contingent

upon the satisfaction of the objectives established by the Compen

sation Committee and

the plan particip

ants.

. . . . the actual bonus would not be determined until the end of the fiscal year, and that the bonus could be above or below the target incenti

ve opportunity

amount, and Healt

hTrust would now know how much stock to award until year end.

On October 4, 1994, H

ealthTrust

decided to merg

e with Columbia HCA

and announced this decision to its e

mployees.

On October 31, 1994, the Compensation Committee agreed to award plaintiffs their 1994 cash incentive bo

nuses under the 19

90 plan under the f

ollowing restric

tions: (i) for

vesting on August 31, 1996 , (ii )that vesting of awards will not accelerate pursuant to Section 18 (h) of

such Stock Compensation Plan in the event of a “change in control” and, (iii) for such furth

er t erms and conditions as sha ll b e set forth in an award agreement as executed by the Committee Chai r man or his designee on behalf of the Committee; and RESOLVED, that the proper officers of the Corporation be and they

hereby are authorized to take all such actions and e xecute all such ag re ements or other documents as they deem necessary or advisable or convenient or proper to carry out the intent of the foregoing resolution.

In January, 1994, HealthTrust distributed to its employees a memorand um and work sheet with “Election Forms.”

On February 28, the board of directors of Hea lthTrust adopted andapproved the plan of its Compensation Committee.

On April 24, 1994, Health Care merged with Columbia HCA.-7- XXXXXXXXX

.

_________________________________ HENRY F. TODD PRESIDI NG JUDGE, MIDDLE SECT IO N

CONCUR:

_____________________________ WILLIA M C. KOCH, JR., JUDGE

_____________________________ WILLIA M B. CAIN, JUDGE