<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ending September 30,
1998.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
------ -------
Commission File No.: 001-14397
NEW AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 62-1750169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 WESTPARK DRIVE, SUITE 440
NASHVILLE, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
(615) 221-5070
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES NO X
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 10, 1998
----- --------------------------------
Common stock, $.01 par value 17,595,370
<PAGE> 2
NEW AMERICAN HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
September 30, 1998 (unaudited) and March 31, 1998 1
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
September 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE 22
</TABLE>
<PAGE> 3
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1998 (unaudited) and March 31, 1998
(In thousands, except per share information)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1998 1998
------------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents 1,714 6,119
Patient accounts receivable, net of allowance for doubtful accounts of
$8,634 and $9,172 at September 30, 1998 and March 31, 1998 28,325 21,933
Other receivables 1,892 1,290
Inventories 3,044 2,720
Prepaid expenses and other current assets 2,177 1,409
-------- --------
Total current assets 37,152 33,471
Property and equipment, net 105,153 84,404
Goodwill, net of accumulated amortization of $442 and $299 at
September 30, 1998 and March 31, 1998 21,029 16,672
Other assets 1,413 1,673
-------- --------
Total assets 164,747 136,220
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 16,423 14,522
Estimated third-party payor settlements 6,048 3,118
Current portion of capital lease obligations 284 525
-------- --------
Total current liabilities 22,755 18,165
Capital lease obligations, excluding current portion 4,769 4,865
Long-term debt 53,550 37,550
Subordinated notes payable to affiliates - 24,769
Deferred income taxes 1,339 1,339
Redeemable preferred stock - Series A, $.01 par value, 250 shares authorized,
no shares and 250 shares issued and outstanding at September 30, 1998 and
March 31, 1998 - 25,617
Stockholders' equity:
Preferred stock, Series B, $.01 par value, 235 shares authorized, no
shares and 235 shares issued and outstanding at September 30, 1998 and
March 31, 1998 - 2
Common stock, $.01 par value; 50,000 shares authorized; 16,172 and 8,027 shares issued
and outstanding at September 30, 1998 and March 31, 1998 156 80
Non-voting common stock, $.01 par value: 1,500 shares authorized; 1,423 and no shares
issued and outstanding at September 30, 1998 and March 31, 1998 14 -
Additional paid-in capital 82,088 24,264
Common stock warrants 235 235
Deferred compensation (561) -
Retained earnings (deficit) 402 (666)
-------- --------
Total stockholders' equity 82,334 23,915
-------- --------
Total liabilities, redeemable preferred stock and stockholders' equity 164,747 136,220
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 4
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months and six months ended September 30, 1998 and 1997
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue 36,870 16,484 71,726 26,122
Other revenue 1,092 291 2,134 515
------- ------ ------- ------
Net operating revenues 37,962 16,775 73,860 26,637
------- ------ ------- ------
Expenses:
Salaries and benefits 16,936 6,720 33,146 10,804
Professional fees 4,913 1,998 9,628 3,077
Supplies 3,971 1,996 7,939 3,181
Provision for doubtful accounts 3,086 1,434 6,098 2,221
Other 3,992 2,101 7,881 3,396
General and administrative 767 703 1,432 1,525
Depreciation and amortization 1,275 720 2,634 1,346
Interest 1,541 563 3,098 768
------- ------ ------- ------
Operating expenses 36,481 16,235 71,856 26,318
------- ------ ------- ------
Income from operations before
income taxes and extraordinary item 1,481 540 2,004 319
Income taxes 593 68 802 68
------- ------ ------- ------
Income from operations before
extraordinary item 888 472 1,202 251
Extraordinary item - loss on early extinguishment
of debt (net of tax of $89,000) 134 - 134 -
------- ------ ------- ------
Net income 754 472 1,068 251
Cumulative preferred dividend 273 117 710 159
------- ------ ------- ------
Net income available to common shareholders 481 355 358 92
======= ====== ======= ======
Net income (loss) per share:
Basic
Continuing operations 0.05 0.04 0.04 0.01
Extraordinary (0.01) - (0.01) -
------- ------ ------- ------
0.04 0.04 0.03 0.01
======= ====== ======= ======
Diluted
Continuing operations 0.04 0.03 0.04 0.01
Extraordinary (0.01) - (0.01) -
------- ------ ------- ------
0.03 0.03 0.03 0.01
======= ====== ======= ======
Weighted average number of shares and
dilutive share equivalents outstanding:
Basic 12,544 8,406 10,475 8,406
======= ====== ======= ======
Diluted 15,360 12,625 14,235 12,481
======= ====== ======= ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 5
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1998 and 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows provided by operating activities 3,129 366
------- -------
Cash flows from investing activities:
Purchase of property and equipment (2,558) (1,002)
Sale of property 143 2
Cash paid for acquisitions (27,349) (32,736)
Deferred acquisition costs (50) -
------- -------
Net cash used by investing activities (29,814) (33,736)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 29,500 18,508
Repayment of long-term debt (13,500) -
Repayment of notes payable to affiliates (25,000) -
Repayment of capital lease obligations (338) (300)
Issuance of common stock 58,013 8,336
Issuance of redeemable preferred stock - 7,440
Repayment of redeemable preferred stock (26,326) -
Deferred financing costs (69) -
------- -------
Net cash provided by financing activities 22,280 33,984
------- -------
Net increase (decrease) in cash and cash equivalents (4,405) 614
Cash and cash equivalents- beginning of period 6,119 697
------- -------
Cash and cash equivalents- end of period 1,714 1,311
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in hospital acquisitions:
Receivables 3,152 6,575
Inventory 298 802
Prepaid expenses and other assets 26 179
Accounts payable and accrued expenses 1,722 4,427
Estimated third-party payor settlements - (213)
Capital lease obligations - 620
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 6
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Interim results
are not necessarily indicative of results that may be expected for the
full year.
In the opinion of management, the accompanying unaudited interim
financial statements contain all material adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operation and cash flows of
New American Healthcare Corporation (the "Company") for the interim
periods presented.
For further information, refer to the consolidated financial statements
and footnotes thereto as of and for the year ended March 31, 1998,
included in the Company's Form S-1 which became effective on August 17,
1998.
Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) ACQUISITIONS
During the six months ended September 30, 1998 and the year ended March
31, 1998, the Company acquired the following hospitals:
<TABLE>
<CAPTION>
HOSPITAL EFFECTIVE DATE LOCATION
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1998:
Puget Sound Hospital September 1, 1998 Tacoma, Washington
YEAR ENDED MARCH 31, 1998:
Memorial Hospital of Center May 1, 1997 Center, Texas
Delta Medical Center May 16, 1997 Memphis, Tennessee
Dolly Vinsant Hospital August 1, 1997 San Benito, Texas
Woodland Park Hospital (a) February 1, 1998 Portland, Oregon
Eastmoreland Hospital (a) February 1, 1998 Portland, Oregon
Lander Valley Medical Center (a) February 1, 1998 Lander, Wyoming
Davenport Medical Center (a) February 1, 1998 Davenport, Iowa
</TABLE>
(a) Hospitals were acquired in a single transaction for an aggregate
purchase price of $57,000.
The Company has acquired hospitals primarily in exchange for cash
and assumption of associated liabilities for the six months ended
September 30, as follows:
<PAGE> 7
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
------ ------
<S> <C> <C>
Purchase price 27,850 32,900
Add: liabilities assumed 1,722 4,834
Less: assets acquired 23,939 31,239
------ ------
Costs in excess of fair value of net assets acquired 5,633 6,495
====== ======
</TABLE>
The acquisitions were accounted for as purchases and the accompanying
consolidated financial statements include the results of the hospitals'
operations from the respective dates of the acquisitions.
The following unaudited pro forma results of operations for the six
months ended September 30, 1998 and 1997 give effect to the acquisitions
as if the respective transactions had occurred as of April 1, 1997. The
unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed at
the beginning of the periods presented. In addition, they are not
intended to be a projection of future results of operations and do not
reflect any of the synergies that might be achieved in hospital
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30.
------------------------- -------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net operating revenues 42,622 43,131 85,695 85,267
Net income available to common shareholders 1,009 748 2,043 795
Basic earnings per share 0.08 0.09 0.20 0.09
Diluted earnings per share 0.07 0.06 0.14 0.06
</TABLE>
(3) STOCKHOLDERS' EQUITY
REINCORPORATION
On August 20, 1998, the Company reincorporated as a Delaware corporation
pursuant to a merger of New American Healthcare Corporation, a Tennessee
corporation, with and into a newly created Delaware corporation. The name
of the surviving entity is New American Healthcare Corporation. As a
result of the merger, the Company increased the authorized number of
shares of Common Stock from 20,000,000 to 50,000,000 and created a class
of Non-Voting Common Stock with 1,500,000 authorized shares, caused all
outstanding Series B Preferred Stock to be exchanged for Common Stock and
Non-Voting Common Stock, and caused all outstanding shares of Series A
Preferred Stock and accrued dividends to be redeemed for cash. As a
result of the Reincorporation, each share of common stock in the
Tennessee corporation was converted into 1.0473 shares of common stock in
the Delaware corporation. All prior period share and per share
information has been adjusted for the conversion.
<PAGE> 8
INITIAL PUBLIC OFFERING OF COMMON STOCK
On August 20, 1998, the Company completed its initial public offering of
common stock. In connection with the offering, the Series B preferred
stock was converted into 1,423 and 2,766 shares of non-voting and voting
common stock, respectively. The net proceeds from the offering were used
to redeem the outstanding balance of the Series A redeemable senior
preferred stock plus accrued dividends, repay the Subordinated notes
payable to affiliates, and reduce the balance of the revolving credit
agreement.
The following table sets forth the changes in the stockholders' equity
accounts (in thousands):
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------ ADDITIONAL SERIES B
NON-VOTING VOTING PAID-IN PREFERRED
SHARES SHARES AMOUNT CAPITAL STOCK
---------- ----------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 - 8,027 $ 80 $ 24,264 $ 2
Stock split prior to initial
public offering - 379 - - -
Conversion of preferred stock 1,423 2,766 40 (38) (2)
Initial public offering of
common stock - 5,000 50 57,963 -
Cumulative dividends on Series A
preferred stock - - - (710) -
Deferred compensation associated
with issuance of stock options - - - 609 -
Amortization of deferred
compensation - - - - -
Net income - - - - -
---------------------------------------------------------
BALANCES AT SEPTEMBER 30, 1998 1,423 16,172 $170 $ 82,088 $ -
=========================================================
<CAPTION>
COMMON RETAINED TOTAL
STOCK DEFERRED EARNINGS STOCKHOLDERS'
WARRANTS COMPENSATION (DEFICIT) EQUITY
-------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1998 $235 $ - $ (666) $ 23,915
Stock split prior to initial
public offering - - - -
Conversion of preferred stock - - - -
Initial public offering of
common stock - - - 58,013
Cumulative dividends on Series A
preferred stock - - - (710)
Deferred compensation associated
with issuance of stock options - (609) - -
Amortization of deferred
compensation - 48 - 48
Net income - - 1,068 1,068
-----------------------------------------------
BALANCES AT SEPTEMBER 30, 1998 $235 $(561) $ 402 $ 82,334
===============================================
</TABLE>
EARNINGS PER SHARE
The following table sets forth the components used in the computation of
basic and diluted earnings per share:
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income from operations before extraordinary item 888 472 1,202 251
Cumulative preferred dividends (273) (117) (710) (159)
------- ------- ------- -------
Continuing operations 615 355 492 92
Extraordinary items (134) - (134) -
------- ------- ------- -------
Net income available to common shareholders 481 355 358 92
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 12,544 8,406 10,475 8,406
Effect of dilutive securities
Stock options 141 29 139 29
Warrants 373 - 375 -
Series B preferred stock 2,302 4,190 3,246 4,046
------- ------- ------- -------
Denominator for diluted earnings per share 15,360 12,625 14,235 12,481
======= ======= ======= =======
</TABLE>
DEFERRED COMPENSATION
In April and May 1998, the Company issued 389 stock options that had
exercise prices below the fair market value of the common stock at the
time of issuance. This resulted in the Company recording $2,417 of
deferred compensation that is being amortized over the five-year vesting
period. In August 1998, the Company cancelled 322 of such options, which
resulted in the reversal of $1,808 of deferred compensation related to
such options.
(4) SUBSEQUENT EVENTS
In November 1998, the Company signed a 30-year lease agreement to operate
L.O. Crosby Memorial Hospital located in Picayune, Mississippi, which
formerly operated as a not-for-profit institution. The Company intends to
apply for a Certificate of Need to build a 75-bed replacement facility.
In November 1998, the Company also acquired the stock of Memorial
Hospital of Adel, Inc., consisting of a 60-bed for-profit acute care
hospital, 95-bed Memorial Convalescent Center, and Memorial Home Health
Services, all located in Adel, Georgia for a purchase price of $16.5
million plus working capital settlement, which will be financed with
long-term debt. The transaction will be accounted for as a purchase
business combination.
(5) ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income.
Comprehensive income generally includes all changes to income during a
period excluding those resulting from investments by stockholders and
distributions to stockholders. Net income was the same as comprehensive
income for the three and six months ended September 30, 1998 and 1997.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
New American acquires and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in those non-urban communities in
which it operates.
The Company acquired its first hospital in August 1996 and through
September 1998 has acquired eight additional hospitals. These nine acute care
hospitals are located in seven states and have a total of 1,192 licensed beds.
IMPACT OF ACQUISITIONS
An integral part of the Company's strategy is to acquire non-urban
acute care hospitals. Because of the financial impact of the Company's recent
acquisitions, it is difficult to make meaningful comparisons between the
Company's financial statements for the fiscal periods presented. In addition,
due to the relatively small number of hospitals currently operated, each
hospital can materially affect the overall operating margins of the Company.
Upon the acquisition of a hospital, the Company typically takes a number of
steps intended to lower operating costs. The impact of such actions may be
offset by the cost of revenue enhancing initiatives such as expanding services,
strengthening medical staff, and improving market position. The benefits of
these investments and of other activities to improve operating margins generally
do not occur immediately. Consequently, the financial performance of a newly
acquired hospital may initially have an adverse effect on the Company's overall
operating margins. The Company believes that the short-term negative impact on
overall margins will decrease with subsequent acquisitions as the Company
expands its financial base.
In August 1996, the Company acquired Doctors Hospital in Wentzville,
Missouri in an asset purchase transaction for $14.0 million. In May 1997 the
Company acquired Memorial Hospital of Center, Center, Texas in a stock purchase
transaction for $11.5 million. Also in May 1997, the Company purchased Eastwood
Hospital, Memphis, Tennessee (later renamed Delta Medical Center - Memphis) in
an asset purchase transaction for $13.3 million. In August 1997, the Company
acquired Dolly Vinsant Memorial Hospital, San Benito, Texas in an asset purchase
for $8.1 million. In January 1998, the Company acquired in a single transaction
the assets of Lander Valley Medical Center, Lander, Wyoming; Davenport Medical
Center, Davenport, Iowa; Woodland Park Hospital, Portland, Qregon; and
Eastmoreland Hospital, Portland, Oregon for an aggregate purchase price of
approximately $57.0 million. Lander Valley Medical Center is built on property
subject to a 75-year ground lease from the City of Lander, which expires
December 31, 2073. Woodland Park Hospital is leased pursuant to a 31-year lease,
which expires December 31, 2029.
<PAGE> 11
Effective September 1, 1998, the Company acquired Puget Sound Hospital,
Tacoma, Washington, for approximately $27.9 million. The acquisition of Puget
Sound Hospital was accounted for as a purchased business combination and
included the acquisition of certain net assets and the assumption of certain
liabilities. To finance the Puget Sound Hospital acquisition, the Company
borrowed $28.5 million under its revolving credit facility.
The operating results of each of the above acquisitions are included in
the Company's results of operations from the date of purchase.
RESULTS OF OPERATIONS
Net operating revenues are comprised of net patient service revenue and
other revenue. Net patient service revenue is reported net of contractual
adjustments and policy discounts. The adjustments principally result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs and other third-party payors. Customary charges
have generally increased at a faster rate than the rate of increase for Medicare
and Medicaid payments. Other revenue includes cafeteria sales, medical office
building rental income and other miscellaneous revenue. Operating expenses
primarily consist of hospital related costs of operation and include salaries
and benefits, professional fees (includes medical professionals and consulting
services), supplies, provision for doubtful accounts, and other operating
expenses (principally consisting of utilities, insurance, property taxes,
travel, freight, postage, telephone, advertising, repairs and maintenance).
General and administrative expenses primarily relate to corporate overhead.
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenues. Such information has been
derived from the Consolidated Statement of Operations of the Company included
elsewhere in the report.
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS PERCENTAGE
Ended Increase (Decrease)
September 30, of Dollar Amounts
------------------------------ --------------------
1998 1997
<S> <C> <C> <C>
Net operating revenues 100.0% 100.0% 126.3%
Operating expenses before depreciation
and amortization and interest 88.7% 89.1% 125.2%
------------------------------
EBITDA (1) 11.3% 10.9% 135.7%
Depreciation and amortization 3.4% 4.3% 77.1%
Interest 4.0% 3.4% 173.7%
------------------------------
Income before income taxes and
extraordinary item 3.9% 3.2% 174.3%
Income taxes 1.6% 0.4% 772.1%
------------------------------
Income before extraordinary item 2.3% 2.8% 88.1%
Extraordinary item 0.3% 0.0% N/A
------------------------------
Net income 2.0% 2.8% 59.7%
==============================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS PERCENTAGE
Ended Increase (Decrease)
September 30, of Dollar Amounts
------------------------------ ----------------------
1998 1997
<S> <C> <C> <C>
Net operating revenues 100.0% 100.0% 177.3%
Operating expenses before depreciation
and amortization and interest 89.5% 90.9% 173.2%
------------------------------
EBITDA (1) 10.5% 9.1% 218.0%
Depreciation and amortization 3.6% 5.0% 95.7%
Interest 4.2% 2.9% 303.4%
------------------------------
Income before income taxes and
extraordinary item 2.7% 1.2% 528.2%
Income taxes 1.1% 0.3% 1079.4%
------------------------------
Income before extraordinary item 1.6% 0.9% 378.9%
Extraordinary item 0.2% 0.0% N/A
------------------------------
Net income 1.4% 0.9% 325.5%
==============================
</TABLE>
(1) EBITDA represents the sum of income before income tax expense, interest,
and depreciation and amortization. Management understands that industry
analysts generally consider EBITDA to be one
<PAGE> 13
measure of the financial performance of a company that is presented to
assist investors in analyzing the operating performance of the company
and its ability to service debt. Management believes that an increase in
EBITDA level is an indicator of the Company's improved ability to service
existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative (i) to net income as a measure of
operating performance or (ii) to cash flows from operating, investing, or
financing activities as a measure of liquidity. Given that EBITDA is not
a measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculation, EBITDA, as
presented, may not be comparable to other similarly titled measures of
other companies.
SELECTED OPERATING STATISTICS
The following table sets forth certain operating statistics for the
Company's hospitals for each of the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
All Hospitals:
Total hospital revenue $37,962 $16,775 $73,860 $26,637
EBITDA 4,297 1,823 7,736 2,433
Admissions 4,590 1,785 9,118 3,115
Adjusted Admissions (1) 8,077 2,953 15,934 5,151
Patient Days 24,972 11,498 50,164 20,368
Adjusted Patient Days (2) 43,945 19,024 87,666 33,683
Occupancy Rates (beds in service) 24.8% 25.4% 25.0% 25.8%
Average Length of Stay 5.44 6.44 5.50 6.54
Number of Hospitals 9 4 9 4
Same Hospitals (3)
Hospital Revenue 17,315 17,496 34,996 33,558
EBITDA 2,471 2,417 4,795 4,037
Admissions 1,888 1,865 3,794 3,741
Adjusted Admissions 3,328 3,050 6,694 6,064
Patient Days 10,896 11,790 21,558 23,511
Adjusted Patient Days 19,205 19,279 38,038 38,111
Average Length of Stay 5.77 6.32 5.68 6.28
Number of Hospitals 4 4 4 4
</TABLE>
(1) Adjusted admissions are calculated as admissions for the period
multiplied by the ratio obtained by dividing gross patient service
revenue by gross inpatient service revenue.
(2) Adjusted patient days are calculated based on a revenue-based formula
(multiplying actual patient days by the sum of gross inpatient revenue
and gross outpatient revenue and dividing the result by gross inpatient
revenue for each hospital) to reflect an approximation of the volume of
service provided to inpatient and outpatient by converting total patient
revenues to equivalent patient days.
(3) Same hospitals are Doctors Hospital, Memorial Hospital of Center, Delta
Medical Center-Memphis, and Dolly Vinsant Memorial Hospital. For purposes
of comparison, operations for the 1997 periods presented includes
operations both prior and subsequent to acquisition for Dolly Vinsant
Memorial Hospital.
<PAGE> 14
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997.
Net operating revenues were $38.0 million for the three months ended
September 30, 1998 compared to $16.8 million for the comparable period of 1997,
an increase of $21.2 million or 126.3%. The majority of the revenue increase was
attributable to acquisitions. Revenue generated by hospitals owned during both
periods ("same hospitals") decreased by $0.2 million, from $17.5 million to
$17.3 million, or 1.0% due in large part to an intentional effort to improve the
quality of admissions at Delta Medical Center-Memphis.
Operating expenses less depreciation and amortization and interest were
$33.7 million or 88.7% of net operating revenue, for the three months ended
September 30, 1998, compared to $15.0 million or 89.1% of net operating revenue
for the comparable period of 1997. The majority of the increase was attributable
to acquisitions.
EBITDA was $4.3 million or 11.3% of net operating revenue, for the
three months ended September 30, 1998, compared to $1.8 million or 10.9% of net
operating revenue for the comparable period of 1997. The increase in EBITDA was
due to acquisitions.
Depreciation and amortization expense was $1.3 million for the three
months ended September 30, 1998, compared to $0.7 million for the three months
ended September 30, 1997, an increase of $0.6 million. The increase is due to
the additional depreciation and amortization expense associated with the fact
that eight of the Company's hospitals were owned for the entire three months
ended June 30, 1998 versus only one of the Company's hospitals having been owned
for the entire three months ended June 30, 1997.
Interest expense was $1.5 million for the three months ended September
30, 1998, compared to $0.6 million for the three months ended September 30,
1997, an increase of $0.9 million. The increase was due to the increase in
average outstanding indebtedness associated with the eight hospitals owned
during the entire three months ended June 30, 1998 versus only one of the
Company's hospitals having been owned for the entire three months ended June 30,
1997.
The $0.1 million extraordinary item for the three months ended
September 30, 1998 related to the write-off of the subordinated debt discount
upon early retirement of the subordinated debt.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997
Net operating revenues were $73.9 million for the six months ended
September 30, 1998 compared to $26.6 million for the comparable period of 1997,
an increase of $47.3 million or 177.3%. Most of the increase was attributable to
acquisitions. Revenue generated by hospitals
<PAGE> 15
owned during both periods ("same hospitals") increased $1.4 million, from $33.6
million to $35.0 million, or 4.3% resulting, in large part, from increases in
outpatient services and to a lesser extent from increased admissions.
Operating expenses less depreciation and amortization and interest were
$66.1 million, or 89.5% of net operating revenue, for the six months ended
September 30, 1998, compared to $24.2 million or 90.9% of net operating revenue,
for the comparable period of 1997. The majority of the increase was attributable
to acquisitions.
EBITDA was $7.7 million or 10.5% of net operating revenue, for the six
months ended September 30, 1998, compared to $2.4 or 9.1% of net operating
revenue for the comparable period of 1997. The increase in EBITDA was due to
acquisitions and improved performance of existing facilities.
Depreciation and amortization expense was $2.6 million for the six
months ended September 30, 1998, compared to $1.3 million for the six months
ended September 30, 1997, an increase of $1.3 million. The increase is due to
the additional depreciation and amortization expense associated with the fact
that eight of the Company's hospitals were owned for the entire six months ended
June 30, 1998 versus only one of the Company's hospitals having been owned for
the entire six months ended June 30, 1997.
Interest expense was $3.1 million for the six months ended September
30, 1998, compared to $0.8 million for the six months ended September 30, 1997,
an increase of $2.3 million. The increase was due to the increase in average
outstanding indebtedness associated with the eight hospitals owned during the
entire six months ended June 30, 1998 versus only one of the Company's hospitals
having been owned for the entire six months ended June 30, 1997.
The $0.1 million extraordinary item for the six months ended September
30, 1998 related to the write-off of the subordinated debt discount upon early
retirement of the subordinated debt.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had working capital of $14.4
million including cash and cash equivalents of $1.7 million. The ratio of
current assets to current liabilities was 1.6 to 1.0 at September 30, 1998 and
1.8 to 1.0 at March 31, 1998.
On August 20, 1998, the Company completed its initial public offering
("IPO") of common stock, selling 5 million shares at $13.00 per share netting
the Company approximately $58.0 million. Net proceeds of the offering were used
to pay dividends on and to redeem all of the Series A preferred stock ($26.3
million) , to pay interest on and prepay all of the subordinated debt ($26.4
million) and to reduce indebtedness under the Company's revolving credit
facility ($5.0 million). Concurrent with the IPO, the then outstanding Series B
convertible preferred stock was converted into 1.4 million and 2.8 million
shares of non-voting and voting common stock, respectively.
<PAGE> 16
The Company maintains a credit agreement which provides for a revolving
credit facility in the amount of $132.5 million (the "Credit Facility"). At
September 30, 1998, $53.6 million of the Credit Facility was drawn, an increase
of $16.0 from March 31, 1998. The increase was related to the acquisition of
Puget Sound Hospital, offset in part by a reduction in debt from the application
of IPO proceeds. At September 30, 1998, the average borrowing rate on the Credit
Facility was 7.9%.
Cash flows provided by operating activities was $3.1 million for the
six months September 30, 1998 compared to $0.4 million for the six months ended
September 30, 1997. This increase is primarily related to acquisitions. Cash
used by investing activities was $29.8 million for the six months ended
September 30, 1998, primarily related to the acquisition of Puget Sound
Hospital. Cash used by investing activities was $33.7 million for the six-month
period ended September 30, 1997, primarily related to the acquisitions of Dolly
Vinsant Memorial Hospital, Delta Medical Center and Memorial Hospital of Center.
Net cash provided by financing activities was $22.3 million for the six months
ended September 30, 1998, primarily from the IPO and borrowings related to the
Puget Sound Hospital acquisition net of repayment of subordinated debt and
preferred stock. Net cash provided by financing activities was $34.0 million for
the six-month period ended September 30, 1997, primarily from bank borrowings
related to the Dolly Vinsant Memorial Hospital, Delta Medical Center and
Memorial Hospital of Center acquisitions and issuance of common and preferred
stock.
The Company intends to acquire additional acute care facilities, and is
actively seeking out such acquisitions. There can be no assurance that the
Company will not require additional debt or equity financing or that such
financing will be available on acceptable terms for any particular acquisition.
Also, the Company continually reviews its capital needs and financing
opportunities and may seek additional equity or debt financing for its
acquisition program or other needs.
Capital expenditures, excluding acquisitions, for the six-month periods
ended September 30, 1998 and 1997 were $2.5 million and $1.0 million,
respectively. Capital expenditures related to Management Information Systems
were (both financial and clinical) approximately $1.0 million for the six-month
period ended September 30, 1998. Capital expenditures for the Company's
hospitals will vary from year to year depending on facility improvements and
service enhancements undertaken. Generally, capital expenditures are not
expected to exceed $1.25 million per fiscal year per hospital, excluding
approximately $4.0 million budgeted for one time MIS upgrades during fiscal year
1999.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. By the year 2000,
these date code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. These
<PAGE> 17
products include software applications running on desktop computers and network
servers as well as in microchips and microcontrollers incorporated into
equipment. Certain of the Company's computer hardware and software, building
infrastructure components (e.g. alarm systems and HVAC systems) and medical
devices that are date sensitive, may contain programs with the Year 2000
problem. Computer systems, which do not include four-digit entries, could fail
or produce erroneous results causing disruptions of operations or affect patient
diagnosis and treatment. As a result, many software and computer systems may
need to be upgraded or replaced in order to comply with such Year 2000
requirements.
The Company is in the process of converting all of its hospitals to a
new management information system, which it believes is Year 2000 compliant. The
Company expects to make capital expenditures of approximately $9.0 million which
includes (i) approximately $4.0 million for management information systems
software and hardware which, based on representations made to the Company by the
provider, will be Year 2000 compliant by March 31, 1999, and (ii) certain
non-MIS costs associated with Year 2000 compliance. The Company does not expect
to incur any additional material Year 2000 compliance costs. In addition, the
Company expects to spend approximately $0.4 million on Year 2000 compliant
management information systems for each hospital acquired in the future. The
failure of the Company's management information system to be Year 2000 compliant
could have a material adverse effect on the Company's business, financial
conditions and results of operations.
Various clinical and non-clinical equipment currently in use at the
Company's hospitals incorporate time/date elements. The Company has completed an
itemized inventory of all of its hospitals for the purpose of identifying all
equipment with potential Year 2000 problems. The Company intends to contact all
vendors of such equipment as well as its group purchasing agent prior to March
31, 1999 to assess Year 2000 compliance. Because the Company has not completed
the identification of equipment with Year 2000 problems, it is unable to
establish an estimated date for completing subsequent phases with respect to
equipment and infrastructure in its hospitals. The failure of such equipment to
be Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, the Company has ongoing relationships with third-party
suppliers, vendors, payors and others, which may have computer systems with Year
2000 problems that the Company does not control. There can be no assurance that
the fiscal intermediaries and governmental agencies with which the Company
transacts business and which are responsible for payment to the Company under
the Medicare and Medicaid programs, as well as other payors, will not experience
significant problems with Year 2000 compliance. According to testimony before a
U.S. House of Representatives subcommittee, the U.S. Department of Health and
Human Serivices is far behind in remedying Year 2000 problems, which could delay
payment of claims to providers. In addition, the Company depends upon other
vendors such as utilities which provide electricity, water, natural gas and
telephone services and vendors of medical supplies and pharmaceuticals used in
patient care. As a part of its Year 2000 strategy, the Company intends to seek
assurances from these parties that their services and products will not
<PAGE> 18
be interrupted or malfunction due to the Year 2000 problem. The failure of such
third parties to remedy Year 2000 problems could have a material adverse effect
on the Company's business, financial condition and results of operations and
ability to provide health care services. The Company intends to complete an
initial contingency plan by August 31, 1999. However, in some instances (e.g.
loss of water supply), the Company may not be able to develop contingency plans
which allow the affected hospital to continue to operate. Each of the Company's
hospitals has a disaster plan which will be reviewed as a part of the Company's
contingency planning process.
The foregoing is based on information currently available to the
Company. The Company will revise its strategy as it completes its assessment of
Year 2000 issues. The Company can provide no assurances that applications and
equipment the Company believes to be Year 2000 compliant will not experience
difficulties or that the Company will not experience difficulties obtaining
resources needed to make modifications to or replace the Company's affected
systems and equipment. Failure by the Company or third parties on which it
relies to resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care services.
Consequently, the Company can give no assurances that issues related to Year
2000 will not have a material adverse effect on the Company's financial
condition or results of operations.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset such increases in
operating costs by its cost containment activities and expanding services. In
light of reimbursement measures imposed by government agencies and private
insurance companies, the Company is unable to predict its ability to offset or
control future cost increases, or its ability to pass on the increased costs
associated with providing health care services to patients with government or
managed care payors, unless such payors correspondingly increase reimbursement
rates.
GENERAL
Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The federal Medicare program accounted for approximately
47.6% and 67.1% of hospital patient days for the six months ended September 30,
1998, and 1997, respectively. The state Medicaid programs accounted for
approximately 10.7% and 15.3% of hospital patient days for the six months ended
September 30, 1998 and 1997, respectively. The Company's percentage of revenues
received from the Medicare program is expected to increase due to the general
aging of the population. The payment rates under the Medicare program for
inpatients are prospective, based upon the diagnosis of a patient. The Medicare
payment rate increases have historically been less than actual inflation. In
addition, numerous states, insurance companies and employers are actively
negotiating discounts to the Company's standard rates. The trend towards
increased
<PAGE> 19
managed care, including a shift in payor mix toward health maintenance
organizations, preferred provider organizations and other managed care payors,
may also adversely affect payment rates for the Company's services and the
Company's ability to achieve targeted growth rates in net patient service
revenue.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. Under the
Balanced Budget Action of 1997 (the "1997 Act"), there are no scheduled
increases in the inpatient Medicare rates paid to acute care hospitals for
inpatient care through September 30, 1998. Payments for Medicare outpatient
services provided at acute care hospitals and home health services historically
have been paid based on costs, subject to certain limits. The 1997 Act requires
that the payment for those services be converted to a prospective payment
system, which will be phased in over time. The 1997 Act also includes a managed
care option, which could direct Medicare patients to managed care organizations.
Further changes in the Medicare or Medicaid programs and other proposals to
limit health care spending could have a material adverse impact upon the health
care industry and the Company.
The Company's acute care hospitals, like most acute care hospitals in
the United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to respond
successfully to these trends, as well as spending reductions in governmental
health care programs, will play a significant role in determining hospitals'
ability to maintain their current rate of net revenue growth and operating
margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's hospitals was approximately
42.8% and 39.5% of gross patient service revenue for the six months ended
September 30, 1998 and 1997, respectively.
The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, the dependence of hospitals on
physician documentation of medical records and the subjective judgment involved
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.
The Company's historical financial trend has been favorably impacted by
the Company's ability to successfully acquire acute care hospitals. While the
Company believes that trends in the health care industry described above may
create possible future acquisition opportunities,
<PAGE> 20
there can be no assurances that it can continue to maintain its current growth
rate through hospital acquisitions and successfully integrate the hospitals into
its system.
The federal government and a number of states are rapidly increasing
the resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although the Company believes that it is in material compliance with such laws,
a determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments imbedded in other contracts and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company does not presently have any
derivative financial instruments and does not believe that this statement will
have a material impact on its financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the recently
enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the markets it serves; the
effect of managed care initiatives on the markets served by the Company's
hospitals and the Company's ability to enter into managed care provider
<PAGE> 21
arrangements on acceptable terms; the effect of liability and other claims
asserted against the Company; the effect of competition in the markets served by
the Company's hospitals; and other factors referenced in this report. Certain of
these factors are discussed in more detail elsewhere in this report. There can
be no assurance that the forward-looking statements included in this report will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
<PAGE> 22
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed its initial public offering of 5,000,000 shares of
common stock at $13.00 per share (the "Offering") on August 20, 1998
pursuant to a registration statement on Form S-1 (registration statement
No. 333-57913) which was declared effective by the Securities and
Exchange Commission on August 17, 1998. Underwriters for the Offering
were Donaldson, Lufkin & Jenrette Securities Corporation; Bear, Stearns &
Co. Inc.; Credit Suisse First Boston Corporation; and Sun Trust Equitable
Securities Corporation. The Offering closed on August 25, 1998 and
resulted in gross proceeds of $65,000,000. The Company paid underwriting
discounts and commissions of $4,550,000 and incurred other expenses of
approximately $2,437,000. The net proceeds to the Company from the
Offering were approximately $58,013,000. Of this amount, approximately
$5,000,000 was used to reduce the Company's outstanding revolving loan
balance under the Company's credit facility: approximately $26,418,000
was used to repay WCAS Capital Partners, II, L.P. under the terms of a
subordinated note; and approximately $26,326,000 was used to redeem the
Company's Series A Preferred Stock plus accrued dividends.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit No.
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
3.4 Agreement and Plan of Merger of New American
Healthcare Corporation with and into NAHC Merger Sub,
Inc. dated August 20, 1998
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1998
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: November 16, 1998 NEW AMERICAN HEALTHCARE CORPORATION
------------
By: /s/ Robert M. Martin
-------------------------------
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.1
"APPENDIX A"
CERTIFICATE OF INCORPORATION
OF
NEW AMERICAN HEALTHCARE CORPORATION
FIRST: The name of the Corporation (hereinafter called the
"Corporation") is NEW AMERICAN HEALTHCARE CORPORATION.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 9 East
Loockerman Street, Dover, Delaware 19901, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
National Registered Agents, Inc.
THIRD: The nature of the business or purposes of the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
FOURTH:
1. The maximum number of shares of stock which the Corporation
shall have the authority to issue is fifty million (50,000,000) shares of Common
Stock, having a par value of $.01 per share, which shares shall not be subject
to any preemptive rights, one million (1,500,000) shares of Non-Voting Common
Stock having a par value of $.01 per share, which shares shall not be subject to
any preemptive rights and ten million (10,000,000) shares of undesignated
preferred stock having a par value of $.01 per share.
2. Pursuant to the Delaware General Corporation Law, a statement
of the designations, powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, in respect of each class of capital stock
is as follows:
A. PREFERRED STOCK
The Board of Directors is hereby expressly authorized at any time, and
from time to time, to provide for the issuance of shares of preferred stock in
one or more series, with such voting powers, full or limited, or no voting
powers, and with such designations, preferences and relative, participating,
optional or other rights, and qualifications or restrictions thereof, as shall
be stated and expressed in the resolution or resolutions providing for the issue
thereof adopted by a majority of the Board of Directors then in office
<PAGE> 2
and the certificate of designations filed under the Delaware General
Corporation Law setting forth such resolution or resolutions, including
(without limiting the generality thereof) the following as to each such series:
(i) the designation of such series;
(ii) the dividends, if any, payable with respect to such series,
the rates or basis for determining such dividends, any
conditions and dates upon which such dividends shall be
payable, the preferences, if any, of such dividends over, or
the relation of such dividends to, the dividends payable on
the Common Stock or any other series of preferred stock,
whether such dividends shall be noncumulative or cumulative,
and, if cumulative, the date or dates from which such
dividends shall be cumulative;
(iii) whether shares of such series shall be redeemable at the
option of the Board of Directors or the holder, or both, upon
the happening of a specified event and, if redeemable, whether
for cash, property or rights, including securities of the
Corporation, the time, prices or rates and any adjustment and
other terms and conditions of such redemption;
(iv) the terms and amount of any sinking, retirement or purchase
fund provided for the purchase or redemption of shares of such
series;
(v) whether shares of such series shall be convertible into or
exchangeable for shares of Common Stock or any other series of
preferred stock, at the option of the Corporation or of the
holder, or both, or upon the happening of a specified event
and, if provision be made for such conversion or exchange, the
terms, prices, rates, adjustments and any other terms and
conditions thereof;
(vi) the extent, if any, to which the holders of shares of such
series shall be entitled to vote with respect to the election
of directors or otherwise, including, without limitation, the
extent, if any, to which such holders shall be entitled,
voting as a series or as a part of a class, to elect one or
more directors upon the happening of a specified event or
otherwise;
(vii) the restrictions, if any, on the issue or reissue of shares of
such series or any other series;
(viii) the extent, if any, to which the holders of shares of such
series shall be entitled to preemptive rights; and
(ix) the rights of the holders of shares of such series upon the
liquidation of the Corporation or any distribution of its
assets.
2
<PAGE> 3
B. COMMON STOCK
(i) Voting Rights. All holders of Common Stock shall be entitled
to notice of any stockholders' meeting. Subject to the
provisions of any applicable law and except as otherwise
provided in this Certificate of Incorporation or by the
resolution or resolutions providing for the issue of shares of
preferred stock, all voting rights shall be vested solely in
the Common Stock. The holders of shares of Common Stock shall
be entitled to vote upon the election of directors and upon
any other matter submitted to the stockholders for a vote.
Each share of Common Stock issued and outstanding shall be
entitled to one noncumulative vote. A fraction of a share of
Common Stock shall not be entitled to any voting rights
whatsoever.
(ii) Dividends and Distributions. No payment of dividends or
distributions shall be made to the holders of shares of Common
Stock unless and until the holders of shares of preferred
stock receive any preferential amounts to which they are
entitled under this Article or in the resolution or
resolutions providing for the issue of shares of preferred
stock. Subject to the limitation set forth in the preceding
sentence of this Paragraph (i) and except as otherwise
provided by this Certificate of Incorporation or in the
resolution or resolutions providing for the issue of shares of
preferred stock, the holders of shares of Common Stock shall
be entitled to receive such dividends and distributions as may
be declared upon such shares of Common Stock, from time to
time by a resolution or resolutions adopted by the Board of
Directors.
(iii) Liquidation, Dissolution or Winding Up. Except as otherwise
provided in this Certificate of Incorporation and subject to
the rights of holders, if any, of preferred stock to receive
preferential liquidation distributions to which they are
entitled under this Article or under the resolution or
resolutions providing for the issue of shares of preferred
stock, in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and liabilities
of the Corporation, all assets of the Corporation shall be
shared pro rata among the holders of the Common Stock.
C. NON-VOTING COMMON STOCK
(i) Voting Rights. The holders of shares of Class B
Common Stock shall not be entitled to vote on any matter to be voted on by the
stockholders of the Corporation.
(ii) Dividends. No payment of dividends or distributions
shall be made to the holders of shares of Non-Voting Common Stock unless and
until the holders of shares of preferred stock receive any preferential amounts
to which they are entitled under this Article or in the resolution or
resolutions providing for the issue of shares of preferred stock.
3
<PAGE> 4
Subject to the limitation set forth in the preceding sentence of this Paragraph
(ii) and except as otherwise provided by this Certificate of Incorporation or in
the resolution or resolutions providing for the issue of shares of preferred
stock, the holders of shares of Non-Voting Common Stock shall be entitled to
receive such dividends and distributions as may be declared upon such shares of
Non-Voting Common Stock, from time to time by a resolution or resolutions
adopted by the Board of Directors. Such dividends shall be equal in amount per
share to dividends declared on Common Stock; provided, however, that in the
event that the holders of Common Stock receive a dividend payable in shares of
Common Stock or other securities convertible into or exchangeable for shares of
Common Stock, then holders of Non-Voting Common Stock shall receive a number of
shares of Non-Voting Common Stock or of such other securities which is equal to
the number of shares of Non-Voting Common Stock or such other securities which
they would, but for this proviso, have received pursuant to this paragraph (ii).
(iii) Liquidation. Except as otherwise provided in this
Certificate of Incorporation and subject to the rights of holders, if any, of
preferred stock to receive preferential liquidation distributions to which they
are entitled under this Article or under the resolution or resolutions providing
for the issue of shares of preferred stock, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and liabilities of the
Corporation, all assets of the Corporation shall be shared pro rata among the
holders of the Common Stock and the Non-Voting Common Stock based upon the
number of shares held by them, in all remaining assets of the Corporation
available for distribution to its stockholders.
(iv) Conversion.
(a) Right to Convert. Subject to the terms and conditions
of this paragraph iv, the holder of any share or shares of Non-Voting Common
Stock shall have the right, at its option, at any time, to convert any such
shares of Non-Voting Common Stock (except that upon any liquidation, dissolution
or winding up of the Corporation the right of conversion shall terminate at the
close of business on the last full business day next preceding the date fixed
for payment of the amount distributable on Non-Voting Common Stock) into an
equal number of fully paid and nonassessable whole shares of Common Stock;
provided, however, that such conversion will not be permitted hereunder, and the
Corporation shall not be required to convert any shares of Non-Voting Common
Stock into Common Stock, to the extent that, at the date upon which such
conversion is deemed to take place as provided in subparagraph (iv)(b) below,
the WCAS Group (as hereinafter defined) would, but for the limitation contained
in this proviso, hold, or otherwise have voting control over, in aggregate, more
than 49% of the voting securities of the Corporation outstanding at such time,
after taking into account the shares of Common Stock issuable upon such
conversion. Such rights of conversion shall be exercised by the holder thereof
by giving written notice that the holder elects to convert a stated number of
shares of Non-Voting Common Stock into Common Stock and by surrender of a
certificate or certificates
4
<PAGE> 5
for the shares so to be converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holder or holders of Non-Voting Common Stock) at any
time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph
(iv)(a) and surrender of the certificate or certificates for the share or shares
of Non-Voting Common Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Non-Voting Common Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Non-Voting Common Stock shall cease, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(c) Fractional Share; Dividends; Partial Conversion.
Fractional shares may be issued upon conversion of Non-Voting Common Stock into
Common Stock. No payment or adjustment shall be made upon any conversion on
account of any cash dividends or the Common Stock issued upon such conversion.
At the time of each conversion, the Corporation shall pay in cash an amount
equal to all dividends accrued and unpaid on the shares surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph (iv)(b) above. In case the number of shares of
Non-Voting Common Stock represented by the certificate or certificates
surrendered pursuant to subparagraph (iv)(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver to
the holder thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Non-Voting Common Stock represented by
the certificate or certificates surrendered which are not to be converted.
(d) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, then the Non-Voting Common Stock shall be
proportionately subdivided, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, then the number
of shares of Non-Voting Common Stock immediately prior to such combination shall
be proportionately reduced. Upon any such event, the Corporation shall give
written notice thereof, by first class mail, postage prepaid,
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<PAGE> 6
addressed to each holder of shares of Common Stock at the address of such holder
as shown on the books of the Corporation.
(e) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation or
any consolidation or merger of the Corporation with another corporation, or the
sale of all or substantially all its assets to another corporation, shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect or in exchange for Common Stock, then,
as a condition of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provisions shall be made whereby each holder of a
share or shares of Non-Voting Common Stock shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Non-Voting Common Stock, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the number of
shares of Common Stock issuable upon conversion of Non-Voting Common Stock)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon such conversion. In
the event of a merger or consolidation of the Corporation as a result of which a
greater or lesser number of shares of common stock of the surviving corporation
are issuable to holders of Common Stock outstanding immediately prior to such
merger or consolidation, the number of shares of Common Stock issuable upon
conversion of Non-Voting Common Stock in effect immediately prior to such merger
or consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of all outstanding shares of Common Stock. The
Corporation will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof the success or corporation (if other than the
corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume, by written instrument executed and mailed
or delivered to each holder of Non-Voting Common Stock at the last address of
such holder appearing on the books of the Corporation, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive.
(f) Notice of Adjustment. Upon any adjustment made
pursuant to subparagraph (iv)(e), then and in each such case the Corporation
shall give written notice thereof, by first class mail, postage prepaid,
addressed to each holder of shares of Non-Voting Common Stock at the address of
such holder as shown on the books of the Corporation, which notice shall state
the stock, securities or assets issuable upon conversion of the Non-Voting
Common Stock resulting from such adjustment, setting forth
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<PAGE> 7
in reasonable detail the method of calculation and the facts upon which such
calculation is based.
(g) Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any
other distribution to the holders of its Common
Stock;
(2) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially
all its assets to, another corporation; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation,
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of
Non-Voting Common Stock at the address of such holder as shown on the books of
the Corporation, (A) at least 20 days' prior written notice of the date on which
the books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (B) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (A) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (B)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(h) Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the conversion of the
Non-Voting Common Stock as herein provided such number of shares of Common Stock
as shall then be issuable upon the conversion of all outstanding shares of
Non-Voting Common Stock. The Corporation covenants that all shares of Common
Stock which shall be so issued shall be duly and validly issued and
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<PAGE> 8
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. The Corporation will take all such action as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirements of
any national securities exchange upon which the Common Stock of the Corporation
may be listed. The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon conversion of
the Non-Voting Common Stock if the total number of shares of Common Stock and
issuable after such action upon conversion of the Non-Voting Common Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation.
(i) No Reissuance of Common Stock. Shares of Non-Voting
Common Stock which are converted into shares of Class A Common Stock as provided
herein shall not be reissued.
(j) Issue Tax. The issuance of certificates for shares of
Class A Common Stock upon conversion of the Non-Voting Common Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Non-Voting Common Stock which is being converted.
(k) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Non-Voting Common Stock or
of any shares of Common Stock issued or issuable upon the conversion of any
shares of Non-Voting Common Stock in any manner which interferes with the timely
conversion of such Non-Voting Common Stock.
(l) Transfer of Non-Voting Common Stock. Any shares of
Non-Voting Common Stock that are transferred to any non-affiliate of WCAS Group
shall immediately and automatically convert to Common Stock, and all conditions
of such conversion shall be in accordance with this paragraph (iv)
(m) Definitions. Capitalized terms not otherwise defined
but used in this Article Fourth have the meanings set forth below:
"AFFILIATE" means with respect to any Person, any other
Person, directly or indirectly controlling, controlled by or under common
control with such Person. For the purpose of the above definition, the term
"control" (including with correlative meaning, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the owner to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
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<PAGE> 9
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"WCAS GROUP" means Welsh, Carson, Anderson & Stowe VII, L.P.,
WCAS Capital Partners, L.P., WCAS Healthcare Capital Partners, L.P. and
affiliates of each of the foregoing.
3. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, the Corporation's capital stock, regardless
of class, may be issued for such consideration and for such corporate purposes
as the Board of Directors may from time to time determine by a resolution or
resolutions adopted by a majority of the Board of Directors then in office.
FIFTH: The name and the mailing address of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Susan V. Sidwell 1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
</TABLE>
SIXTH: The Corporation shall have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors, or any class of them, and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
ss.291 of Title 8 of the Delaware Code, or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
ss.279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
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EIGHTH:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.
2. The Board of Directors shall be comprised of not less than six
(6) or more than twelve (12) members, the exact numbers to be fixed from time to
time by the Board of Directors pursuant to a resolution adopted by a majority of
directors then in office. The number of directors of the Corporation may be
increased or decreased outside of this range only in the following manner:
A. By a majority of the shareholders of the Corporation entitled
to vote if the then existing Board of Directors of the
Corporation unanimously approve the proposed increase or
decrease in members; or
B. By a vote of the holders of 70% or more of the combined voting
power of the then outstanding shares of stock entitled to vote
generally in the election of directors voting together as a
single class.
Notwithstanding anything contained in the Bylaws or this Certificate of
Incorporation of the Corporation to the contrary, the affirmative vote of the
holders of at least 70% of the voting power of all of the shares of stock of the
Corporation entitled to vote generally in the election of directors voting
together as a single class shall be required to alter, amend or repeal this
Section 2 or adopt any provision inconsistent therewith.
3. The Board of Directors shall be divided into three classes,
designated Class 1, Class 2 and Class 3. Each class shall consist, as nearly as
may be possible, of one-third of the number of directors constituting the Board
of Directors. The term of office for Class 1 directors will first expire at the
annual meeting of stockholders for 1999; the term of office of Class 2 directors
will first expire at the annual meeting of stockholders for 2000; and the term
of office of Class 3 directors will first expire at the annual meeting of
stockholders for 2001, and in each case until their successors are duly elected
and qualified. At each annual meeting of stockholders commencing with the first
annual meeting of stockholders, successors to the class of directors whose terms
expire at the annual meeting of stockholders shall be elected by stockholders
for a three-year term and until their successors are duly elected and qualified.
Except as otherwise provided herein or in the Bylaws, increases in the size of
the Board of Directors shall be distributed among the classes so as to render
the class as nearly equal in size as possible. Whenever the holders of preferred
stock issued pursuant to this Certificate of Incorporation or the resolution or
resolutions adopted by a majority of the Board of Directors then in office
providing for the issue of shares of preferred stock shall have the right,
voting as a separate class, to elect directors, the election, term of office,
filling of vacancies and other terms of such directorships shall be governed by
the terms of this Certificate of Incorporation or such resolution or
resolutions, as the case may be, and such directorships shall not be
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<PAGE> 11
divided into serial classes or otherwise subject to this Section 3 unless
expressly so provided therein.
4. One or more directors or the entire Board of Directors of the
Corporation may be removed at any time for "cause" by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class). "Cause," for purposes of this section shall be
(i) any fraudulent or dishonest act or activity by the director; or (ii)
behavior materially detrimental to the business of the Corporation.
5. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of this Certificate of Incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as otherwise provided
by applicable law; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of clause (b)
of ss.102 of the Delaware General Corporation Law, as the same may be amended or
supplemented. The provisions of this Article Ninth are not intended to, and
shall not, limit, supersede or modify any other defense available to a director
under applicable law. Any repeal or modification of this Article Ninth by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
TENTH:
1. The Corporation shall, to the fullest extent permitted by
ss.145 of the Delaware General Corporation Law, as the same may be amended or
supplemented (but in the case of any such amendment or supplement, only to the
extent that such amendment or supplement permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment or supplement), indemnify any and all directors
and officers whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
The Corporation may, in its sole discretion and to the fullest extent permitted
by ss.145 of the Delaware General Corporation Law, as the same may be amended or
supplemented, indemnify any and all employees and agents whom it shall have
power to indemnify under said section from and against any
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<PAGE> 12
and all of the expenses, liabilities, or other matters referred to in or covered
by said section, and the indemnification provided for herein shall continue as
to a person who has ceased to be an employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
2. The Corporation shall pay the expenses incurred in defending
any proceeding against a director or officer which is or may be subject to
indemnification pursuant to this Article in advance of final disposition of such
proceeding; provided, however, if the Delaware General Corporation Law so
requires, that the payment of such expenses incurred by a director or officer
shall be made only upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this Article or
otherwise. The Corporation may, in its sole discretion, advance expenses
incurred by its employees or agents to the same extent as expenses may be
advanced to its directors and officers hereunder.
3. The rights conferred on any person by this Article shall be
deemed contract rights and shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation or the Corporation's Bylaws, agreement, or vote of
stockholders or disinterested directors or otherwise.
4. The Corporation may purchase and maintain insurance to protect
itself and any other director, officer, employee or agent of the Corporation or
any corporation, partnership, joint venture, trust or other enterprise against
any liability, whether or not the Corporation would have the power to indemnify
such person under the Delaware General Corporation Law.
ELEVENTH:
1. From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed in accordance with the laws of
the State of Delaware at the time in force; provided, however, that the
affirmative vote of the holders of at least a majority of the outstanding shares
of the Corporation's capital stock entitled to vote thereon and a majority of
the members of the Board of Directors then holding office is required to amend
those provisions of this Certificate of Incorporation set forth in Articles
Eighth, Ninth, Tenth, Eleventh or Twelfth.
2. Except where a higher percentage affirmative vote is required
by this Certificate of Incorporation or the Corporation's Bylaws, the
Corporation's Bylaws may be amended, added to or repealed by an affirmative vote
of at least a majority of either (i) the shares of the Corporation's capital
stock entitled to vote thereon, or (ii) the Board of Directors.
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TWELFTH: The President or a majority of the Board of Directors of the
Corporation may call special meetings of stockholders.
THIRTEENTH: The vote of stockholders of the Corporation required to
approve any Business Combination shall be as set forth in this Article
Thirteenth. The term "Business Combination" as used in this Article Thirteenth
shall mean any transaction that is referred to in any one or more clauses A - E
of Section 1 of this Article; each other capitalized term used in this Article
shall have the meaning ascribed to it in Section 3 of this Article.
1. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
Section 2 of this Article Thirteenth, the following Business Combinations shall
not be consummated without the affirmative vote of the holders of at least 70
percent of the combined voting power of the then outstanding shares of stock of
all classes and series of the Corporation entitled to vote generally in the
election of directors ("Voting Stock"), in each case voting together as a single
class (such affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified, by law or by
this Certificate of Incorporation):
A. any merger or consolidation of the Corporation or any
subsidiary with (i) any Interested Stockholder or (ii) any
other Corporation or entity (whether or not itself an
Interested Stockholder) which is or after each merger or
consolidation would be, an Affiliate of an Interested
Stockholder; or
B. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of assets of the Corporation or any
Subsidiary having an aggregate fair market value of
$10,000,000 or more; or
C. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series or transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate fair market
value of $10,000,000 or more, other than the issuance of
securities upon the conversion of convertible securities of
the Corporation or any Subsidiary which were not acquired by
such Interested Stockholder (or such Affiliate) from the
Corporation or a Subsidiary; or
D. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
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<PAGE> 14
E. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
in any such case has the effect, directly or indirectly, of
increasing the proportionate outstanding shares of any class
or series of stock or securities convertible into stock of the
Corporation or any Subsidiary which is directly or indirectly
beneficially owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder.
2. The provisions of Section 1 of this Article Thirteenth shall
not be applicable to any Business Combination which shall have been approved by
a majority of the Disinterested Directors, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of this Certificate of Incorporation.
3. For purposes of this Article Thirteenth:
A. A "person" shall mean any individual, firm, company or other
entity.
B. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of
more than 20 percent of the combined voting power of
the then outstanding shares of Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly
or indirectly, of 20 percent or more of the combined
voting power of the then outstanding shares of Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock
that were at any time within the two-year period
immediately prior to the date in question
beneficially owned by any Interested Stockholder, if
such assignment or succession shall have occurred in
the course of a transaction or series of transactions
not involving a public offering within the meaning of
the Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates beneficially owns directly or indirectly;
or
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<PAGE> 15
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote or
direct the vote pursuant to any agreement,
arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of
its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of
acquiring, holding, or disposing of any shares of
Voting Stock.
D. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Section 3.B of this Article
Thirteenth, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned through
application of Section 3.C of this Article but shall not
include any other shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or
otherwise.
E. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended.
F. "Subsidiary" means any company more than 50 percent of whose
outstanding stock having ordinary voting power in the election
of directors is owned, directly or indirectly, by the
Corporation or by a Subsidiary or by the Corporation and one
or more Subsidiaries; provided, however, that for the purposes
of the definition of Interested Stockholder set forth in
Section 3.B of this Article Thirteenth, the term "Subsidiary"
shall mean only a company of which a majority of each class of
equity security is owned, directly or indirectly, by the
Corporation.
G. "Disinterested Directors" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not
a nominee of, the Interested Stockholder and was a member of
the Board prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a
nominee of, the Interested Stockholder and who is recommended
to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
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4. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine, on the basis of information known to
them after reasonable inquiry, all facts necessary to determine compliance with
this Article Thirteenth, including, without limitation,
A. whether a person is an Interested Stockholder,
B. the number of shares of Voting Stock beneficially owned by any
person,
C. whether a person is an Affiliate or Associate of another
person,
D. whether the requirements of Section 2 of this Article
Thirteenth have been met with respect to any Business
Combination, and
E. whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has an aggregate fair
market value of $10,000,000 or more. The good faith
determination of a majority of the Disinterested Directors on
such matters shall be conclusive and binding for all purposes
of this Article Thirteenth.
5. Nothing contained in this Article Thirteenth shall be
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
6. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
70 percent of the voting power of the Voting Stock, voting together as a single
class, shall be required to alter, amend, or repeal this Article Thirteenth or
to adopt any provision inconsistent therewith.
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
NAHC MERGER SUB, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Annual Meeting. The annual meeting of the shareholders shall
be held, at such place within or without the state of incorporation as may be
designated by the Board of Directors, on such date and at such time as shall be
designated each year by the Board of Directors and stated in the notice of the
meeting. At the annual meeting the shareholders shall elect a Board of Directors
by a plurality vote and transact such other business as may properly be brought
before the meeting.
1.2 Special Meetings. Special meetings of the shareholders may be
called by the president, a majority of the board of directors, or by the holders
of not less than one-tenth (1/10) of all the shares entitled to vote at such
meeting. The place of said meetings shall be designated by the directors. The
business transacted at special meetings of the shareholders of the corporation
shall be confined to the business stated in the notice given to the
shareholders.
1.3 Notice of Shareholder Meetings. Written or printed notice
stating the place, day, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called and the person
or persons calling the meeting; notice may be communicated in person; by
telephone, telegraph, teletype or other form of wire or wireless communication;
or by mail or private carrier by or at the direction of the president,
secretary, officer, or person calling the meeting to each shareholder entitled
to vote at the meeting. Such notice shall be delivered not less than ten (10)
nor more than two months before the date of the meeting, and shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his last known address as it appears on the stock transfer books
of the corporation, with postage thereon prepaid, or by confirmed telex;
provided, however, that any such notice may be waived in writing, either prior
to or subsequent to such meeting.
1.4 Quorum Requirements. A majority of the shares entitled to vote
present, in person or represented by proxy, shall constitute a quorum for the
transactions of business. A meeting may be adjourned despite the absence of a
quorum, and notice of an adjourned meeting need not be given if the time and
place to which the meeting is adjourned are
<PAGE> 2
announced at the meeting at which the adjournment is taken. When a quorum is
present at any meeting, a majority in interest of the stock there represented
shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of this corporation's Certificate of
Incorporation or Bylaws, or by the laws of Delaware, a larger or different vote
is required, in which case such express provision shall govern the decision of
such question.
1.5 Voting and Proxies. Every shareholder entitled to vote at a
meeting may do so either in person or by proxy appointment made by an instrument
in writing subscribed by such shareholder which proxy shall be filed with the
secretary of the meeting before being voted. Such proxy shall entitle the
holders thereof to vote at any adjournment of such meeting, but shall not be
valid after the final adjournment thereof. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution, unless the said
instrument expressly provides for a longer period.
ARTICLE II
BOARD OF DIRECTORS
2.1 Qualification and Election. Directors need not be shareholders
or residents of this State, but must be of legal age. They shall be elected by a
plurality of the votes cast at the annual meetings of the shareholders or at a
special meeting of the shareholders called for that purpose. Each director shall
hold office until the expiration of the term for which he is elected, and
thereafter until his successor has been elected and qualified.
2.2 Number. The number of directors that shall constitute the
entire board of directors shall be not less than one (1) nor more than fifteen
(15), the exact number of directors to be determined by resolution of the Board
of Directors from time to time.
2.3 Meetings. The annual meeting of the board of directors shall
be held immediately after the adjournment of the annual meeting of the
shareholders, at which time the officers of the corporation shall be elected.
The board may also designate more frequent intervals for regular meetings.
Special meetings may be called at any time by the chairman of the board,
president, or any two directors.
2.4 Notice of Directors' Meetings. The annual and all regular
board meetings may be held without notice of the date, time, place or purpose of
the meeting. Special meetings shall be held upon notice sent by any usual means
of communication not less than two (2) days before the meeting noting the date,
time and place of the meeting. The notice need not describe the purposes of the
special meeting. Attendance by a director at a meeting or subsequent execution
or approval by a director of the minutes of a meeting or a consent action shall
constitute a waiver of any defects in notice of such meeting and/or consent
action.
2
<PAGE> 3
2.5 Quorum and Vote. The presence of a majority of the directors
shall constitute a quorum for the transaction of business. A meeting may be
adjourned despite the absence of a quorum, and notice of an adjourned meeting
need not be given if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed thirty days in any one adjournment. The vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board, unless the vote of a greater number is required
by the certificate of incorporation, these bylaws, or by the laws of the state
of incorporation.
2.6 Executive and Other Committees. The board of directors, by a
resolution adopted by a majority of its members, may designate an executive
committee, consisting of two or more directors, and other committees, consisting
of two or more persons, who may or may not be directors, and may delegate to
such committee or committees any and all such authority as it deems desirable,
including the right to delegate to an executive committee the power to exercise
all the authority of the board of directors in the management of the affairs and
property of the corporation.
ARTICLE III
OFFICERS
3.1 Number. The corporation shall have a President and a
Secretary, and such other officers as the board of directors shall from time to
time deemed necessary. Any two or more offices may be held by the same person.
3.2 Election and Term. The officers shall be elected by the
board.
3.3 Duties. All officers shall have such authority and perform
such duties in the management of the corporation as are normally incident to
their offices and as the board of directors may from time to time provide.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
4.1 Resignations. Any officer or director may resign at any time
by giving written notice to the chairman of the board, the president, or the
secretary. Any such resignation shall take effect at the time specified therein,
or, if no time is specified, then upon its acceptance by the board of directors.
4.2 Removal of Officers. Any officer or agent may be removed at
any time with or without cause by the board whenever in its judgment the best
interests of the corporation will be served thereby.
3
<PAGE> 4
4.3 Removal of Directors. Any or all of the directors may be
removed either with or without cause by a proper vote of the shareholders; and
may be removed with cause by a majority vote of the entire board.
4.4 Vacancies. Newly created directorships resulting from an
increase in the number of directors, and vacancies occurring in any office or
directorship for any reason, including removal of an officer or director, may be
filled by the vote of a majority of the directors remaining in office, even if
less than a quorum exists.
ARTICLE V
CAPITAL STOCK
5.1 Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the corporation in such form as
may be prescribed by the board of directors. Unless otherwise decided by the
board, such certificates shall be signed by the president and the secretary of
the corporation.
5.2 Transfer of Shares. Shares of stock may be transferred on the
books of the corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
5.3 Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the board of directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
6.1 Actions by Board of Directors. Whenever the directors are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by all the persons or entities entitled to vote thereon, and such action shall
be as valid and effective as any action taken at a regular or special meeting of
the directors.
6.2 Actions by Shareholders. Whenever the vote of shareholders at
a meeting thereof is required or permitted to be taken in connection with any
corporate action by statute, the Certificate of Incorporation or these Bylaws,
the meeting and vote of shareholders may be dispensed with, if the holders of
the outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted shall consent in writing
to such corporate action being taken.
4
<PAGE> 5
ARTICLE VII
AMENDMENT OF BYLAWS
These bylaws may be amended, added to, or repealed either by: (1) a
majority vote of the shares represented at any duly constituted shareholders'
meeting; or (2) by a majority vote of the Board of Directors.
ARTICLE VIII
FISCAL YEAR
The fiscal year for the corporation shall be the calendar year.
CERTIFICATION
I certify that these Bylaws were adopted by written consent of the
Board of Directors of the corporation and became effective on August 5, 1998.
/s/ DANA C. MCLENDON, JR.
----------------------------------------
Dana C. McLendon, Jr.
President
5
<PAGE> 1
EXHIBIT 3.4
AGREEMENT AND PLAN OF MERGER
OF
NEW AMERICAN HEALTHCARE CORPORATION
(a Tennessee corporation)
WITH AND INTO
NAHC MERGER SUB, INC.
(a Delaware corporation)
AGREEMENT AND PLAN OF MERGER dated as of August 19, 1998, by and
between NEW AMERICAN HEALTHCARE CORPORATION, a corporation organized and
existing under the laws of the State of Tennessee ("NAHC") and NAHC MERGER SUB,
INC., a corporation organized and existing under the laws of the state of
Delaware ("Surviving Corporation"), with reference to the following recitals:
WHEREAS, NAHC has an authorized capital stock consisting of 20,000,000
shares of common stock, par value $0.01 per share, of which 8,026,500 shares
have been duly issued and are now outstanding; 250,000 shares of Series A
Preferred Stock, of which 250,000 shares have been duly issued and are now
outstanding; and 235,000 shares of Series B Preferred Stock, of which 235,000
shares have been duly issued and are now outstanding,
WHEREAS, Surviving Corporation has an authorized capital stock
consisting of 50,000,000 shares of common stock, par value $0.01 per share, of
which 1,000 shares have been duly issued and are now outstanding, 1,000,000
shares of non-voting common stock of which no shares have been duly issued and
are now outstanding and 10,000,000 shares of preferred stock of which no shares
have been duly issued and are now outstanding, and
WHEREAS, the Board of Directors of NAHC and Surviving Corporation,
respectively, deem it advisable and generally to the advantage and welfare of
the two corporate parties and their respective shareholders that NAHC merge with
Surviving Corporation under and pursuant to the provisions of the Business
Corporation Law of Tennessee and of the General Corporation Law of the State of
Delaware.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of the mutual benefits herein provided, it is
agreed by and between the parties hereto as follows:
1. MERGER. NAHC shall be merged into Surviving Corporation.
<PAGE> 2
2. EFFECTIVE DATE. This Agreement and Plan of Merger is to be
effective on filing with the Delaware Secretary of State (the "Effective Date").
3. SURVIVING CORPORATION. Surviving Corporation shall survive the
merger herein contemplated and shall continue to be governed by the laws of the
State of Delaware, but name of the Surviving Corporation shall be changed to New
American HealthCare Corporation. The separate corporate existence of NAHC shall
cease forthwith upon the Effective Date.
4. AUTHORIZED CAPITAL. The Authorized capital stock of Surviving
Corporation following the Effective Date shall be 50,000,000 shares of Common
Stock, par value $0.01 per share, 1,500,000 shares of non-voting common stock,
par value $0.01 per share and 10,000,000 shares of preferred stock unless and
until the same shall be changed in accordance with the laws of the State of
Delaware.
5. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
set forth as Appendix A hereto shall be the Certificate of Incorporation of
Surviving Corporation following the Effective Date unless and until the same
shall be amended or repealed in accordance with the provisions thereof, which
power to amend or appeal is hereby expressly reserved, and all rights or powers
of whatsoever nature conferred in such Certificate of Incorporation or herein
upon any stockholder or director or officer of Surviving Corporation or upon any
other persons whomsoever are subject to the reserve power.
6. BYLAWS. The Bylaws of Surviving Corporation as they existed on
the Effective Date shall be the bylaws of the Surviving Corporation following
the Effective Date unless and until the same shall be amended or repealed in
accordance with the provisions thereof.
7. BOARD OF DIRECTORS AND OFFICERS. The members of the Board of
Directors and the officers of Surviving Corporation immediately after the
Effective Date of the merger shall be those persons who were the members of the
Board of Directors and the officers, respectively, of NAHC immediately prior to
the Effective Date of the merger, and such persons shall serve in such offices
respectively for the terms provided by law or in the Bylaws, or until their
respective successors are elected and qualified.
8. FURTHER ASSURANCE OF TITLE. If at any time Surviving
Corporation shall consider or be advised that any acknowledgments or assurances
in law or other similar actions are necessary or desirable in order to
acknowledge or confirm in and to Surviving Corporation any right, title, or
interest of NAHC held immediately prior to the Effective Date, NAHC and its
proper officers and directors shall and will execute and deliver all such
acknowledgments or assurances in law and do all things necessary or proper to
acknowledge or confirm such right, title, or interest in Surviving Corporation
as shall be
2
<PAGE> 3
necessary to carry out the purposes of this Agreement and Plan of Merger, and
Surviving Corporation and the proper officers and directors thereof are fully
authorized to take any and all such action in the name of NAHC or otherwise.
9. EXCHANGE OF NAHC COMMON STOCK. Forthwith upon the Effective
Date, each of the 8,026,500 shares of the common stock of NAHC presently issued
and outstanding shall be retired, and the holders of such stock shall be
entitled to receive 1.0473 shares of the common stock of Surviving Corporation
in exchange for each share of NAHC common stock owned.
10. EXCHANGE OF NAHC SERIES B PREFERRED STOCK. Forthwith upon the
Effective Date, the 221,243 shares of the Series B Preferred Stock of NAHC
presently owned by Welsh Carson Anderson & Stowe VII, L.P. ("WCAS") shall be
retired, and in exchange therefor WCAS shall be entitled to receive a total of
1,422,500 shares of the non-voting common stock of Surviving Corporation and
2,521,462 shares of common stock of the Surviving Corporation. Forthwith upon
the Effective Date, each of the 13,757 shares of Series B Preferred Stock of
NAHC presently owned by holders other than WCAS shall be retired and the holders
of such stock shall be entitled to receive 17.8264 shares of the common stock of
Surviving Corporation in exchange for each share of NAHC Series B Preferred
Stock owned.
11. EXCHANGE OF NAHC SERIES A PREFERRED STOCK. Forthwith upon the
Effective Date, each of the 250,000 shares of the Series A Preferred Stock of
NAHC presently issued and outstanding shall be retired, and the holders of such
stock shall be entitled to receive $100, plus accrued dividends through the
Effective Date, in cash in exchange for each share of Series A Preferred Stock
of NAHC owned, to be paid out of the proceeds of the above-referenced initial
public offering of Surviving Corporation.
12. EXCHANGE OF SURVIVING CORPORATION COMMON STOCK. Forthwith upon
the Effective Date, each of the 1,000 shares of the common stock of Surviving
Corporation presently issued and outstanding shall be canceled without any
action on the holder's part.
13. RIGHTS AND LIABILITIES OF SURVIVING CORPORATION. At and after
the effective time of the merger, Surviving Corporation shall succeed to and
possess, without further act or deed, all of the estate, rights, privileges,
powers, and franchises, both public and private, and all of the property, real,
personal, and mixed, of each of the parties hereto: all debts due to NAHC or
whatever account shall be vested in Surviving Corporation; all claims, demands,
property, rights, privileges, powers and franchises and every other interest of
either of the parties hereto shall be as effectively the property of Surviving
Corporation as they were of the respective parties hereto; the title to any real
estate vested by deed or otherwise in NAHC shall not revert or be in any way
impaired by
3
<PAGE> 4
reason of the merger, but shall be vested in Surviving Corporation; all rights
of creditors and all liens upon any property of either of the parties hereto
shall be preserved unimpaired, limited in lien to the property affected by such
lien at the effective time of the merger; all debts, liabilities, and duties of
the respective parties hereto shall thenceforth attach to Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities,
and duties had been incurred or contracted by it.
14. SERVICE OF PROCESS ON SURVIVING CORPORATION. Surviving
Corporation agrees that it may be served with process in the State of Tennessee
in any proceeding for enforcement of any obligation of NAHC as well as for the
enforcement of any obligation of Surviving Corporation arising from the merger,
including any suit or other proceeding to enforce the right of any shareholder
as determined in appraisal proceedings pursuant to the Business Corporation Law
of Tennessee.
15. TERMINATION. This Agreement and Plan of Merger may be
terminated and abandoned by action of the Board of Directors of NAHC at any time
prior to the Effective Date, whether before or after approval by the
shareholders of the two corporate parties hereto.
16. PLAN OF REINCORPORATION. This Agreement and Plan of Merger
constitutes a Plan of Reincorporation to be carried out in the manner, on the
terms and subject to the conditions herein set forth.
IN WITNESS WHEREOF each of the corporate parties hereto, pursuant to
authority duly granted by the Board of Directors, has caused this Agreement and
Plan of Merger to be executed by an authorized officer, Robert M. Martin and
Dana C. McLendon, Jr., respectively.
NEW AMERICAN HEALTHCARE CORPORATION
/s/ ROBERT M. MARTIN
----------------------------------------
Chief Executive Officer
NAHC MERGER SUB, INC.
/s/ DANA C. MCLENDON, JR.
----------------------------------------
Dana C. McLendon, Jr., President
4
<PAGE> 5
CERTIFICATE OF THE SECRETARY
OF
NAHC MERGER SUB, INC.
(a Delaware Corporation)
I, Robert M. Martin, the Secretary of NAHC Merger Sub, Inc., hereby
certify that the Agreement and Plan of Merger to which this certificate is
attached, after having been first duly signed on behalf of the corporation by
the President and Secretary of said corporation, was duly approved and adopted
by the unanimous written consent of the sole stockholder of NAHC Merger Sub,
Inc.
WITNESS my hand and seal of said Secretary this 19th day of August,
1998.
/s/ ROBERT M. MARTIN
----------------------------------------
Secretary
5
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