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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED AUGUST 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
(COMMISSION FILE NUMBER)
1-10511
--------------------------
AMERICAN MEDICAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3527632
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
COMMISSION FILE NUMBER
1-7612
--------------------------
AMERICAN MEDICAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-2111054
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14001 N. DALLAS PARKWAY, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
</TABLE>
(Registrants' telephone number, including area code) (214) 789-2200
--------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
AMERICAN MEDICAL HOLDINGS, INC.:
<TABLE>
<CAPTION>
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
- ------------------------------ ------------------------------------------------
<S> <C>
Common Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
AMERICAN MEDICAL INTERNATIONAL, INC.:
8 1/4% Convertible Subordinated Debentures due 2008
9 1/2% Convertible Subordinated Debentures due 2001
(TITLE OF CLASS)
------------------------------
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. American Medical Holdings, Inc.
Yes X No __. American Medical International, Inc. Yes X No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No __.
As of November 9, 1994 there were 77,594,649 shares of American Medical
Holdings, Inc. Common Stock, $.01 par value, outstanding. The aggregate market
value of Common Stock held by non-affiliates of the registrant, based on the
closing price of these shares at November 9, 1994, was approximately $1,108,064.
For the purposes of the foregoing calculation only, all directors and executive
officers and principal stockholders of the registrant have been deemed
affiliates.
All shares of Common Stock, $.01 par value, of American Medical
International, Inc. are held by American Medical Holdings, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
REFERENCE
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<S> <C> <C>
PART I
Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 13
Item 3. Legal Proceedings......................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders....................................... 13
PART II
Market for the Registrant's Common Stock and Related
Stockholder Matters...................................................................... 14
Item 5.
Item 6. Selected Financial Data................................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 16
Item 8. Financial Statements and Supplementary Data............................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 21
PART III
Item 10. Directors and Executive Officers of the Registrants....................................... 22
Item 11. Executive Compensation.................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 34
Item 13. Certain Relationships and Related Transactions............................................ 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 39
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
American Medical Holdings, Inc. ("Holdings") was organized in July, 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company"). As a result of this acquisition, Holdings is the owner of all of
the outstanding shares of common stock of AMI.
AMI was incorporated in 1957 and in 1960 became the first investor-owned
hospital company. Today, the Company is one of the leading hospital management
companies in the United States. As of August 31, 1994 AMI operated 36 acute care
and one psychiatric hospital containing a total of 9,021 licensed beds.
Subsequent to August 31, 1994, AMI, in partnership with unaffiliated third
parties, acquired an additional acute care hospital, increasing the total acute
care hospitals operated by AMI to 37. AMI focuses on delivering value to its
patients and its communities with a full range of quality inpatient and
outpatient services including medical, surgical, obstetric, diagnostic,
specialty and home health care. The Company also operates ancillary facilities
at each of its hospitals, such as ambulatory, occupational and rural healthcare
clinics. The Company's hospitals are principally located in the suburbs of major
metropolitan areas in 13 states including Texas, Florida and California.
Holdings and AMI are Delaware corporations with principal executive offices
located at 14001 Dallas Parkway, Suite 200, P.O. Box 809088, Dallas, Texas
75380-9088. The telephone number for Holdings and AMI at such address is (214)
789-2200.
RECENT DEVELOPMENTS
On October 10, 1994, Holdings, National Medical Enterprises, Inc, a Nevada
corporation ("NME") and a wholly-owned subsidiary of NME ("Merger Sub"),
executed an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to
the Merger Agreement, Merger Sub will merge with and into Holdings (the
"Merger"). As a result of the Merger, Holdings will become a wholly-owned
subsidiary of NME and the combined company will be the second-largest healthcare
services company in the nation. Under terms of the Merger Agreement each share
of common stock of Holdings will be converted into (i) $19.00 in cash, if the
closing occurs on or before March 31, 1995, and $19.25 thereafter and (ii) 0.42
of a newly issued share of NME common stock. Under the Merger Agreement,
Holdings will pay a special dividend of $0.10 per share before the effective
date of the Merger. Following the Merger, Holdings will have the right to
nominate three members to the 13 member board of directors of the combined
company. The transaction has been approved by shareholders of approximately
61.4% of Holdings' outstanding shares of common stock and, therefore, further
action by Holdings' shareholders is not required. The transaction, which is
currently anticipated to close in the first quarter of calendar 1995, is subject
to certain conditions including, among other things, expiration of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
Management believes that the position of the Company's hospitals in each of
their markets, the established physician networks and the alliances being
developed with other healthcare providers will be further enhanced by the
Merger. Holdings and NME each have a portfolio of hospitals in Florida and
California which will strengthen the combined company's presence in each of
these markets. The combined company will be strategically positioned to develop
new comprehensive healthcare delivery systems with physicians and other
healthcare providers in targeted communities and to deal with the current and
future changes in the healthcare industry.
On September 1, 1994, a limited partnership, of which AMI is the general
partner, acquired Hilton Head Hospital in Hilton Head, South Carolina containing
68 beds. In connection with the Company's efforts to re-establish a presence in
Europe, the Company has entered into a joint venture agreement with a community
organization (the "Burgergemeinde") located in Cham, Canton Zug, Switzerland.
The joint venture will be owned 90% by the Company and 10% by the
Burgergemeinde. Under the terms of the proposed transaction, the Company has
entered into a long term lease for the land where the existing hospital is
located and will then construct a new 56 bed acute care wing, convert an
existing structure into a medical office building and renovate and remodel the
existing
<PAGE>
acute care facility. In addition, the Company plans to contract to provide
management, food, physical therapy and rehabilitation services to the hospital,
an on-site nursing home and an affiliated retirement community.
PROPERTIES
As of August 31, 1994, the Company owned or leased and operated the
following 36 acute care hospitals and one psychiatric hospital. The Company also
owned and managed medical office buildings and related healthcare facilities
associated with its hospitals, as well as certain undeveloped properties.
<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION
OR NUMBER OF
NAME OF FACILITY LOCATION RENOVATION (A) LICENSED BEDS
- ---------------------------------------------------- --------------------------- -------------- -----------------
<S> <C> <C> <C>
TEXAS
Brownsville Medical Center Brownsville R 1984 168
Mid-Jefferson Hospital Nederland R 1981 128
Nacogdoches Medical Center Nacogdoches C 1975 150
Odessa Regional Hospital (b) Odessa C 1975 100
Park Place Hospital Port Arthur R 1992 223
Park Plaza Hospital Houston R 1992 508
Twelve Oaks Hospital Houston R 1992 336
CALIFORNIA
Encino Hospital (c) Encino C 1954 194
Garden Grove Hospital and Garden Grove R 1983 175
Medical Center
Medical Center of Irvine (d) Irvine C 1990 177
Medical Center of North Hollywood North Hollywood R 1972 163
San Dimas Community Hospital San Dimas C 1972 99
Sierra Vista Regional Medical Center San Luis Obispo C 1959 178
South Bay Hospital (d) Redondo Beach R 1986 203
Tarzana Regional Medical Center (c)(d) Tarzana R 1992 220
FLORIDA
Memorial Hospital of Tampa (b) Tampa R 1985 174
North Ridge Medical Center Ft. Lauderdale C 1975 395
Palm Beach Gardens Medical Center (d) Palm Beach Gardens R 1988 204
Palmetto General Hospital Hialeah R 1989 360
Town and Country Hospital Tampa C 1981 201
ARKANSAS
Central Arkansas Hospital Searcy R 1983 169
National Park Medical Center Hot Springs C 1985 166
St. Mary's Regional Medical Center Russellville R 1992 170
NORTH CAROLINA
Central Carolina Hospital Sanford C 1981 137
Frye Regional Medical Center (d) Hickory R 1982 355
SOUTH CAROLINA
East Cooper Community Hospital Mount Pleasant C 1986 100
Piedmont Medical Center Rock Hill C 1983 268
MISSOURI
Columbia Regional Hospital Columbia R 1987 301
Lucy Lee Hospital (d) Poplar Bluff C 1980 201
</TABLE>
2
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<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION
OR NUMBER OF
NAME OF FACILITY LOCATION RENOVATION (A) LICENSED BEDS
- ---------------------------------------------------- --------------------------- -------------- -----------------
<S> <C> <C> <C>
GEORGIA
North Fulton Regional Hospital (d) Roswell R 1990 167
Spalding Regional Hospital Griffin C 1989 160
NEBRASKA
Saint Joseph Hospital Omaha R 1990 404
Saint Joseph Center for Mental Health (e) Omaha R 1992 171
OTHER
Brookwood Medical Center Birmingham, Alabama R 1991 586
St. Jude Medical Center (f) Kenner, Louisiana C 1985 300
Culver Union Hospital Crawfordsville, Indiana C 1984 120
St. Francis Hospital Memphis, Tennessee R 1986 890
<FN>
- ------------------------
(a) The Company incurs capital expenditures to renovate and/or expand the
properties to accommodate new programs and to enhance the services
provided. C=Year of Construction, R=Year of Renovation
(b) The Company owns a majority interest in this hospital.
(c) Hospital is operated pursuant to a joint venture organized as of January 1,
1993 with HealthTrust Inc. -- The Hospital Company. AMI is the managing
partner for the joint venture and has a 75% ownership interest therein.
(d) Property held under lease.
(e) Psychiatric hospital.
(f) As of August 31, 1994 this property was held under lease. On October 28,
1994, the Company acquired the property of this hospital previously held
under a capital lease.
</TABLE>
EMPLOYEES
As of August 31, 1994, the Company had approximately 30,200 employees, of
which approximately 68% were full time employees. Two of the Company's hospitals
had labor contracts covering approximately 5% of the Company's employees.
Management believes that its relations with its employees are satisfactory.
MEDICAL STAFFS
The medical staff at each hospital generally consists of non-employee
physicians. In certain markets, the Company's hospitals have employed physicians
to further strengthen and expand the Company's managed care contracting ability.
Medical staff members of the Company-owned hospitals who are not employees often
serve on the medical staffs of hospitals not owned by the Company and may
terminate their relationships with the Company-owned hospitals at any time.
Rules and regulations concerning the medical aspects of each hospital's
operations are adopted and enforced by its medical staff. Such rules and
regulations provide that the members of the staff elect officers who, together
with additional physicians selected by them, supervise all medical and surgical
procedures and services. Their supervision is subject to the general oversight
of the hospital's Governing Board.
QUALITY OF SERVICES
Management believes the quality of healthcare services is critical in order
to attract and retain top physicians and increase the market share of the
Company's hospitals. One of the key mechanisms used to monitor the quality of
care at the Company's hospitals is a quality assurance program designed to
measure patient satisfaction, the Patient Satisfaction Monitoring System
("PSMS").
3
<PAGE>
PSMS utilizes the results of interviews performed by an independent research
company of a statistically determined sample group of discharged patients at
each hospital to gather patient responses regarding the hospital services
provided. Management uses the results as a tool to improve the quality of
patient services and satisfaction and believes PSMS has assisted the Company in
successfully maintaining and improving the quality of healthcare as perceived by
patients and their physicians and thereby contributing to improved net revenues.
PSMS is also used by the Company as one of the bases upon which hospital
executive directors and other employees are compensated under the Company's
incentive compensation program. Management believes that the Company was the
first in the industry to directly tie compensation to the attainment of
qualitative performance targets.
The Company has also developed and implemented at several of the Company's
hospitals systems similar to PSMS designed to (i) measure physician
satisfaction, the MD Satisfaction Survey and (ii) emergency room services,
Emergency Room PSMS.
COMPETITION
The Company operates its hospitals in competitive markets where other
investor-owned and non-profit hospitals operate and provide services that are
similar to those offered by the Company's hospitals. Competition among the
Company's hospitals and other healthcare providers in the United States has
increased in recent years due to a decline in occupancy rates resulting from
among other things, changes in government regulation and reimbursement, other
cost containment pressures, technology, and most recently, various healthcare
reform plans pending in Congress. Additionally, hospitals owned by government
agencies or other tax-exempt entities benefit from advantages (e.g., endowments,
charitable contributions and tax-exempt financing) which are not available to
the Company's hospitals.
Management believes that a hospital's competitive position within local
markets is affected by various factors including the quality of healthcare
services provided, pricing of healthcare services, the hospital's location and
the types of services offered. The Company expects to improve the performance of
its hospitals by (i) expanding physician network relationships, thereby
attracting and retaining quality physician and medical personnel, (ii)
increasing its emphasis on managed care contracting, (iii) developing and
marketing new healthcare services targeted to the particular needs of the
communities served by its hospitals, (iv) expanding profitable outpatient
services, and (v) expanding geographic coverage by developing affiliations and
alliances with other providers of service. In addition, the Company will
continue to pursue opportunities for growth through acquisitions.
The competitive position of a hospital is also increasingly affected by its
ability to negotiate contracts for healthcare services with managed care
organizations, including health maintenance organizations ("HMOs"), preferred
provider organizations ("PPOs") and other purchasers of group healthcare
services. HMOs and PPOs attempt to direct and control use of hospital services
through strict utilization management programs and by negotiating provider
contracts with only one or a limited number of hospitals in each market area.
The importance of negotiating with managed care organizations varies from market
to market depending on the market strength of such organizations. In some
situations, hospitals have agreed to fixed payments based on the number of
managed care enrollees, resulting in the hospital and, in some cases, the
physician assuming utilization risk (such contracts are referred to as capitated
contracts). Managed care organizations are generally able to obtain, through the
use of various contracting mechanisms including capitated contracts, significant
discounts from hospital established charges. Management believes that the
Company is able to compete effectively for managed care business in part because
of its relationships with local physicians, its hospital management teams, its
attention to cost controls and quality of service and its strategies to
establish service niches in markets served by other hospitals.
SOURCES OF REVENUE
The primary sources of the Company's hospital revenues are room and board
and the provision of ancillary medical services. Room and board represents the
basic charges for the hospital room and related services, such as general
nursing care and meals. Ancillary medical services represent the
4
<PAGE>
charges related to the medical support activities performed by the hospital,
such as X-rays, physical therapy and laboratory procedures. The Company receives
payments for services rendered to patients from the federal government under
Medicare programs and the Civilian Health and Medical Program of Uniformed
Services ("CHAMPUS"), state governments under their respective Medicaid
programs, managed care organizations ("contracted services"), private insurers,
self-insured employers and directly from patients. In addition to revenues
received from such programs and patients, the Company receives other non-patient
revenues (e.g. cafeteria and gift shop revenues).
The following table presents the percentage of net revenues for fiscal 1994,
1993 and 1992 under each of the following programs:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Medicare/Medicaid...................................................... 43% 38% 37%
Contracted Services.................................................... 25 26 24
Non-contracted Services................................................ 29 33 37
Other Sources.......................................................... 3 3 2
</TABLE>
The Company's hospital revenues received under Medicare, Medicaid, CHAMPUS,
Blue Cross and from payers of contracted services are generally less than
customary charges for the services covered. The increased percentage of
government paid care subjects providers to greater risk associated with reduced
government reimbursement. Managed care programs which offer prepaid and
discounted medical service packages account for a significant share of the
market and have reduced the historical rate of growth of hospital revenues. As a
result, new kinds of healthcare strategies and provider networks (e.g. physician
networks) are continuing to emerge.
Patients are generally not responsible for any difference between customary
hospital charges and amounts reimbursed under Medicare, Medicaid, CHAMPUS and
some Blue Cross plans or by payers of contracted services for such services,
except to the extent of any exclusions, deductibles or co-insurance features of
their coverage. In recent years insurers and other payers have increased the
amount of such exclusions, deductibles and co-insurance generally increasing the
patient's financial responsibility to directly pay for some services. The
increase in the self-pay portion of a patient's financial responsibility may
also increase the amount of the Company's uncollectible accounts.
MEDICARE PROGRAM
Under the Medicare program the Company receives reimbursement under a
prospective payment system ("PPS") for the routine and ancillary operating costs
of most Medicare inpatient hospital services. Psychiatric, long-term care,
rehabilitation, pediatric and certain designated cancer research hospitals, as
well as psychiatric or rehabilitation units that are distinct parts of a
hospital, are currently exempt from PPS and are reimbursed on a cost based
system, subject to certain cost caps. It is uncertain what impact, if any, the
federal efforts to reform the healthcare system will have on the current method
of Medicare reimbursement.
Under PPS, fixed payment amounts per inpatient discharge were established
based on the patient's assigned diagnosis related group ("DRG"). DRG's classify
patients' treatments for illnesses according to the estimated intensity of
hospital resources necessary to furnish care for each principal diagnosis. DRG
rates have been established for each individual hospital participating in the
Medicare program and are based upon a statistically normal distribution of
severity. Patients falling well outside the normal distribution are afforded
additional payments and defined as "outliers". Under PPS, hospitals may retain
payments in excess of costs but must absorb costs in excess of such payments;
therefore hospitals are encouraged to operate at greater efficiency.
DRG rates are updated and recalibrated periodically and have been affected
by several recent federal enactments. The index used by the Health Care
Financing Administration ("HCFA") to adjust the DRG rates gives consideration to
the inflation experienced by hospitals in purchasing goods and services ("market
basket"). However, for several years the percentage increases to the DRG rates
5
<PAGE>
have been lower than the percentage increases in the costs of goods and services
purchased by hospitals. The market basket is adjusted each federal fiscal year
("FY") which begins on October 1. The market basket for FY 1993 was 4.1%, FY
1994 was 4.3% and for FY 1995 is 3.6%.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA-93") extended the
reduction enacted by the Omnibus Budget Reconciliation Act of 1990 ("OBRA-90")
in the Medicare DRG payments to healthcare providers through 1997. A substantial
number of AMI's hospitals are classified as urban hospitals for reimbursement
purposes. The net updates of DRG rates for large urban and other urban hospitals
are established as follows: FY 1994 and FY 1995 market basket, minus 2.5%; FY
1996 market basket, minus 2%; and FY 1997 market basket, minus 0.5%. Management
cannot predict how future adjustments by Congress and HCFA will affect the
profitability of its healthcare facilities.
The Omnibus Budget Reconciliation Act of 1990 required the Secretary of the
Department of Health and Human Services ("HHS") to develop a proposal for a PPS
for all hospital-based outpatient services and inpatient psychiatric care. The
Secretary of HHS' report, which was due on September 1, 1991, has not been
submitted. Until such time as the Secretary of HHS has developed a PPS for all
hospital-based outpatient services, OBRA-90 directs that payments for the
reasonable cost of outpatient hospital services (other than for capital related
costs) be reimbursed at 94.2% of such reasonable costs for cost reporting
periods falling within FY 1991 through FY 1995. OBRA-93 extended this reduction
from FY 1995 through FY 1998.
MEDICARE REIMBURSEMENT FOR CAPITAL COSTS
Subsequent to September 30, 1991 and through FY 1995, capital related
payments for inpatient hospital services are made at the rate of 90% of
reasonable capital costs until capital PPS becomes applicable at the hospital.
The PPS capital costs reimbursement applies an estimated national average of FY
1989 Medicare capital costs per patient discharge updated to FY 1992 by the
estimated increase in Medicare capital costs per discharge (the "Federal Rate").
Capital PPS is applicable to cost reports beginning on or after October 1, 1991.
Under capital PPS reimbursement a 10 year transition period has been
established. A hospital is paid under one of the following two different payment
methodologies during this transition period: (i) hospital with a
hospital-specific rate (the rate established for a hospital based on the cost
report ending on or before December 31, 1990) below the Federal Rate would be
paid on a fully prospective payment methodology and (ii) hospitals with a
hospital-specific rate above the Federal Rate would be paid based on a
hold-harmless payment methodology or 100% of the Federal Rate whichever results
in a higher payment. A hospital is paid under one methodology throughout the
entire transition. After the transition period, all hospitals would be paid the
Federal Rate.
The impact of PPS capital reimbursement in the first two years has not been
material to Medicare capital reimbursement. The hospital-specific rates for FY
1994 decreased 2.16%. The established Federal Rate for FY 1994 was reduced by
9.33% to $378.34 per patient discharge and for FY 1995 was reduced by 0.4% to
$376.83 per patient discharge. Management believes that the decrease in the rate
of reimbursement for capital costs will not have a material adverse effect on
the Company's results of operations.
MEDICAID PROGRAM
The Medicaid program, created by the Social Security Act, is designed to
provide medical assistance to individuals unable to afford care. Medicaid is a
joint federal and state program in which states voluntarily participate.
Reimbursement rates under the Medicaid program are set by each participating
state, and rates and covered services may vary from state to state. Depending on
the average income per person in a state, at least 50% of Medicaid funding comes
from the federal government, with the balance shared by the state and local
governments. The amount of the federal share is called Federal Financial
Participation ("FFP"). Each of the Company's facilities is currently an eligible
Medicaid provider, although certain of the Company's hospitals do not currently
participate as providers of services in their respective state Medicaid
programs.
6
<PAGE>
The Omnibus Reconciliation Act of 1981 permitted each state to determine new
reimbursement rates for Medicaid inpatient hospital services that are reasonable
and adequate to meet the costs which must be incurred by efficiently and
economically operated facilities and to assure access to inpatient hospital
services by Medicaid recipients. Providers must accept Medicaid payment as
payment in full for healthcare services provided to Medicaid patients. Actual
payment rates and the methodologies for determining such rates vary from state
to state. For example, in Texas, Medicaid inpatient services are reimbursed on a
DRG based system, while in Florida, Medicaid inpatient services are reimbursed
on a per diem prospective payment system. In many instances, Medicaid
reimbursement does not cover a hospital's costs in providing services to
Medicaid recipients.
The Company operates hospitals in some states that currently levy taxes on
healthcare providers or use healthcare provider donations to meet the state's
share of medical assistance expenditures. HCFA issued a final rule on September
13, 1993 whereby funds donated from Medicaid providers and expenditures that are
attributable to provider-specific state taxes be offset from Medicaid
expenditures incurred on or after January 1, 1992, before calculating the amount
of the federal share of FFP. The Company has historically participated in such
programs and has received reimbursement to offset a portion of the cost of
services provided to indigent patients. Although management believes that as a
result of the final rule such reimbursement will be reduced, steps have been
taken to offset the anticipated reduction in reimbursement.
The Medicare and Medicaid programs have been subject to continual
modification through legislative acts and both federal and state administrative
initiatives. The federal or state governments might in the future reduce the
funds available under these programs or require more stringent utilization
review of hospital facilities. Such actions could have a material adverse impact
on the Company's financial condition and results of operations.
CHAMPUS
The Company's hospitals are reimbursed by the federal government's CHAMPUS
program for care provided to United States military retirees and dependents.
CHAMPUS pays for inpatient acute hospital care on the basis of a prospectively
determined rate applied on a per discharge basis using DRGs similar to the
Medicare system. At this time, inpatient psychiatric hospital services are
reimbursed on an individual hospital's per diem rate calculated based upon the
hospital's prior cost experience. There can be no assurance that the CHAMPUS
program will continue per diem reimbursement for psychiatric hospital services
in the future.
CONTRACTED BUSINESS
Managed care arrangements have typically reimbursed providers based on a
percent of charges or on a per diem basis with stop-loss provisions for high
severity cases. In more developed markets such as California and Florida, the
Company's hospitals are now entering into risk sharing, or capitated,
arrangements. These arrangements reimburse the hospital based on a fixed fee per
participant in a managed care plan with the hospital assuming the cost of
services provided, regardless of the level of utilization. If utilization is
higher than anticipated and/or costs are not effectively controlled, such
arrangements could produce low or negative operating margins.
COMMERCIAL INSURANCE
The Company's hospitals provide services to individuals covered by private
healthcare insurance. Private insurance carriers either reimburse their policy
holders or make direct payment to the Company's hospitals based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy. Blue Cross is a healthcare financing program that
provides its subscribers with hospital benefits through independent
organizations that vary from state to state. The Company's hospitals are paid
directly by local Blue Cross organizations on the basis agreed to by each
hospital and Blue Cross by a written contract. In some states, the local Blue
Cross affiliate is believed to be experiencing financial difficulty; however,
management does not believe that such difficulties represent a material
financial exposure to the Company.
7
<PAGE>
Recently, several commercial insurers have undertaken efforts to limit the
costs of hospital services by adopting PPS or DRG based systems. To the extent
such efforts are successful, and to the extent that the insurers' systems fail
to reimburse hospitals for the costs of providing services to their
beneficiaries, such efforts may have a negative impact on the hospitals' net
revenue.
REGULATION
LICENSURE, CERTIFICATION AND ACCREDITATION
Healthcare facility construction and operation is subject to federal, state
and local regulation relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Facilities are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for licensing and
accreditation. Management believes that all of the Company's healthcare
facilities are properly licensed under appropriate state laws and are certified
under the Medicare program or are accredited by the Joint Commission on
Accreditation of Health Care Organizations ("Joint Commission"), the effect of
which is to permit the facilities to participate in the Medicare and Medicaid
programs. Should any facility lose its Joint Commission accreditation, or
otherwise lose its certification under the Medicare program, the facility would
be unable to receive reimbursement from the Medicare and Medicaid programs.
Management believes that the Company's facilities are in substantial compliance
with applicable federal, state, local and independent review body regulations
and standards. The requirements for licensure, certification and accreditation
are subject to change and, in order to remain qualified, it may be necessary for
the Company to effect changes in its facilities, equipment, personnel and
services. Although the Company intends to continue its qualification, there is
no assurance that its hospitals will be able to comply in the future.
CERTIFICATES OF NEED
The construction of new facilities, the acquisition of existing facilities,
and the addition of new beds or services may be reviewable by state regulatory
agencies under a program frequently referred to as a Certificate of Need. The
Company operates hospitals in nine states that require state approval under the
Certificate of Need program. Such laws generally require appropriate state
agency determination of public need and approval prior to beds or services being
added, or a related capital amount being spent. Failure to obtain necessary
state approval can result in the inability to complete an acquisition or change
of ownership, the imposition of civil or, in some cases, criminal sanctions, the
inability to receive Medicare or Medicaid reimbursement and/or the revocation of
a facility's license.
UTILIZATION REVIEW
In order to ensure efficient utilization of facilities and services, federal
regulations require that admissions to and the utilization of facilities by
Medicare and Medicaid patients be reviewed periodically by a federally funded
Peer Review Organization ("PRO"). Pursuant to federal law, the PRO must review
the need for hospitalization and the utilization of services, and may, where
appropriate, deny payment for services provided. Each of the Company's
facilities has contracted with a PRO and has had in effect a quality assurance
program that provides for retrospective patient care evaluation and utilization
review. While no PRO has taken adverse action against any of the Company's
hospitals to date, PRO review can result in denial of payment for services,
recoupment of monies paid to the hospital, assessment of fines or exclusion from
the Medicare and Medicaid programs.
STATE RATE-SETTING ACTIVITY
The Company currently operates five facilities in Florida wherein the state
has mandated hospital rate-setting. Under Florida law, the maximum annual
percentage any hospital may increase its revenue per admission is limited to the
hospital's prior year actual revenue per adjusted admission inflated forward by
the hospital's applicable current year's maximum allowable rate of increase
("MARI") or the Health Care Cost Containment Board-approved budgeted revenue per
adjusted admission. The MARI is the maximum rate at which a hospital is expected
to increase its average revenue per adjusted admission for a given period. The
Health Care Cost Containment Board, using
8
<PAGE>
the most recent audited actual experience for each hospital, calculates the MARI
for each hospital based on the projected rate of increase in the market basket
index, adjusted by the hospital's percentage of Medicare, Medicaid and charity
care days plus two percentage points. As a result, in Florida, the Company's
ability to increase its rates to compensate for increased costs per admission is
limited, and the Company's operating margin at Florida facilities may be
adversely affected. There can be no assurance that other states in which the
Company operates hospitals will not enact rate-setting provisions as well.
FEDERAL LEGISLATION AND RULE-MAKING
The Medicare and Medicaid Antifraud and Abuse Amendments (the "Amendments")
are codified under Section 1128B of the Social Security Act. The Amendments
provide criminal penalties for individuals or entities that knowingly and
willfully offer, pay, solicit or receive remuneration of any kind in order to
induce referrals for goods or services reimbursed under the Medicare or state
Medicaid programs. The statute on its face is very broad with the types of
remuneration covered including kickbacks, bribes and rebates made directly or
indirectly, overtly or otherwise, in cash or in kind. In addition, prohibited
conduct includes remuneration intended to induce the purchasing, leasing,
ordering or arranging for any good, facility or service paid for by Medicare or
state Medicaid programs. In addition to criminal penalties (fines of up to
$25,000 and imprisonment for up to five years per referral), the Amendments also
establish civil monetary penalties and sanctions of excluding violators from
Medicare and Medicaid participation. The Office of the Inspector General ("OIG")
has taken the position that where physicians hold other than bona fide ownership
interests in healthcare providers (e.g., where such ownership is intended to
encourage the physicians to utilize the services of the entity in which they
have invested) such ownership arrangements violate the Amendments.
In recent years, the courts have suggested that any direct or indirect
payment or other financial benefit conferred upon a physician or other referral
source may violate the statute if one purpose of any portion of the payment is
to induce the physician to refer patients to the entity providing the benefit.
Healthcare providers are concerned that many relatively innocuous, or even
beneficial, commercial arrangements are technically covered by the Amendments
and are, therefore, subject to potential criminal prosecution. The Medicare and
Medicaid Patient and Program Protection Act of 1987 added two new provisions
specifically addressing the anti-kickback statute. They first authorized the OIG
to exclude an individual or entity from participation in the Medicare and
Medicaid programs if it is determined through an administrative process that the
party has engaged in a prohibited remuneration scheme. In addition, Congress
directed the HHS to develop regulations specifying those payment practices that
will not be subject to criminal prosecution and not provide a basis for
exclusion from the Medicare and Medicaid programs ("safe harbors"). Final
regulations were published on July 29, 1991 in the Federal Register. Additional
safe harbors were proposed, with a 60 day public comment period, on September
21, 1993. The proposed rule offers protection for investment interests in rural
areas, ambulatory surgical centers, and group practices composed exclusively of
active investors; practitioner recruitment in rural areas; obstetrical
malpractice insurance subsidies; referral arrangements for specialty services;
and cooperative hospital service organizations.
Among the criteria contained in the final regulations are criteria for
investments, leasing, purchasing and ordering arrangements which would apply to
the Company's facilities. The additional proposed regulations will also provide
a safe harbor for physician recruitment by facilities in certain rural areas. If
adopted, such a safe harbor provision would apply to certain of the Company's
facilities. Arrangements with referring physicians involving leasing,
purchasing, ordering and recruitment would not constitute illegal remuneration
so long as all of the criteria set forth in the safe harbors are met. However,
the fact that each provision of such arrangements does not fall within one of
the applicable safe harbor criteria does not necessarily mean that the
arrangement is illegal.
In order to prevent hospitals from entering into arrangements with
physicians that increase the physician payment from Medicare or Medicaid, in
January 1991, the OIG issued a management advisory report identifying potential
violations of the antifraud and abuse statute with respect to
9
<PAGE>
certain financial arrangements between hospitals and hospital-based physicians.
Specifically, the report stated that financial agreements that require
physicians to pay more than the fair market value for services provided by the
hospital or that compensate physicians for less than the fair market value of
goods and services that they provide to hospitals create potential liability for
physicians and hospitals engaged in these actions.
In May 1992, the OIG issued a special fraud alert regarding hospital
incentives to physicians. The alert identified the following incentive
arrangements which, if present, are indications of potentially unlawful
activity: (a) payment of any sort of incentive by the hospital each time a
physician refers a patient to the hospital, (b) the use of free or significantly
discounted office space or equipment (in facilities usually located close to the
hospital), (c) provision of free or significantly discounted billing, nursing or
other staff services, (d) free training for a physician's office staff in areas
such as management techniques, CPT coding and laboratory techniques, (e)
guarantees which provide that, if the physician's income fails to reach a
predetermined level, the hospital will supplement the remainder up to a certain
amount, (f) low-interest or interest-free loans, or loans which may be
"forgiven" if a physician refers patients (or some number of patients) to the
hospital, (g) payment of the costs of a physician's travel and expenses for
conferences, (h) coverage on hospital's group health insurance plans at an
inappropriately low cost to the physician and (i) payment for services (which
may include consultations at the hospital) which require few, if any,
substantive duties by the physician, or payment for services in excess of the
fair market value of services rendered.
Certain of the Company's current financial arrangements with physicians,
including joint ventures, may not qualify for the current safe harbor exemptions
and, as a result, such arrangements risk scrutiny by the OIG and may be subject
to enforcement action. As indicated above, the failure of these arrangements to
satisfy all of the conditions of the applicable safe harbor criteria does not
mean that the arrangements are illegal. Nevertheless, certain of the Company's
current financial arrangements with physicians, including joint ventures, and
the Company's future development of joint ventures and other financial
arrangements with physicians, could be adversely affected by the failure of such
arrangements to comply with the safe harbor regulations, or the future adoption
of other legislation or regulation in these areas.
Under provisions of the Omnibus Budget Reconciliation Act of 1989 and
OBRA-90, referrals of Medicare and Medicaid patients to clinical laboratories
with which a referring physician has a financial relationship are prohibited
effective January 1, 1991. As of January 1, 1992, any claim for payment
submitted to Medicare by a provider must identify the name and provider number
of the referring physician and must indicate whether the physician has an
ownership or other financial arrangement with the provider. Under the provisions
of OBRA-93, referrals of Medicare and Medicaid patients to certain "designated
health services" with which a referring physician has a financial relationship
will be prohibited as of January 1, 1995. These designated health services
include the following: clinical laboratory; physical and occupational therapy
services; radiology or other diagnostic services; radiation therapy services;
durable medical equipment; parenteral and enteral nutrients, equipment and
supplies; prosthetics, orthotics and prosthetic devices; home health services;
outpatient prescription drugs; and inpatient and outpatient hospital services.
There are a number of exceptions that may apply to the compensation arrangements
under which the Company's facility contracts with certain of its physicians
including exceptions for bona fide employment relationships, personal service
arrangements, and physician recruitment arrangements.
The Social Security Act also imposes criminal and civil penalties for making
false claims to Medicare and Medicaid for services not rendered or for
misrepresenting actual services rendered in order to obtain higher
reimbursement. Like the antifraud and abuse statute, this statute is very broad.
Careful and accurate coding of claims for reimbursement must be performed to
avoid liability under the false claims statutes.
Management exercises care in an effort to structure its arrangements with
physicians to comply in all material respects with these laws, and management
believes that the Company is in compliance
10
<PAGE>
with the Amendments, however, there can be no assurance that (i) government
officials charged with responsibility for enforcing the prohibitions of the
Amendments will not assert that the Company or certain transactions in which it
is involved are in violation of the Amendments, or (ii) courts will interpret
the Amendments in a manner consistent with the practices of the Company.
STATE LEGISLATION
Certain states in which the Company's facilities are located also have
enacted statutes which prohibit the payment of kickbacks, bribes and rebates for
the referral of patients. Many of these statutes have provisions that closely
follow the federal statutes described above, and there have been few actions or
interpretations made under such provisions. Management believes that the Company
is in substantial compliance with such laws; however, there can be no assurance
that government officials who have the responsibility for enforcing such laws
will not assert that the Company or certain transactions in which the Company is
involved are in violation of such laws, or that such laws will ultimately be
interpreted by the government officials in a manner consistent with the
practices of the Company.
GENERAL REGULATION
The Company is committed to providing its employees with an equal
opportunity work environment that is free from discrimination. In keeping with
this commitment, the Company ensures that all human resource programs are
administered without regard to race, religion, color, national origin, sex or
age. Furthermore, the Company embraces and complies with the American
Disabilities Act of 1990 (ADA) and the 1993 Family and Medical Leave Act. Such
human resource programs include, but are not limited to, compensation, benefits,
application of Company policies, company-sponsored training, educational, social
and recreational programs.
The Company is subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment,
including, without limitation, the disposal of certain medical waste and
by-products. Management does not believe that the Company will be required to
expend any material amounts in order to comply with these laws and regulations
or that compliance will materially affect its capital expenditures, earnings or
competitive position.
PROFESSIONAL LIABILITY
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. The Company
self-insures the professional and general liability claims for nine of its
hospitals up to $500,000 per occurrence and for 26 of its hospitals up to $3
million per occurrence. Prior to June, 1993 the self-insured retention was $5
million per occurrence. Coverage for professional and general liability claims
for the Company's two remaining hospitals is maintained with outside insurance
carriers.
The Company owns a 35% equity interest in an insurance company which insures
the excess professional and general liability risks for those hospitals which
are self-insured. The excess coverage provided by this insurance company is
limited to $25 million per claim. The Company purchases additional excess
insurance from a commercial carrier. For the period from January 1986 to
February 1991, the Company had no excess coverage for the majority of its
hospitals. However, in March 1991, the Company purchased prior acts coverage
which substantially reduces the uninsured liability for risks during this
period.
The Company maintains an unfunded reserve for its professional liability
risks which is based, in part, on actuarial estimates calculated and evaluated
by an independent actuary. Actual hospital professional and general liability
costs for a particular period are not normally known for several years after the
period has ended. The delay in determining the actual cost associated with a
particular period is due to the time between the occurrence of an incident, the
reporting thereof and the settlement of related claims. As a result, reserves
for losses and related expenses are estimated using expected loss reporting
patterns determined in conjunction with the actuary and are discounted using a
rate of 9% to their present value. Adjustments to the total reserves are
determined in conjunction
11
<PAGE>
with the actuary and on an annual basis are recorded by the Company as an
increase or decrease in the current year's earnings. Management considers such
reserves to be adequate for professional liability risks. Any losses incurred in
excess of the established reserves will be recorded as a charge to the earnings
of the Company. Any losses incurred within the Company's self-insured limits
will be paid out of the Company's cash from operations. While the Company's cash
from operations has been adequate to provide for alleged and unforeseen
liability claims in the past, there can be no assurance that the Company's cash
flow will continue to be adequate to cover such claims.
12
<PAGE>
SEGMENT OPERATING INFORMATION
Holdings' only material business segment is "healthcare," which contributed
substantially all of its revenues and operating profits in fiscal 1994. The
Company's healthcare business is conducted in the United States.
ITEM 2. PROPERTIES
See "ITEM 1. BUSINESS."
ITEM 3. LEGAL PROCEEDINGS
LITIGATION RELATING TO THE MERGER.
To date, a total of nine purported class action suits (the "Class Actions")
have been filed against Holdings and the directors of Holdings (and in two cases
against NME). Seven of such Class Actions have been filed in the Delaware Court
of Chancery and are entitled (i) JEFFREY STARK AND GARY PLOTKIN V. ROBERT W.
O'LEARY, ROBERT J. BUCHANAN, JOHN T. CASEY, ROBERT B. CALHOUN, HARRY J. GRAY,
HAROLD J. [SIC] HANDELSMAN, SHELDON S. KING, MELVYN N. KLEIN, DAN W. LUFKIN,
WILLIAM E. MAYER AND HAROLD S. WILLIAMS (THE "HOLDINGS DIRECTORS") AND HOLDINGS,
C.A. NO. 13792, (ii) 7457 Partners v. the Holdings Directors and Holdings, C.A.
No. 13793, (iii) MOISE KATZ V. THE HOLDINGS DIRECTORS AND HOLDINGS, C.A. NO.
13794, (iv) CONSTANTINOS KAFALAS V. THE HOLDINGS DIRECTORS AND HOLDINGS, C.A.
NO. 13795, (v) F. RICHARD MANSON V. THE HOLDINGS DIRECTORS, NME AND HOLDINGS,
C.A. NO. 13797, (vi) LISBETH GREENFELD V. THE HOLDINGS DIRECTORS AND HOLDINGS,
C.A. NO. 13799 and (vii) JOSEPH FRANKEL V. THE HOLDINGS DIRECTORS AND HOLDINGS,
C.A. NO. 13800 and two purported Class Actions have been filed in the Superior
Court of the State of California, County of Los Angeles, entitled RUTH LEWINTER
AND RAYMOND CAYUSO V. THE HOLDINGS DIRECTORS (WITH THE EXCEPTION OF HAROLD S.
WILLIAMS), NME AND HOLDINGS, CASE NO. BC115206 AND DAVID F. AND SYLVIA GOLDSTEIN
V. O'LEARY, NME, AMI, ET AL., CASE NO. BC116104. The seven Class Actions filed
in the Delaware Court of Chancery have been consolidated The complaints filed in
each of the Class Actions are substantially similar, are brought by purported
stockholders of Holdings and, in general, allege that the defendants breached
their fiduciary duties to the plaintiffs and other members of the purported
class. One of the Class Actions alleges that the defendants have committed or
aided and abetted a gross abuse of trust. The complaints further allege that the
directors of Holdings wrongfully failed to hold an open auction and encourage
bona fide bids for Holdings and failed to take action to maximize value for
Holdings stockholders. The complaints seek preliminary and permanent injunctions
against the proposed transaction until such time as a transaction to be entered
into between Holdings and NME results from bona fide arms' length negotiation
and/or requiring a fair auction for Holdings. In addition, if the Merger is
consummated, the complaints seek recision or recessionary damages and two of the
Class Actions seek an accounting of all profits realized and to be realized by
the defendants in connection with the Merger and the imposition of a
constructive trust for the benefit of the plaintiffs and other members of the
purported classes pending such an accounting. The complaints also seek monetary
damages of an unspecified amount together with prejudgment interest and
attorneys' and experts' fees. Holdings and NME believe that the complaints are
without merit and intend to defend them vigorously.
In addition, Holdings and AMI are subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of all pending legal proceedings will not have a material adverse
effect on the business, results of operations or financial condition of Holdings
or AMI.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Holdings' common stock is traded on the New York Stock Exchange. Holdings
owns all of AMI's issued and outstanding common stock and such shares are no
longer publicly traded. The following table indicates the quarterly high and low
sales prices of Holdings' common stock for the period from September 1, 1992
through August 31, 1994. Certain covenants in the Company's bank credit and
other financing agreements restrict the payment of cash dividends on Holdings'
common stock (See Item 14(a), Note 5 to the Financial Statements). No dividends
were paid on Holdings' common stock for the periods presented. (See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources").
<TABLE>
<CAPTION>
SALES PRICE
------------------
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter....................................................... $18 1/4 $11 7/8
Second Quarter...................................................... 21 1/4 16 3/4
Third Quarter....................................................... 25 1/2 18
Fourth Quarter...................................................... 26 5/8 21 3/4
1993
First Quarter....................................................... $10 7/8 $ 8
Second Quarter...................................................... 13 3/4 10 5/8
Third Quarter....................................................... 11 5/8 9 7/8
Fourth Quarter...................................................... 14 10 1/4
</TABLE>
There were 9,134 holders of record of Holdings' shares as of November 9,
1994.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------- ----------------------- 1991
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI -----------------------
(1) (2) (3) (4) (5) (6) HOLDINGS AMI
------------ -------- ------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Net Revenues................ $ 2,381.7 $2,381.7 $ 2,238.5 $2,238.5 $ 2,237.9 $2,237.9 $ 2,545.9 $2,288.6
Net Income (loss)........... $ 137.1 $ 137.1 $ 41.5 $ 41.5 $ 99.6 $ 99.6 $ (19.0) $ (1.8)
Net Income (loss) per
share...................... $ 1.78 N/A $ .54 N/A $ 1.30 N/A $ (.38) N/A
Shares of stock used to
calculate earnings (loss)
per common and common
equivalent share........... 77,143,000 N/A 76,760,000 N/A 76,645,000 N/A 50,698,000 N/A
Other Data:
Working Capital............. $ (187.7) $ (187.7) $ (140.0) $ (140.0) $ (222.2) $ (222.2) $ (263.4) $ (243.0)
Net book value of property
and equipment.............. $ 1,463.7 $1,463.7 $ 1,404.2 $1,404.2 $ 1,394.3 $1,394.3 $ 1,454.6 $1,413.8
Total assets................ $ 2,976.5 $2,976.5 $ 2,868.4 $2,868.4 $ 2,963.3 $2,963.3 $ 3,153.5 $3,199.6
Long-term debt and
convertible subordinated
debt....................... $ 1,141.7 $1,141.7 $ 1,294.2 $1,294.2 $ 1,343.7 $1,343.7 $ 1,613.3 $1,564.6
Common stock subject to
repurchase obligations..... N/A N/A $ 6.1 N/A $ 4.3 N/A $ 7.4 N/A
Shareholders' equity........ $ 848.7 $ 848.7 $ 697.8 $ 703.9 $ 663.7 $ 668.0 $ 552.2 $ 551.1
Book value per share........ $ 10.95 $ 11.71 $ 9.08 $ 9.71 $ 8.66 $ 9.22 $ 7.30 $ 7.60
<CAPTION>
FOR THE FOR THE
TEN MONTHS TWO MONTHS
ENDED ENDED
AUGUST 31, OCTOBER 31,
1990 1989
----------------------- ------------
HOLDINGS AMI AMI
(7) (8) (9)
------------ -------- ------------
<S> <C> <C> <C>
Operating Results:
Net Revenues................ $ 2,052.4 $1,902.6 $ 480.9
Net Income (loss)........... $ (13.7) $ (15.3) $ (68.6 )
Net Income (loss) per
share...................... $ (.27) N/A $ (.98 )
Shares of stock used to
calculate earnings (loss)
per common and common
equivalent share........... 50,080,000 N/A 70,153,000
Other Data:
Working Capital............. $ (313.4) $ (289.6) N/A
Net book value of property
and equipment.............. $ 1,697.0 $1,531.9 N/A
Total assets................ $ 3,595.7 $3,382.3 N/A
Long-term debt and
convertible subordinated
debt....................... $ 2,246.4 $2,066.8 N/A
Common stock subject to
repurchase obligations..... $ 6.6 N/A N/A
Shareholders' equity........ $ 332.0 $ 312.0 N/A
Book value per share........ $ 6.63 $ 4.30 N/A
<FN>
- ------------------------------
(1) Operating results for fiscal 1994 reflect the impact of the $69.3 million
gain ($43.4 million net of tax or $0.56 per share) on the sale of
securities of EPIC Holdings, Inc. and the impact of $1.9 million or $.02
per share for an extraordinary charge for the repurchase of debt. The
Company's obligation to repurchase shares of Holdings' common stock held by
certain executive officers no longer exists. Accordingly, common stock
subject to repurchase obligations was recognized as shareholders' equity as
of August 31, 1994.
(2) Operating result for fiscal 1994 reflect the impact of the $69.3 million
gain ($43.4 million net of tax) on the sale of securities of EPIC Holdings,
Inc. and the impact of $1.9 million for an extraordinary charge for the
repurchase of debt.
(3) Operating results for fiscal 1993 reflect the impact of $25.4 million or
$.33 per share for an extraordinary charge for the repurchase of debt.
(4) Operating results for fiscal 1993 reflect the impact of $25.4 million for
an extraordinary charge for the repurchase of debt.
(5) Operating results for fiscal 1992 reflect the impact of the $119.8 million
gain ($80.7 million net of tax or $1.05 per share) on the sale of certain
securities of EPIC Healthcare Group, Inc. and EPIC Holdings, Inc. and the
impact of $10 million or $.13 per share for an extraordinary charge for the
repurchase of debt has been reflected in operating results for fiscal 1992.
(6) Operating results for fiscal 1992 reflect the impact of the $119.8 million
gain ($80.7 million net of tax) on the sale of certain securities of EPIC
Healthcare Group, Inc. and EPIC Holdings, Inc. and the impact of $10
million for an extraordinary charge for the repurchase of debt.
(7) Operating results for Holdings for the ten months ended August 31, 1990
reflect the elimination of net revenues, loss before taxes and net loss of
$320.9 million, $35.1 million and $23.1 million, respectively, for assets
sold or under binding agreement to sell as of August 31, 1990.
(8) Operating results for AMI for the ten months ended August 31, 1990 reflect
the elimination of net revenues, loss before taxes and net loss of $257.5
million, $26.7 million, and $17.6 million, respectively, for assets sold or
under binding agreement to sell as of August 31, 1990.
(9) Operating results for the two months ended October 31, 1989 reflect the
impact of $128.2 million ($83.3 million net of tax or $1.19 per share) in
merger costs.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $31.9 million at August 31,
1994 compared to $44.3 million at August 31, 1993. Net cash provided by
operating activities increased $12.4 million to $269.6 million for the year
ended August 31, 1994 when compared to the same period in the prior year. In May
1994, the Company received $72.4 million related to the disposition of AMI's
interest in EPIC Holdings, Inc. as a result of the merger of EPIC Holdings, Inc.
with HealthTrust, Inc. -- the Hospital Company. The Company paid income taxes of
$86.0 million for the year ended August 31, 1994 of which $25.9 million related
to the disposition of AMI's interest in EPIC Holdings, Inc. The long-term debt
balance (including current maturities) at August 31, 1994 was $1,297.7 million
compared to $1,335.0 million at August 31, 1993.
In fiscal 1994, the Company invested $112.2 million in capital expenditures
(excluding acquisitions) and as of August 31, 1994, had approximately $19.5
million of capital expenditure commitments outstanding. Capital expenditures
made by the Company are for new construction and renovations to facilitate and
accommodate new inpatient and outpatient programs and to develop and acquire new
or additional lines of business, including home health, surgery centers and
physician practices. In May 1994, the Company completed the purchase of Saint
Francis Hospital located in Memphis, Tennessee for a purchase price of
approximately $92.0 million. In conjunction with this purchase, in June 1994 the
Company completed the acquisition of a management services organization in the
Memphis area.
The Company intends to continue to invest in new and existing operations
within the healthcare industry. On September 1, 1994, a limited partnership, of
which a wholly-owned subsidiary of AMI is the general partner, completed the
purchase of Hilton Head Hospital, located in Hilton Head, South Carolina for a
purchase price of approximately $23.6 million. Through its subsidiary AMI owns
70% of the limited partnership. In connection with the Company's efforts to
re-establish a presence in Europe, the Company has entered into a joint venture
agreement with a community organization (the "Burgergemeinde") located in Cham,
Canton Zug, Switzerland. The joint venture will be owned 90% by the Company and
10% by the Burgergemeinde. Under the terms of the proposed transaction, the
Company will enter into a long term lease for the land where the existing
hospital is located and will then construct a new 56 bed acute care wing,
convert an existing structure into a medical office building and renovate and
remodel the existing acute care facility. In addition, the Company plans to
contract to provide management, food, physical therapy and rehabilitation
services to the hospital, an on-site nursing home and an affiliated retirement
community.
In June 1994, the Company amended its credit facility ("Reducing Revolving
Credit Facility") extending the term of the bank commitments thereunder until
September 1999 and reducing the rate of interest applicable to amounts
outstanding thereunder to, at the option of AMI, (i) adjusted LIBOR plus .875%
(subject to reduction upon the satisfaction of certain conditions) or (ii) the
alternative base rate specified for the Reducing Revolving Credit Facility. Upon
completion of the fiscal 1994 loan compliance report, anticipated to be prior to
the end of the first quarter of fiscal 1995, the rate at which interest accrues
based on LIBOR will be reduced to LIBOR plus .75%.
The Company repaid (excluding repayments on the Reducing Revolving Credit
Facility) $62.2 million of long-term debt during the year ended August 31, 1994
from cash provided by operating activities. During fiscal 1994, the Company (i)
made repayments of $28.0 million for the redemption of the remaining principal
amount of the 6 3/4% Swiss franc/dollar dual currency senior notes due 1997,
(ii) repurchased $15.4 million principal amount of the 15% Junior Subordinated
Discount Debentures, Due 2005 and (iii) made repayments of approximately $18.8
million on certain other indebtedness. The amount outstanding under the Reducing
Revolving Credit Facility decreased to $266.0 million as of August 31, 1994,
from $287.0 million outstanding as of August 31, 1993. Under the Reducing
Revolving Credit Facility, $31.3 million in letters of credit were outstanding
as of August 31, 1994.
16
<PAGE>
Management believes that sufficient funds will be generated from operations,
augmented by borrowings under the Reducing Revolving Credit Facility, to finance
operations, capital expenditures and service debt. Scheduled principal payments,
excluding amounts that may become due on the Reducing Revolving Credit Facility,
are $156.0 million in fiscal 1995, $57.0 million in fiscal 1996, $182.1 million
in fiscal 1997, $2.3 million in fiscal 1998, and $2.3 million in fiscal 1999.
The terms of certain indebtedness of the Company impose operating and
financial restrictions requiring the Company to maintain certain financial
ratios and restrict the Company's ability to incur additional indebtedness and
enter into leases and guarantees of debt; to make capital expenditures; to make
loans and investments; to pay dividends or repurchase shares of stock; to
repurchase, retire or refinance indebtedness prior to maturity; and to purchase
or sell assets. The Company has pledged the capital stock of certain direct
(first tier) subsidiaries as security for its obligations under the Reducing
Revolving Credit Facility and certain other senior indebtedness. In addition,
the Company has granted a security interest in its accounts receivable as
security for its obligations under the Reducing Revolving Credit Facility.
Management believes that the Company is currently in compliance with all
covenants and restrictions contained in all financing agreements.
Upon completion of the acquisition of the Company by a wholly-owned
subsidiary of National Medical Enterprises, Inc., management believes that the
combined company's liquidity will be adequate to finance the Company's hospital
operations, capital expenditures and future developments.
RESULTS OF OPERATIONS
GENERAL TRENDS
The Company's net revenues have increased as compared with the same period
of the prior year as a result of the continued increase in volume from
outpatient and inpatient services, the expansion of patient care services and
general price increases. The Company has experienced an increase in outpatient
volume as compared to the prior year as a result of (i) advanced medical
technology and (ii) cost containment pressures from payers to direct more
patients from inpatient facilities to less expensive outpatient facilities.
Accordingly, several of the Company's hospitals continue to expand or redesign
their outpatient facilities and services to accommodate the increased
utilization of such facilities. The growth rate of the Company's outpatient
revenue realized from the shift of inpatient care services to outpatient care
services is expected to occur at a slower pace in the future from the rate
experienced in the past, as the use of such services matures. As a result of
increased demand for specialized healthcare for both inpatient and outpatient
care, the Company has established specialized programs (e.g. long-term care,
rehabilitation units, home health) within separate units in the Company's
existing hospitals. Regulations are currently being proposed by the Health Care
Financing Administration that, if enacted, would limit the opportunity provided
by the development of these specialized programs.
Medicare and Medicaid revenues are expected to continue to increase in the
future as a larger portion of the general population qualifies for coverage as a
result of the aging of the population and expanded state Medicaid programs. This
in turn may decrease the Company's overall rate of revenue growth as a result of
(i) a corresponding change in payer mix and (ii) the disparity between the rate
of increase in the Company's established billing rates and the government's
reimbursement rate. The Medicare program reimburses the Company's hospitals
primarily based on established rates by a diagnosis related group for acute care
hospitals. While Medicare payment rates are indexed for inflation annually, the
increases have historically lagged behind actual inflation.
In addition to the Medicare program, states and insurance companies continue
to actively negotiate the amounts they will pay for services performed, rather
than simply paying healthcare providers their established billing rates. The
maturity of managed care environments varies in the markets in which the Company
operates. The Company's hospitals that operate in mature managed care markets
typically have contributed smaller profit margins than some of the Company's
hospitals which operate in less mature markets. Management believes that through
cost-containment efforts, the Company is positioned to have a competitive edge
in pursuing market share in the managed care environment.
17
<PAGE>
Competition among hospitals and other healthcare providers in the United
States has increased over the past several years due to changes in government
regulation and reimbursement, various other third party payer cost containment
pressures and medical technology. As these factors continue to affect healthcare
providers, along with the pending proposals for healthcare reform, the
healthcare industry continues to experience a significant increase in the number
of mergers and acquisitions occurring between both investor-owned and non-profit
hospitals in an effort to further reduce the cost of delivering high quality
care.
To offset these factors which may limit net revenue growth, the Company
continues to look at providing an increasing array of healthcare services by
expanding the Company's operations and by integrating broad healthcare networks.
As a result, the Company is developing physician networks and alliances with
other healthcare providers to create fully integrated healthcare delivery
systems. In addition to expanding services, management believes that its cost
containment efforts have been critical in improving and maintaining operating
margins while providing a high level of patient care.
A significant portion of the Company's operating costs and expenses are
subject to inflationary increases. Since the healthcare industry is labor
intensive, salaries and benefits are continually affected by inflation. To
control labor costs, the Company has and will continue to monitor, at the
hospital level, the daily staff coverage. To control increases in supply costs,
management continues to focus on managing such utilization through various
mechanisms including (i) improved contract compliance, (ii) development of
pharmaceutical formularies to control the usage of new drugs and (iii)
aggressive negotiation of supply purchase contracts. To further control costs,
the Company continues to expand its case management (i.e. review of associated
costs for patient care for specific treatment) in its hospitals. The Company's
ability to pass on a certain portion of the increased costs associated with
providing healthcare to Medicare/Medicaid patients may be limited by existing
government reimbursement programs for healthcare services unless the federal and
state governments correspondingly increase the rates of payments under these
programs. Although the Company cannot predict its ability to continue to cover
future cost increases, management believes that through the continued adherence
to the cost containment programs, labor management and reasonable price
increases, inflation is not expected to have a material adverse effect on
operating margins.
HEALTHCARE REFORM
Although substantive federal healthcare reform has not been legislated, the
healthcare industry will continue to be faced with federal and state efforts to
reform the delivery system. Any substantive reform is likely to encompass
healthcare coverage for an increasing percentage of the U.S. population and
could contain provisions which would impose among other things, cost controls on
healthcare providers, insurance market reforms to increase the availability of
group health insurance to small businesses, requirements that all businesses
offer health insurance coverage to their employees, and the creation of a single
government health insurance plan (to reduce administrative costs) that would
cover all citizens. Reform proposals may also contain significant reductions in
the amount of reimbursement received under the Medicare/Medicaid programs. In
addition to the proposed healthcare reform, some states, including Florida, have
already enacted reforms and continue to consider additional reforms. The type
and impact of such reform continues to be debated at both the federal and state
levels.
Management believes that some form of federal healthcare reform may occur;
however, until such reform is finalized, management cannot predict which
proposals will be adopted, if any, and until adopted the impact of any such
proposals on the Company's business, results of operations or financial
condition.
18
<PAGE>
YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
The following table summarizes certain consolidated results of the Company.
AMI's results of operations are the same as that of the Company's; therefore,
separate results of operations and a discussion and analysis for AMI are not
presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
% OF NET % OF NET % OF NET
REVENUE REVENUE REVENUE
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues
Medicare/Medicaid............................... $1,021 42.9% $ 857 38.3% $ 819 36.6%
Contracted services............................. 597 25.1 577 25.8 533 23.8
Non-contracted services......................... 679 28.5 732 32.7 823 36.8
Other sources................................... 85 3.5 72 3.2 63 2.8
------ -------- ------ -------- ------ --------
Total Net Revenues............................ 2,382 100.0 2,238 100.0 2,238 100.0
------ -------- ------ -------- ------ --------
Operating Costs and Expenses:
Salaries and benefits........................... 869 36.5 815 36.4 839 37.5
Supplies........................................ 340 14.3 316 14.1 317 14.2
Provision for uncollectible accounts............ 166 6.9 148 6.6 164 7.3
Depreciation and amortization................... 157 6.6 147 6.6 149 6.7
Other operating costs........................... 524 22.0 506 22.6 496 22.2
------ -------- ------ -------- ------ --------
Total Operating Costs and Expenses............ 2,056 86.3 1,932 86.3 1,965 87.9
------ -------- ------ -------- ------ --------
Operating Income.................................. 326 13.7 306 13.7 273 12.1
Gains on sales of securities.................... 69 2.9 -- -- 120 5.4
Interest expense, net........................... (154) (6.5) (166) (7.4) (204) (9.1)
------ -------- ------ -------- ------ --------
Income Before Taxes, Minority Equity Interest and
Extraordinary Loss............................... 241 10.1 140 6.3 189 8.4
Provision for income taxes...................... (98) (4.1) (69) (3.1) (78) (3.5)
------ -------- ------ -------- ------ --------
Income Before Minority Equity Interest and
Extraordinary Loss............................... 143 6.0 71 3.2 111 4.9
Minority equity interest........................ (4) (0.2) (4) (0.2) (1) --
------ -------- ------ -------- ------ --------
Net Income Before Extraordinary Loss.............. 139 5.8 67 3.0 110 4.9
Extraordinary loss on early extinguishment of
debt........................................... (2) -- (25) (1.1) (10) (0.4)
------ -------- ------ -------- ------ --------
Net Income........................................ $ 137 5.8% $ 42 1.9% $ 100 4.5%
------ -------- ------ -------- ------ --------
------ -------- ------ -------- ------ --------
</TABLE>
19
<PAGE>
The following table sets forth certain operating statistics of the Company's
hospitals for the three years ended August 31, 1994.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUUST 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
HISTORICAL OPERATING DATA (1):
Number of Hospitals (at year end)........................................ 37 36 35
Admissions
Medicare/Medicaid...................................................... 131,216 117,570 113,070
Contracted............................................................. 62,527 56,269 52,812
Non-contracted......................................................... 45,645 52,839 63,947
Other.................................................................. 2,831 2,918 3,261
----------- ----------- -----------
Total................................................................ 242,219 229,596 233,090
----------- ----------- -----------
----------- ----------- -----------
Equivalent Admissions (2)................................................ 333,071 309,972 308,722
Outpatient
Visits................................................................. 2,255,498 1,660,015 1,618,068
Surgeries.............................................................. 123,867 120,854 120,008
Patient Days............................................................. 1,435,487 1,372,232 1,456,542
Equivalent Patient Days (2).............................................. 1,943,842 1,830,169 1,906,304
Licensed Beds Occupancy Rate............................................. 46.6% 46.8% 47.9%
Licensed Beds (at year end).............................................. 9,021 8,003 7,822
<FN>
- ------------------------
(1) Represents statistics for hospitals only and has not been adjusted to
include statistics for related healthcare entities.
(2) Represents actual admissions/patient days as adjusted to include outpatient
and emergency room services by adding to actual admissions/patient days an
amount derived by dividing outpatient and emergency room revenue by
inpatient revenue per admission/patient days.
</TABLE>
Net revenues for the year ended August 31, 1994 increased 6.4% to $2,382
million from $2,238 million for the year ended August 31, 1993 as a result of
new patient care services, higher utilization of outpatient and ancillary
services and higher third party reimbursement rates. Net revenues for the year
ended August 31, 1992 of $2,238 million included a benefit of approximately $10
million relating to a Medicare settlement and $69 million relating to facilities
sold during fiscal 1992.
A shift in volume from inpatient services to outpatient services over the
past three years, the development of home health services and the addition of
ancillary facilities at certain of the Company's hospitals have contributed to
net revenues from outpatient services accounting for a larger percent of total
net patient revenues in recent years. Net revenues from outpatient services
accounted for 29.6%, 29.4% and 27.6% of total net patient revenues for the years
ended August 31, 1994, 1993 and 1992, respectively. For the year ended August
31, 1994, the Company experienced a greater increase in admissions (5.5% as
compared to the year ended August 31, 1993) than seen in prior years, due
primarily to the addition of Saint Francis Hospital. Admissions, which were
impacted by the addition of Encino Hospital in fiscal 1993 and the disposition
of hospitals during fiscal 1992, decreased 1.5% for the year ended August 31,
1993 when compared to the year ended August 31, 1992. Net revenues from
inpatient services accounted for 70.4%, 70.6% and 72.4% of total net patient
revenues for the years ended August 31, 1994, 1993, and 1992, respectively.
Net revenues derived from Medicare/Medicaid programs for the year ended
August 31, 1994, increased 19.1% as compared to the year ended August 31, 1993
as a greater portion of the population continues to qualify for such coverage.
Saint Francis Hospital, which derives a large portion of its business from
Medicare patients, contributed to the increase in net revenues derived from
Medicare/ Medicaid programs. An increasing number of various third party payers,
including states, insurance
20
<PAGE>
companies and employers' networks, are negotiating contracted amounts paid for
services rendered, accounting for the increase in contracted business and a
corresponding decline in non-contracted business.
Expense management continues to be a significant factor in maintaining the
operating margin experienced by the Company (13.7% for the years ended August
31, 1994 and 1993 and 12.1% for the year ended August 31, 1992). The sale of
facilities during fiscal 1992, which operated at a slightly lower margin, also
contributed to the increase in the Company's operating margin for the year ended
August 31, 1993. The Company's adherence to the cost control program implemented
by management in fiscal 1992 has continued to stabilize operating costs and
expenses as a percent of net revenues. Labor management (i.e. hospital staffing
monitored with volume) and the decline in benefit costs as a result of changes
implemented in the employee benefits program has decreased labor costs for the
years ended August 31, 1994 and 1993 as a percent of net revenues compared to
the year ended August 31, 1992.
For the year ended August 31, 1994 operating expenses (excluding
depreciation and amortization) increased 6.4% over the year ended August 31,
1993. Approximately one-third of the overall increase is due to operating
expenses associated with Saint Francis Hospital. As a percent of net revenues,
operating expenses for the year ended August 31, 1994 remained flat as compared
to the year ended August 31, 1993. The decrease in total operating costs and
expenses for the year ended August 31, 1993 as compared to the year ended August
31, 1992 was primarily due to the following adjustments recognized during fiscal
1992: (i) the disposition of hospitals during fiscal 1992, (ii) an $11.0 million
adjustment to salaries and benefits to increase reserves associated with
workers' compensation liabilities as a result of adverse development on claims
arising from prior periods, (iii) the impact of an adverse adjustment to the
provision for uncollectible accounts for the refinement in procedures used to
estimate bad debts and (iv) a foreign currency translation loss of $7.8 million.
Foreign currency translation was immaterial for the years ended August 31, 1994
and 1993.
The gains on the sales of securities for the years ended August 31, 1994 and
1992 are the result of the sale of various securities of EPIC Holdings, Inc. and
EPIC Healthcare Group, Inc.
Interest expense, net decreased to $154 million for the year ended August
31, 1994 from $166 million for the year ended August 31, 1993 and $204 million
for the year ended August 31, 1992 as a result of debt refinancings in fiscal
1994 and 1993 and the use of cash from operations and the proceeds from the sale
of facilities in fiscal 1992 to reduce outstanding indebtedness. The year ended
August 31, 1993 includes a refund of $8.6 million for excess interest paid to
the Internal Revenue Service in prior periods.
The tax provision for each of the years ended August 31, 1994, 1993 and 1992
is greater than that which would occur using the Company's marginal tax rate
against its income before taxes, minority equity interest and extraordinary
loss, due in large part to the amortization of cost in excess of net assets
acquired not being deductible for tax provision purposes. In August 1993, the
Revenue Reconciliation Act of 1993 was enacted increasing the corporate income
tax rate to 35% from 34% effective January 1, 1993.
The extraordinary loss on early extinguishment of debt is a result of the
redemption or repurchase of debt prior to its stated maturity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data set forth in the Index to
Financial Statements and Financial Statement Schedules on page F-1 are filed as
part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AND AMI
DIRECTORS OF HOLDINGS AND AMI
Certain information concerning each director of Holdings and AMI is set
forth below:
<TABLE>
<CAPTION>
YEAR
FIRST
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS (1) ELECTED
- ---------------------------------------------------------------------- ----------
<S> <C>
J. Robert Buchanan, M.D., 66 1991
Director of European Operations of Holdings since July 1994;
Chairman of the Board and Chief Executive Officer of RSTAR, Inc. a
subsidiary of Massachusetts General Hospital, since July 1994;
General Director and Chief Executive Officer, Massachusetts General
Hospital from prior to 1988 to July 1994; Professor of Medicine,
Harvard Medical School; President, Chief Executive Officer and
General Director of The General Hospital Corporation from prior to
1988 to the present.
Robert B. Calhoun, Jr., 52 1991
President since March 1991 of, and the major stockholder in, Clipper
Asset Management Corporation, the sole general partner of The
Clipper Group L.P., a Delaware limited partnership ("Clipper")
which, pursuant to an asset management agreement, manages certain
investments for CS First Boston Corporation ("First Boston") and
certain of its affiliates, including the shares of common stock
owned by 1987 Merchant Investment Partnership, a New York limited
partnership ("MIP") and MB L.P. I, a Delaware limited partnership
("MBLP"); Managing Director of CS First Boston Corporation from
prior to 1988 to 1991; Director of Interstate Bakeries Corporation,
a baker and distributor of fresh bakery products.
John T. Casey, 49 1992
President and Chief Operating Officer of each of Holdings and AMI
since November 1991; President and Chief Executive Officer of The
Samaritan Foundation, the then ninth largest private healthcare
system in the United States from March 1990 to November 1991;
President and Chief Executive Officer, Methodist Health Systems, a
regional healthcare system from 1987 to 1990.
Harry J. Gray, 75 1989
Chairman and Chief Executive Officer of Mott Metallurgical
Corporation, a manufacturer of high technology filters since
November 1993; Chairman, PDS Worldwide Inc., a distribution and
fulfillment company since September 1992; Chairman and Chief
Executive Officer of Holdings from July 1989 to July 1991; Chairman
and Chief Executive Officer of AMI from November 1989 to July 1991;
General Partner of GKH Partners, L.P. ("GKH") from January 1988 to
December 1989 and sole stockholder of a corporation which was a
general partner of GKH from December 1989 to September 1991.
Harold S. Handelsman, 48 1989
Vice President and Secretary of HGM Corporation, the general partner
of a limited partnership which is a general partner of GKH, from
prior to 1988; Senior Vice President, Secretary and General Counsel
since 1983 of Hyatt Corporation, a diversified company engaged
primarily in real estate and hotel management activities.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
YEAR
FIRST
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS (1) ELECTED
- ---------------------------------------------------------------------- ----------
<S> <C>
Sheldon S. King, 63 1992
Executive Vice President of Salick Health Care, Inc. since February
1994; President and Chief Executive Officer of Cedars Sinai Medical
Center from May 1989 to January 1994; President and Chief Executive
Officer of Stanford University Hospital from prior to 1988 to April
1989; Director of American Health Properties, a real estate
investment trust.
Melvyn N. Klein, 52 1989
General Partner of GKH from February 1988 to December 1989 and sole
stockholder of a corporation which is a general partner of GKH
since that date; prior thereto, attorney and private investor since
1968; Director of Bayou Steel Corporation, the owner and operator
of a steel minimill, Itel Corporation, a supplier of wiring systems
for data, voice, video and energy, Savoy Pictures Entertainment,
Inc., a major motion picture financing, marketing and distribution
company, and Santa Fe Energy Resources, Inc., an oil and gas
exploration and production company.
Dan W. Lufkin, 63 1991
Co-founder of Donaldson, Lufkin, Jenrette Securities Corporation;
private investor prior to 1988; sole shareholder of a corporation
which is a general partner of GKH since September 1991; Director of
Culbro, Inc., a distributor of consumer products, Allen & Co., a
registered broker-dealer, and Savoy Pictures Entertainment, Inc., a
major motion picture financing, marketing and distribution company.
William E. Mayer, 54 1989
Dean of the College of Business and Management, University of
Maryland, since October 1992; Dean of the William E. Simon Graduate
School of Business Administration, University of Rochester from
September 1991 to July 1992; Chairman and Chief Executive Officer
of CS First Boston Merchant Bank from January 1990 to January 1991;
President and Chief Executive Officer of First Boston, an
investment banking firm, from December 1988 to January 1990;
Managing Director of First Boston from June 1977 to December 1988;
Director of Chart House Enterprises, Inc., a restaurant company,
Riverwood International Corporation, a manufacturer of paper,
paperboard and plywood products and Hambrecht & Quist, Inc., a
registered broker-dealer.
Robert W. O'Leary, 50 1991
Chairman of the Board and Chief Executive Officer of each Holdings
and AMI since July 1991; President and Chief Executive Officer of
Voluntary Hospitals of America, Inc., a hospital alliance
representing approximately 850 domestic hospitals from 1989 to June
1991; President and Chief Executive Officer of St. Joseph Health
System, a multi-hospital, multi-purpose health services
organization from 1983 to 1989.
Harold M. Williams, 66 1989(2)
President and Chief Executive Officer of the J. Paul Getty Trust, a
charitable trust in the Arts & Humanities, since May 1981; Director
of Times Mirror Corporation, a publishing and communications
company, and Sunamerica Inc., a life insurance company.
<FN>
- --------------------------
(1) Only directorships of issuers with a class of securities registered
pursuant to Section 12 of the Exchange Act, or subject to the requirements
of Section 15(d) of that Act or directorships of issuers registered as
investment companies under the Investment Company Act of 1940, as amended,
are listed in the above table.
(2) Mr. Williams has been a director of AMI since 1985 and of Holdings since
1989.
</TABLE>
23
<PAGE>
ARRANGEMENTS WITH RESPECT TO THE ELECTION OF DIRECTORS
Pursuant to the amended and restated stockholders agreement (the
"Stockholders Agreement") as currently in effect, by and among Holdings, the GKH
Investments, L.P., a Delaware limited partnership (the "Fund"), GKH Private
Limited ("GKHPL"), Mellon Bank, N.A., as trustee of First Plaza Group Trust, a
trust organized under New York law ("First Plaza"), MBLP, MIP, certain
management investors as defined in the Stockholders Agreement the ("Management
Investors") and others, the Fund, together with GKHPL, has the power to
designate a majority of the nominees for Holdings' board of directors (the
"Board") and thereby effectively control the selection of executive officers and
other key employees and the establishment of Holdings' and AMI's operating
policies. MBLP and MIP are entitled to designate up to two nominees for
Holdings' Board and the Management Investors are entitled to designate at least
one (but not more than two) of the nominees for Holdings' Board. The
Stockholders Agreement also requires each of the parties to vote all shares of
common stock held thereby for all of the persons nominated pursuant to the
Stockholders Agreement. The rights and obligations of the parties to designate
and vote for nominees for Holdings' Board terminate as to a party under certain
circumstances, including the failure to maintain its ownership of Holdings'
common stock at specified levels.
ARRANGEMENTS WITH RESPECT TO OTHER MATTERS
In addition to the provisions with respect to the election of directors
discussed above, the Stockholders Agreement also restricts the ability of
Holdings and AMI to take certain corporate actions, including amending their
respective charter documents without the consent of certain of the parties
thereto. The Stockholders Agreement also provides for certain
rights-of-first-refusal, contains restrictions on dispositions of common stock
and requires the parties thereto to sell their shares of common stock in certain
circumstances if the Fund proposes to sell all of its shares of common stock by
way of merger or similar transaction. By maintaining their percentage ownership
of common stock, the Fund and its permitted transferees as defined in the
Stockholders Agreement ("Permitted Transferees") and MBLP and its Permitted
Transferees may effectively have the power to determine the policies of Holdings
and AMI, the persons constituting their management and the outcome of corporate
actions requiring stockholder approval by majority action. Certain benefits to
each party under the Stockholders Agreement terminate if such party no longer
owns specified minimum amounts of common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation and stock option committee of the Board currently is
comprised of Messrs. Williams, King and Mayer. None of the individuals who were
members of the compensation and stock option committees of the Board during
fiscal 1994 are present or former officers or employees of Holdings or AMI. See
"Directors and Executive Officers of Holdings and AMI." Corporations wholly
owned by two members of the compensation and stock option committee, Messrs.
Klein and Lufkin, serve as general partners of GKH. A corporation wholly owned
by another member of the compensation and stock option committee, Mr. Gray, is a
limited partner of GKH.
GKH rendered certain consulting services to Holdings during fiscal 1994 in
connection with the sale of AMI's interest in EPIC Holdings, Inc. for which GKH
received compensation of approximately $2.3 million. The Company believes that
the amount of fees it paid to GKH is equivalent to or less than customary fees
paid or that would have been by the Company to unaffiliated third parties for
comparable services. See "Certain Relationships and Related Transactions -- Sale
of a Business." In years prior to fiscal 1993, GKH rendered certain management
and financial services to Holdings for which it received compensation on terms
customary in the investment banking business. Holdings is not presently under
any obligation to retain GKH in the future although it may choose to do so at
any time and from time to time. As of November 9, 1994, the Fund and GKHPL owned
an aggregate of 25,653,764 shares of common stock, or approximately 32%, of the
outstanding common stock. See "Security Ownership of Certain Beneficial Owners
and Management;" "Arrangements with Respect to the Election of Directors;" and
"Arrangements with Respect to Other Matters."
24
<PAGE>
Holdings, the Fund, GKHPL, MBLP, MIP and First Plaza, among others, entered
into a registration rights agreement dated as of October 26, 1989 and as
subsequently amended (the "Registration Rights Agreement"), pursuant to which
the Fund, together with GKHPL, MBLP, MIP and/or First Plaza and their respective
Permitted Transferees, have, at specified times, certain rights to demand that
Holdings register all or part of their shares of common stock under the
Securities Act of 1933, as amended (the "Securities Act"). Upon exercise of
these rights, Holdings will generally be obligated to register such shares at
its own expense. In addition, if Holdings proposes to register any of its equity
securities under the Securities Act (except for, among other things, equity
securities registered for issuance pursuant to employee benefit plans), the
parties to the Registration Rights Agreement may include shares of common stock
in such registration, subject, however, to pro rata reduction to the extent
Holdings determines it is necessary.
EXECUTIVE OFFICERS OF HOLDINGS AND AMI
Certain information concerning the executive officers of Holdings and AMI is
set forth below:
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS ELECTED
- ---------------------------- --- --------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Robert W. O'Leary 50 Chairman and Chief Executive Officer since July 1991; President and 1991
Chief Executive Officer of Voluntary Hospitals of America, Inc.
("VHA"), a hospital alliance representing approximately 850 domestic
hospitals from 1989 to June 1991; President and Chief Executive
Officer of St. Joseph Health System ("SJHS"), a multi-hospital,
multi-purpose health services organization from 1983 to 1989.
John T. Casey 49 President and Chief Operating Officer since November 1991; President 1991
and Chief Executive Officer of The Samaritan Foundation
("Samaritan"), the then ninth largest private healthcare system in
the United States from March 1990 to November 1991; President and
Chief Executive Officer, Methodist Health Systems ("MHS"), a regional
healthcare system from 1985 to 1990.
Alan J. Chamison 54 Executive Vice President since September 1991 and Chief Financial 1991
Officer since February 1992; Chief Administrative Officer of VHA from
January 1990 to September 1991 and a Director and the Interim
President and Chief Executive Officer of VHA Enterprises, Inc., an
affiliate of VHA, from September 1989 to September 1991; Senior Vice
President of SJHS from May 1983 to September 1989.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS ELECTED
- ---------------------------- --- --------------------------------------------------------------------- -----------
<S> <C> <C> <C>
O. Edwin French 48 Senior Vice President since January 1992; Executive Vice President of 1992
Samaritan from March 1991 to December 1991; Senior Vice President of
MHS from July 1985 to March 1991.
W. Randolph Smith 46 Executive Vice President, Operations since September 1990; Senior 1990
Vice President, Chief Administrative Officer from February 1990 to
August 1990; Senior Vice President and Acting Chief Financial Officer
from November 1989 to January 1990; Corporate Vice President and
Acting Chief Financial Officer from July 1989 to November 1989;
Corporate Vice President and Director, Operations from 1987 to 1989;
Vice President and Assistant Regional Director, Southern Region from
1986 to 1987; Vice President and Regional Director, Mid-Atlantic
Region from 1985 to 1986; Executive Director, Brookwood Medical
Center from 1983 to 1985.
Lawrence N. Kugelman 52 Executive Vice President and California Regional Director since 1993
January 1993; Executive Director of Sisters of St. Joseph Foundation
from July 1992 to December 1992; President and CEO of The Health Plan
of America from September 1986 to June 1992.
Terry H. Linn 46 Vice President, Development since June 1993; Partner of Ernst & Young 1993
(previously Ernst & Ernst) a public accounting firm, from 1980 to
1993.
Thomas J. Sabatino, Jr. 35 Vice President and General Counsel since April 1994; Associate 1994
General Counsel from November 1992 to April 1994; President and Chief
Executive Officer of Secure Medical, Inc., a medical device
manufacturer from December 1990 to November 1992; Corporate Counsel
for Baxter Healthcare Corporation, a medical supply manufacturer and
distributor from August 1986 to December 1990.
Michael N. Murdock 40 Treasurer and Vice President since 1990; Assistant Treasurer from 1990
1988 to 1990; Vice President, Corporate Controller and Treasurer at
TPA of America, Inc. from 1986 to 1988; Assistant Corporate
Controller of AMI from 1982 to 1986.
Bary G. Bailey 36 Controller and Vice President since 1990; Assistant Corporate 1991
Controller from 1987 to 1990.
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Holdings' executive officers and directors and persons
who beneficially own more than 10% of the common stock to file reports of
initial ownership and changes in ownership of common stock with the Commission.
Based solely on a review of such reports furnished to Holdings, Holdings
believes that during fiscal 1994, its executive officers, directors and
beneficial owners of more than 10% of the common stock complied with all Section
16(a) filing requirements.
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Holdings is a holding company, all of whose business activities are
conducted by its operating subsidiaries. Accordingly, executive officers of
Holdings hold identical positions with AMI.
The following table sets forth certain information with respect to the
compensation paid by Holdings during the last three fiscal years ended August
31, 1994 to its Chief Executive Officer and to each of its four other most
highly compensated executive officers (collectively with the Chief Executive
Officer, the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION PAYOUTS
-------------------------------------- AWARDS --------
OTHER ANNUAL -------- LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3)(4) #(5) ($)(6) ($)(3)(7)
- ---------------------------------------------- ---- -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W. O'Leary ............................ 1994 $777,836 $503,155 $ 207,608 -- $286,391 $ 45,947
Chairman of the Board and 1993 750,000 685,146(8) 218,362 -- 155,850 16,454
Chief Executive Officer 1992 750,000 873,494 -- 200,000 -- --
John T. Casey ................................ 1994 $414,846 $357,534(9) $ 156,850 -- $144,770 $ 23,261
President and Chief 1993 390,354 243,894 34,930 200 73,657 7,806
Operating Officer 1992 285,423 492,004(10) -- 200,000 -- --
Alan J. Chamison ............................. 1994 $414,846 $277,534 $ 141,392 -- $161,295 $ 25,740
Executive Vice President and 1993 390,354 243,894 146,087 -- 88,027 9,047
Chief Financial Officer (11) 1992 341,115 352,160 -- 200,000 -- --
O. Edwin French .............................. 1994 $285,392 $241,679(9) $ 13,200 40,000 $ 71,572 $ 11,768
Senior Vice President (12) 1993 262,308 130,840 5,886 -- 34,217 3,853
1992 148,846 254,639(10) -- 60,000 -- --
W. Randolph Smith ............................ 1994 $304,846 $130,027 $ 13,200 -- $116,746 $ 18,651
Executive Vice President 1993 289,945 157,627 -- -- 67,257 6,911
1992 275,625 269,025 -- -- -- --
<FN>
- ------------------------------
(1) Includes amounts deferred at the election of each named executive officer
pursuant to AMI's Tax Deferred Savings Plan.
(2) The amounts shown in this column include bonuses paid pursuant to either
AMI's Executive Incentive Compensation Plan (the "Incentive Plan") or, in
the case of Mr. Smith, AMI's Regional Director Incentive Compensation Plan
(the "Directors Plan," and collectively with the Incentive Plan, the
"Incentive Plans") for services rendered during the fiscal year by each of
the named executive officers. See Note 6 below and the table of "Long-Term
Incentive Plan -- Awards in Last Fiscal Year" on page 29 for amounts
awarded during fiscal 1994 but mandatorily deferred pursuant to the
Incentive Plans.
(3) Pursuant to the rules promulgated by the Securities and Exchange Commission
(the "Commission"), no disclosure is required for these items for fiscal
1992.
(4) In prior fiscal years the Company has made interest-free loans of $600,000,
$375,000 and $375,000 to Messrs. O'Leary, Casey and Chamison, respectively,
which loans are forgiven in equal monthly increments. See "Employment
Agreements". With respect to fiscal 1994 includes loan forgiveness of
$199,992, $125,004 and $125,004 for Messrs. O'Leary, Casey and Chamison,
respectively, and compensation of $4,366, $13,437 and $3,188 for imputed
interest on interest-free loans for Messrs. O'Leary, Casey and Chamison,
respectively, calculated using the monthly applicable federal long-term
rate. Also includes tax payment reimbursements and car allowances. To the
extent the cost of personal benefits furnished to any of the named
executive officers is less than the required reporting level established by
the Commission, such benefits are not included in the Summary Compensation
Table.
(5) Mr. French was the only named executive officer to be granted options in
fiscal 1994.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
(6) The amounts shown in the table consist of bonuses paid pursuant to the
Incentive Plans for services rendered in prior fiscal years, which bonuses
had been deferred in accordance with, and were payable subject to, the
terms of the Incentive Plans. See "Long-Term Incentive Plan -- Awards in
Last Fiscal Year."
(7) The amounts shown in the table include insurance premiums paid by the
Company with respect to term life insurance and amounts earned on deferred
compensation paid pursuant to the Incentive Plans to each of the named
executive officers during the fiscal year. With respect to fiscal 1994 the
insurance premiums paid by the Company with respect to term life insurance
were $2,988, $1,546, $1,546, $1,032 and $1,139 for the benefit of each of
Messrs. O'Leary, Casey, Chamison, French and Smith, respectively. Amounts
earned on deferred compensation were $42,959, $21,715, $24,194, $10,736 and
$17,512 for Messrs. O'Leary, Casey, Chamison, French and Smith,
respectively. All deferred funds accrue interest at the greater of two
rates: 1) the Company's average short-term borrowing rate during the
deferral period, or 2) 50% of the percentage increase in the price of
Holdings' common stock, up to an annual maximum of 15%. (The percentage
increase in the price of Holdings' common stock is measured as the
difference between its 90 day trading average (closing prices) at the end
of the fiscal year in which the deferral occurred against its average
closing price for the last 90 days of the current award fiscal year.)
However, if an executive reaches the "maximum" goals for both his operating
expense and operating income goals in two consecutive years, all deferred
funds pursuant to the Incentive Plans will be adjusted to accrue interest
at 100% of the percentage increase in the price of Holdings' common stock,
or the average short term borrowing rate during the deferral period,
whichever is greater. For any deferred funds which carry forward beyond the
intended earning period (i.e., the first or the second of the two
subsequent years), the interest rate from that point forward will be the
Company's short-term borrowing rate irrespective of future performance.
(8) For fiscal 1993, includes a special bonus of $250,000 awarded by the
Compensation Committee and Stock Option Committee of the Board.
(9) For fiscal 1994, includes a bonus of $80,000 and $100,000 for Messrs. Casey
and French, respectively awarded by the Compensation Committee and Stock
Option Committee of the Board for their respective roles in certain
acquisitions.
(10) The amounts shown in the table include $197,332 and $117,750 paid to
Messrs. Casey and French, respectively, during fiscal 1992 as reimbursement
for certain relocation and related expenses pursuant to their respective
employment agreements with Holdings and AMI.
(11) Mr. Chamison became Chief Financial Officer of Holdings and AMI in February
1992.
(12) Mr. French became a Senior Vice President of Holdings and AMI in January
1992.
</TABLE>
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
- --------------------------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OPTIONS STOCK PRICE
OF SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE MARKET OPTION TERM (2)
OPTIONS IN FISCAL PRICE PRICE ON EXPIRATION --------------------
NAME GRANTED YEAR ($/SH) GRANT DATE DATE 5% 10%
- ------------------------------ ------------- ---------- -------- --------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W. O'Leary............. -- -- -- -- -- -- --
John T. Casey................. -- -- -- -- -- -- --
Alan J. Chamison.............. -- -- -- -- -- -- --
O. Edwin French............... 40,000 9% $19.21 $19.38 June 2004 $499,135 $1,257,988
W. Randolph Smith............. -- -- -- -- -- -- --
<FN>
- ------------------------
(1) Grant vests and becomes exercisable in installments of 20% per year on each
of the first five anniversaries of the grant date.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
(2) The dollar amounts under these columns assume that the market price per
share of Holdings' common stock appreciates in value from the date of grant
to the expiration date of the option at the annualized rates indicated.
These rates are set by the Commission and are not intended to forecast
possible future appreciation, if any, of the price of the common stock.
Holdings did not use an alternative formula for a grant date valuation, as
Holdings is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table provides information on the value of unexercised options
held by each of the named executive officers at August 31, 1994. None of the
named executive officers exercised any options during fiscal 1994.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (1) AT FISCAL YEAR END (2)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Robert W. O'Leary (3)................................... 206,600 193,400 $ 2,995,700 $ 2,804,300
John T. Casey (3)....................................... 80,040 120,160 $ 1,160,580 $ 1,742,320
Alan J. Chamison (3).................................... 80,000 120,000 $ 1,160,000 $ 1,740,000
O. Edwin French (3)..................................... 22,500 77,500 $ 326,250 $ 745,250
W. Randolph Smith....................................... 68,254 17,064 $ 1,175,112 $ 293,787
<FN>
- ------------------------
(1) Pursuant to the terms and conditions of the Option Plans, all options
granted thereunder will become fully exercisable upon the occurrence of a
"Change of Control," as defined therein, regardless of whether such options
otherwise would be exercisable. Consummation of the Merger would constitute
a "Change in Control."
(2) The value of unexercised in-the-money options is calculated as the
difference between the closing sale price on August 31, 1994 and the
applicable exercise price. The closing sale price of the common stock on
August 31, 1994 as reported by the New York Stock Exchange was $24.25.
Actual values realized on stock options are dependent upon actual future
performance of Holdings' common stock, among other factors. Accordingly,
the amounts shown may not necessarily be realized.
(3) Each of Messrs. O'Leary, Casey, Chamison and French have agreed to
exchange, at the effective time of the Merger, each of his outstanding
options (whether or not otherwise then exercisable) for (a) .42 of a share
of NME common stock plus (b) an amount of cash equal to the difference
between $19.00 ($19.25 if the Merger is consummated after March 31, 1995)
less the exercise price of such option. See "Certain Relationships and
Related Transactions -- Actions Taken in Connection with the Merger."
</TABLE>
29
<PAGE>
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
The following table provides information on long-term incentive plan awards
to each of the named executive officers in fiscal 1994.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE
SHARES, UNITS OTHER PERIOD PAYOUTS UNDER
OR OTHER UNTIL MATURATION NON-STOCK PRICE-
NAME RIGHTS (1) OR PAYOUT (2) BASED PLANS (3)
- ------------------------------------------------------------------- ------------- ----------------- ----------------
<S> <C> <C> <C>
Robert W. O'Leary (4).............................................. N/A N/A $ 251,577
John T. Casey (4).................................................. N/A N/A $ 138,767
Alan J. Chamison (4)............................................... N/A N/A $ 138,767
O. Edwin French (4)................................................ N/A N/A $ 70,839
W. Randolph Smith.................................................. N/A N/A $ 65,154
<FN>
- ------------------------
(1) The Company does not have a long-term incentive stock award plan.
(2) Pursuant to the Incentive Plans, two-thirds of an individual's award is
paid in the November following the fiscal year in which the award is made.
The remaining one-third of the award is subject to mandatory deferral and
is generally earned in two equal portions over the two succeeding years
following the year of the award only if the specified performance goals
pursuant to the Incentive Plans are achieved during each of the such
subsequent years. If such award is not so earned during each of such
subsequent years, the award will remain subject to deferral until such time
as the established performance goals pursuant to the Incentive Plans are
met or at the time of retirement from Holdings or upon the individual's
death. Forfeiture of the remaining one-third will occur upon termination of
employment.
(3) Awards made pursuant to the Incentive Plans are dollar amounts which are
based upon (i) the extent to which predetermined financial performance
objectives during the year are achieved and (ii) the extent to which the
individual executive officer meets personal performance objectives.
One-third of a named executive officer's award pursuant to the Incentive
Plans is determined by whether income as defined for the fiscal year
achieves the threshold, target or maximum amounts therefore specified by
the Compensation Committee of the Company's Board. Another third of a named
executive officer's award pursuant to the Incentive Plans is determined by
cost containment. This component generally reflects the ability of the
Company's 37 hospitals to control their costs and the Company's ability to
contain costs at the corporate office level. The remaining third of a named
executive officer's award pursuant to the Incentive Plans is based on
certain subjective factors established by the Compensation Committee, and
is earned only if the threshold income level is achieved and specified
costs are kept within budget. Aggregate awards pursuant to the Incentive
Plans are expressed as a percentage of an individual's salary. Different
bonus levels are established by category of employee, and range from 60% to
90% of salary for the named executive officers. These amounts are included
in this table solely in accordance with the requirements of the Commission
and should not be deemed, in any manner, to be indicative of management's
projection of future performance.
(4) Holdings has entered into an agreement with each of Messrs. O'Leary, Casey,
Chamison and French pursuant to which each such individual, upon a change
in control (which term is defined to include consummation of the Merger),
will be fully vested in all amounts payable under the Incentive Plans,
including all deferred amounts. Additionally, these individuals will be
deemed to have satisfied the fiscal 1995 maximum target performance goals
pursuant to the Incentive Plans entitling each of them to 100% of their
respective fiscal 1995 awards. The maximum award for which each of Messrs.
O'Leary, Casey, Chamison and French may be entitled under the Incentive
Plans for fiscal 1995 is $479,115, $227,136, $227,136 and $117,219,
respectively, and the amount
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
currently deferred for each of such individuals is $374,815, $207,840,
$207,840 and $107,894. See "Certain Relationships and Related Transactions
-- Actions Taken in Connection with the Merger."
</TABLE>
PENSION PLAN
The following table shows the estimated annual benefits payable upon normal
retirement to participating employees, including, without limitation, the named
executive officers, pursuant to AMI's basic Pension Plan (the "Pension Plan") as
augmented by either the Supplemental Executive Retirement Plan, with respect to
employees who become eligible collectively to participate prior to July 1989 or
the Supplemental Benefit Plan, which is substantially identical with respect to
employees who become eligible to participate in or after July 1989 (collectively
"SERP") and Social Security for persons in specified remuneration and years of
service classifications.
ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
<TABLE>
<CAPTION>
FINAL
AVERAGE
EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$200,000 $ 50,000 $ 75,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
300,000 75,000 112,000 150,000 150,000 150,000 150,000
400,000 100,000 150,000 200,000 200,000 200,000 200,000
500,000 125,000 187,500 250,000 250,000 250,000 250,000
600,000 150,000 225,000 300,000 300,000 300,000 300,000
700,000 175,000 262,500 350,000 350,000 350,000 350,000
800,000 200,000 300,000 400,000 400,000 400,000 400,000
</TABLE>
Under the Pension Plan, a retiring participant receives a percentage of his
"earnings" (as defined under the Pension Plan) at the time of his last day of
active employment with Holdings and AMI which, if calculated as of the date
hereof for the named executive officers, would equal the rate used to determine
the amount shown for each such person in the 1994 "Salary" column of Holdings
Summary Compensation Table. Benefits are computed on a straight life annuity,
contingent annuitant basis or years certain in life, at the election of the
named executive officer, and are not subject to any deduction for Social
Security amounts.
Certain key executives of AMI, including all of the named executive
officers, are eligible under SERP for supplemental annual retirement benefits
upon retirement at age 65 generally after at least 10 years of service. The
amount of a covered executive's benefit is computed in accordance with a formula
based on such individual's final average earnings and his years of service up to
20 years. The benefits are subject to deduction for estimated primary Social
Security benefits payable at age 65 and further reduction for benefits vested
under the AMI Pension Plan.
Participants are generally 100% vested after they have reached 10 years of
service. SERP provides for early retirement for terminated participants with 10
to 15 years of service at age 55 with reduced benefits. Those with 16 or more
years of service retire at age 55 with unreduced benefits.
As of August 31, 1994, Messrs. O'Leary, Casey, Chamison, French and Smith,
have 4, 3, 3, 2, 16 credited years, respectively, of service under the basic
Pension Plan, and 8,8,8,3 and 20 credited years, respectively, of service under
SERP. In connection with the Merger, Holdings has entered into an agreement with
each of the named executive officers that provides each of such executive
officers, full vesting in and 20 years of service under the SERP upon a change
of control (which term would include consummation of the Merger). As a result of
the Merger, each of such individuals will be entitled to maximum benefits under
the SERP. See "Certain Relationships and Related Transactions -- Actions Taken
in Connection with the Merger."
31
<PAGE>
DIRECTORS' COMPENSATION
During fiscal 1994, all directors of Holdings who were not employees of
Holdings or any of its subsidiaries received compensation for serving on the
Board or on a committee thereof. Such directors received $25,000 for serving on
the Board. In addition, such directors received $1,000 for each meeting they
attended and $500 for each telephonic meeting in which they participated. Mr.
Williams received $10,000 for his services as the Chairman of the Audit
Committee.
Under Holdings' Directors' Retirement Plan, an outside director who has
served on the Board for at least five full years, or an employee director
(regardless of whether he later becomes an outside director) who has served on
the Board for at least ten full years is entitled, after reaching the age of 65
and upon retirement from the Board, to receive an annual retirement benefit in
an amount equal to the annual director's fee in effect at the time of
retirement. For purposes of this plan, an outside director is one who is not, at
the time of his retirement from the Board, an employee of Holdings or any of its
subsidiaries or affiliates. In fiscal 1994, the Directors' Retirement Plan was
amended to provide that all individuals who were outside directors on September
1, 1994 (specifically, Messrs. Buchanan, Calhoun, Gray, Handelsman, King, Klein,
Lufkin, Mayer and Williams) were eligible to participate in the Directors'
Retirement Plan regardless of their respective years of service as a member of
the Board of Directors. Outside directors, including retired directors, may be
covered by AMI's basic health insurance plan. AMI also maintains a Directors'
Deferred Compensation Plan pursuant to which directors are permitted to defer a
portion of their directors' fees. Amounts deferred accrue interest at stipulated
rates and are payable upon retirement from the Board.
EMPLOYMENT AGREEMENTS
Holdings has entered into a letter of understanding, as amended to date,
with Robert W. O'Leary pursuant to which Mr. O'Leary serves as a director and
Chairman of the Board and Chief Executive Officer of each of Holdings and AMI.
Under this agreement, Mr. O'Leary receives an annual base salary of $750,000,
which may be increased from time to time, and participates in the Incentive
Plan. Pursuant to this agreement, Holdings made a $600,000 interest-free loan to
Mr. O'Leary during fiscal 1992. The loan is forgiven by Holdings in monthly
increments of $16,667 commencing September 30, 1991 and as of August 31, 1994
the total amount of the loan was forgiven. Holdings has agreed to pay to Mr.
O'Leary, in the event his employment as Chairman and Chief Executive Officer is
terminated for any reason other than "cause," an amount equal to 15 months base
compensation (excluding bonus) determined on the basis of his annual salary for
the fiscal year then most recently commenced. Additionally, pursuant to his
agreement with Holdings, Mr. O'Leary is entitled to receive, in the event of a
"Change of Control" (as defined therein), the above-referenced severance
payment, acceleration of all benefits payable to him pursuant to the Incentive
Plan and certain specified payments in respect of all unexercised options then
held by him. Consummation of the Merger will constitute a Change of Control
under this Agreement.
Holdings has entered into a letter of understanding, as amended to date,
with John T. Casey pursuant to which Mr. Casey serves as the President and Chief
Operating Officer of each of Holdings and AMI. Under this agreement, Mr. Casey
receives an annual base salary of $362,000, which may be increased from time to
time, and participates in the Incentive Plan. During fiscal 1993, Holdings made
a $375,000 interest-free loan to Mr. Casey. The loan, which is due and payable
10 days after the termination of Mr. Casey's employment, is forgiven by the
Company in monthly increments of $10,417 commencing August 31, 1993 and
continuing for so long as Mr. Casey serves as President and Chief Operating
Officer of Holdings. See the Summary Compensation Table on page 27 for the
amount forgiven during fiscal 1994. Holdings has agreed to pay to Mr. Casey, in
the event his employment as the President and Chief Operating Officer of the
Company is terminated for any reason other than "cause," an amount equal to 12
months base compensation (excluding bonus) determined on the basis of his annual
salary for the fiscal year then most recently commenced. Additionally, pursuant
to his agreement with Holdings, Mr. Casey is entitled to receive, in the event
of a "Change of Control" (as defined therein), the above-referenced severance
payment, acceleration of all benefits payable to him pursuant to the Incentive
Plan and certain specified payments in respect of all unexercised options
32
<PAGE>
then held by him and forgiveness of any then outstanding balance under the
above-referenced loan. Consummation of the Merger will constitute a Change of
Control under this Agreement. Mr. Casey's Management Stock Agreement generally
provides certain "Put" and "Call" rights to him and Holdings, respectively, with
respect to certain shares of his common stock upon termination of his employment
with Holdings. See "Certain Relationships and Other Transactions -- Management
Investors."
Holdings has entered into a letter of understanding, as amended to date,
with Alan J. Chamison pursuant to which Mr. Chamison serves as an Executive Vice
President of each of Holdings and AMI. Under this agreement, Mr. Chamison
receives an annual base salary of $362,000, which may be increased from time to
time, and participates in the Incentive Plan. Pursuant to this agreement,
Holdings made a $375,000 interest-free loan to Mr. Chamison during 1991. This
loan, which is due and payable 10 days after the termination of Mr. Chamison's
employment, is forgiven by Holdings in monthly increments of $10,417 commencing
October 31, 1991, and as of August 31, 1994, the total amount of the loan was
forgiven. Holdings has agreed to pay to Mr. Chamison, in the event his
employment as an Executive Vice President of the Company is terminated for any
reason other than "cause," an amount equal to 12 months base compensation
(excluding bonus) determined on the basis of his annual salary for the fiscal
year then most recently commenced. Additionally, pursuant to his agreement with
Holdings, Mr. Chamison is entitled to receive, in the event of a "Change of
Control" (as defined therein), the above-referenced severance payment,
acceleration of all benefits payable to him pursuant to the Incentive Plan and
certain specified payments in respect of all unexercised options then held by
him. Consummation of the Merger will constitute a Change of Control under this
Agreement.
Holdings has entered into a letter of understanding, as amended, with O.
Edwin French pursuant to which Mr. French serves as a Senior Vice President of
each of Holdings and AMI. Under this Agreement, Mr. French receives an annual
base salary of $225,000, which may be increased from time to time, and
participates in the Incentive Plan. Holdings has agreed to pay to Mr. French, in
the event his employment as Senior Vice President of Holdings is terminated for
any reason other than "cause," an amount equal to 12 months base compensation
(excluding bonus) determined on the basis of his annual salary for the fiscal
year then most recently commenced. Additionally, pursuant to his agreement with
Holdings, Mr. French is entitled to receive, in the event of the occurrence of a
"Change of Control" (as defined therein), the above-referenced severance
payment, acceleration of all benefits payable to him pursuant to the Incentive
Plan and certain specified payments in respect of all unexercised options then
held by him. Consummation of the Merger will constitute a Change of Control
under this Agreement.
AMI has also entered into an agreement with Mr. W. Randolph Smith. The terms
of such agreement provide that under certain circumstances, upon termination,
Mr. Smith will be entitled to receive one year's salary and benefits. Mr.
Smith's agreement does not provide for any change of control payments. Mr.
Smith's Management Stock Agreement generally provides certain "Put" and "Call"
rights to him and Holdings, respectively, with respect to certain shares of his
common stock upon termination of his employment with Holdings. See "Certain
Relationships and Other Transactions -- Management Investors."
33
<PAGE>
CHANGE OF CONTROL ARRANGEMENTS
On October 10, 1994, Holdings and NME jointly announced the signing of a
definitive merger agreement pursuant to which a wholly-owned subsidiary of NME
will be merged with and into Holdings, with Holdings continuing as the surviving
corporation. As a result of the Merger, each share of common stock of Holdings
will be converted into the right to receive $19.00 (if the closing occurs on or
before March 31, 1995, otherwise $19.25) and 0.42 of a share of common stock of
NME. Under the terms of the merger agreement, Holdings will pay a dividend of
$0.10 per share prior to consummation of the Merger and Holdings will be
entitled to nominate three individuals to be elected to the 13 member board of
directors of the surviving corporation. In connection with the Merger, the
Company has entered into certain agreements with members of the Company's
management. In addition, certain existing arrangements and agreements between
the Company and members of its management and Board of Directors will be
affected by the Merger. See "Certain Relationships and Related Transactions --
Actions Taken in Connection with the Merger."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of November 9, 1994,
regarding the beneficial ownership of Common Stock by (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the Common Stock,
(ii) all directors, (iii) each of the named executive officers and (iv) all
directors and executive officers as a group. Unless otherwise noted, the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES PERCENT OF CLASS
NAME AND ADDRESS BENEFICIALLY OWNED (IF MORE THAN 1%)
- ------------------------------------------------------------ ------------------- ------------------
<S> <C> <C>
GKH Investments, L.P. ...................................... 24,719,168(1)(2) 32%
Suite 2710
200 West Madison Street
Chicago, IL 60606
Mellon Bank, N.A., as trustee of ........................... 10,663,636 14%
First Plaza Group Trust
One Mellon Bank Center
Pittsburgh, PA 15258
MB L.P. I .................................................. 10,595,282(3) 14%
c/o of The Clipper Group, L.P.
Park Avenue Plaza
55 East 52nd Street,
27th Floor
New York, New York 10055
J. Robert Buchanan, M.D..................................... 8,400(4) *
Robert B. Calhoun, Jr....................................... -0- (3)
John T. Casey............................................... 132,680(5)(6) *
Harry J. Gray............................................... -0- (7)
Harold S. Handelsman........................................ -0- (1)(2)
Sheldon S. King............................................. 1,000 *
Melvyn N. Klein............................................. 1,000(1)(2)(8) *
Dan W. Lufkin............................................... -0- (1)(2)
William E. Mayer............................................ 25,000 *
Robert W. O'Leary........................................... 287,943(6)(9) *
Harold M. Williams.......................................... 2,057 *
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES PERCENT OF CLASS
NAME AND ADDRESS BENEFICIALLY OWNED (IF MORE THAN 1%)
- ------------------------------------------------------------ ------------------- ------------------
<S> <C> <C>
Alan J. Chamison............................................ 152,499(6)(10) *
O. Edwin French............................................. 37,710(6)(11) *
W. Randolph Smith........................................... 128,236(12) *
All Directors and Executive Officers as a group
(19 persons).............................................. 935,747(13) 1%
<FN>
- ------------------------
* Less than 1% beneficially owned.
(1) Does not include 934,596 shares of Common Stock owned by GKHPL, a
corporation the assets of which are managed by GKH.
(2) A corporation wholly owned by Melvyn N. Klein, a director of the Company,
serves as a general partner of GKH. A corporation wholly owned by Dan W.
Lufkin, a director of Holdings, serves as a general partner of GKH. Harold
S. Handelsman, a director of Holdings, is an officer of a corporation which
is the general partner of a limited partnership which is a general partner
of GKH. By virtue of their relationships to the Fund and GKH's relationship
to GKHPL, Messrs. Klein, Lufkin and Handelsman may be deemed to share
beneficial ownership of the shares of common stock beneficially owned by
the Fund and GKHPL. Messrs. Klein, Lufkin and Handelsman disclaim
beneficial ownership of such shares. See footnote 6 and "Directors and
Executive Officers of Holdings and AMI" for information regarding Harry J.
Gray's former and existing relationships with GKH.
(3) Robert B. Calhoun, Jr., a director of Holdings, is a major stockholder in
and President of Clipper Asset Management Corporation, the sole general
partner of Clipper. Pursuant to an Asset Management Agreement with First
Boston and certain of its affiliates, Clipper manages certain investments
for such persons, including the 10,595,282 shares of common stock indicated
in the above table which are held in the name of MBLP and an additional
710,168 shares of common stock held in the name of MIP, which are not
included in the above table. Under the Asset Management Agreement, Clipper
has sole power to vote the shares of Holdings' common stock, but does not
have the power (sole or shared) to dispose of any such shares. Clipper is
not an affiliate of First Boston. Mr. Calhoun disclaims beneficial
ownership of such shares. See "Directors and Executive Officers of Holdings
and AMI" for information regarding William E. Mayer's former relationship
with First Boston and one of its affiliates.
(4) Includes an aggregate of 8,400 shares subject to options granted under the
Nonqualified Employee Stock Option Plan (the "Option Plan") which are
exercisable as of August 31, 1994 or within 60 days thereof.
(5) Includes an aggregate of 100,080 shares subject to options granted under
the Option Plan and the Nonqualified Performance Stock Option Plan for Key
Employees (the "Key Plan" and collectively with the Option Plan, the
"Option Plans") which are exercisable as of August 31, 1994 or within 60
days thereof.
(6) At the effective time of the Merger, each of Messrs. O'Leary, Casey,
Chamison and French have agreed to exchange each of his outstanding options
granted under the Option Plans for (a) .42 of a share of NME common stock
and (b) cash equal to $19.00 ($19.25 if the Merger is consummated after
March 31, 1995) less the exercise price of such option.
(7) Harry J. Gray, a director of Holdings, previously served as a general
partner of GKH. On September 30, 1991, Mr. Gray's interest as a general
partner of GKH was converted into a limited partnership interest. Mr. Gray
disclaims beneficial ownership of the shares of common stock beneficially
owned by the Fund and GKHPL. See "Directors and Executive Officers of
Holdings and AMI" for information regarding Mr. Gray's former relationship
with GKH.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
(8) Mr. Klein is a co-trustee of two trusts, each of which beneficially owns
500 shares of Common Stock.
(9) Includes an aggregate of 206,600 shares subject to options granted under
the Option Plans which are exercisable as of August 31, 1994 or within 60
days thereof.
(10) Includes an aggregate of 80,000 shares subject to options granted under the
Option Plans which are exercisable as of August 31, 1994 or within 60 days
thereof.
(11) Includes an aggregate of 22,500 shares subject to options granted under the
Option Plans which are exercisable as of August 31, 1994 or within 60 days
thereof.
(12) Includes an aggregate of 68,254 shares subject to options granted under the
Option Plans which are exercisable as of August 31, 1994 or within 60 days
thereof.
(13) See notes (1), (2) and (3) above. Also includes an aggregate of 744,498
shares subject to options granted under the Option Plans which are
exercisable as of August 31, 1994 or within 60 days thereof.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACTIONS TAKEN IN CONNECTION WITH THE MERGER
Upon the occurrence of the Merger, certain executive officers of Holdings,
including the named executive officers may be subject to the potential
imposition of excise tax under Section 4999 of the Code to the extent that
payments received by such executive officers as the result of the Merger are
deemed to constitute excess parachute payments under Section 280G of the Code.
Holdings has agreed to make payments to such affected executive officers in an
amount equal to all excise taxes payable by each such executive officer on such
deemed excess parachute payments (the "Gross-Up Payment"), including any excise
tax payable by reason of the Gross Up Payment; provided however, that the
maximum aggregate Gross-Up Payments which Holdings may be obligated to pay shall
in no event exceed $8 million, which, if necessary, will be divided pro rata
among the affected executive officers. In order for an executive officer to be
eligible to receive Gross-Up Payments, such affected executive officer must
agree in writing to accept the merger consideration (including the mix of cash
and securities, if applicable) payable to Holdings' stockholders in general upon
consummation of the Merger, with respect to any Holdings' stock options then
held by the affected executive officer, nothwithstanding any provision in the
executive's employment or stock option agreement or the Holdings Stock Option
Plans to the contrary regarding payment in cash.
Holdings has agreed that if, in connection with or subsequent to a change of
control (which term would include the consummation of the Merger), the
employment of certain executive officers of Holdings is terminated for any
reason, or the membership of a current director on the Company's Board of
Directors is terminated for any reason, then such affected individual shall be
entitled to continue coverage under the terms of Holdings' group health
insurance plan until the earlier of the date such affected individual (a)
becomes eligible for Medicare, or (b) otherwise fails to pay any applicable
premium. This coverage is in addition to any continuation coverage that may
otherwise be required by law.
Holdings has entered into an agreement with each of Messrs. O'Leary, Casey,
Chamison, French, Kugelman, Sabatino, Bailey and Murdock pursuant to which such
individuals, upon a change in control (which term has been defined to include
consummation of the Merger), will be fully vested in all amounts payable under
the Incentive Plans, including all deferred amounts. Additionally, each of these
individuals will be deemed to have satisfied their respective maximum fiscal
1995 target performance goals under the Incentive Plans entitling each of them
to 100% of their fiscal 1995 awards. The maximum award for which each of Messrs.
O'Leary, Casey, Chamison, French, Kugelman, Sabatino, Bailey and Murdock may be
entitled under the Incentive Plans for fiscal 1995 is $479,115, $227,136,
$227,136, $117,219, $219,625, $81,120, $65,572 and $65,572, respectively, and
the amount
36
<PAGE>
currently deferred for each of such individuals is $374,815, $207,840, $207,840,
$107,894, $35,607, $56,390, $57,832, and $57,832, respectively. See "Executive
Compensation -- Long-Term Incentive Plan -- Awards in Last Fiscal Year."
First Boston and GKH rendered consulting services to Holdings in relation to
the Merger for which First Boston and GKH each will receive compensation of $5.0
million plus reasonable out-of-pocket costs. The Company believes that the
amount of fees to be paid to First Boston and GKH is equivalent to or less than
customary fees that would be paid by the Company to unaffiliated third parties
for comparable services.
SALE OF BUSINESS
In May 1994, the Company sold AMI's interest in EPIC Holdings, Inc. pursuant
to a merger of EPIC Holdings, Inc. with HealthTrust, Inc -- the Hospital
Company. As a result of this disposition, the Company received $72.4 million and
paid $2.3 million in compensation to GKH, for representing the Company in
connection with the transaction. See "Security Ownership of Certain Beneficial
Owners and Management."
LETTERS OF CREDIT
Dalfort Corporation, an entity associated with HGM Associates, a Nevada
limited partnership and a general partner of GKH ("Dalfort"), agreed to provide
credit support (the "L/C Commitment") to domestic hospital subsidiaries of AMI
in the form of guaranties by Dalfort to issuers of standby letters of credit,
bonds and other surety type instruments for the account of any domestic hospital
subsidiary of AMI (the "L/C Guarantees"). The L/C Commitment extended only to
L/C Guarantees with a term not exceeding twelve months and in an aggregate face
amount not exceeding $30 million outstanding at any time. Holdings and its
subsidiaries were jointly and severally liable to reimburse Dalfort for any
amounts paid pursuant to the L/C Commitment. The L/C Commitment was replaced on
August 18, 1993 with other financing extended by an unaffiliated third party.
AMI paid Dalfort a fee of $750,000 during fiscal 1993.
FIRST BOSTON AND AFFILIATES
The Company is not presently under any obligation to retain First Boston for
advisory or other services although it may choose to do so at any time and from
time to time. As of November 9, 1994, certain affiliates of First Boston owned
an aggregate of 11,305,450 shares of Common Stock, or approximately 15%, of the
outstanding Common Stock. See "Security Ownership of Certain Beneficial Owners
and Management;" "Arrangements with Respect to the Election of Directors;" and
"Arrangements with Respect to Other Matters."
MANAGEMENT INVESTORS
Pursuant to certain Management Stock Subscription Agreements (the
"Management Stock Agreements") entered into in connection with and subsequent to
the acquisition of AMI by Holdings (the "Acquisition"), certain current and
former officers and key employees of AMI and its subsidiaries (collectively, the
"Management Investors") purchased shares of common stock and, in most cases,
were granted options pursuant to the Key Plan. The Management Investors, except
for John T. Casey and a former officer of Holdings, used, among other funds,
amounts received in consideration of the cancellation of options to purchase
shares of AMI common stock ("AMI Shares") in connection with the Acquisition, to
purchase the shares of common stock.
Pursuant to the Management Stock Agreements, upon termination of a
Management Investor's employment with AMI or its subsidiaries prior to the fifth
anniversary of the Acquisition, Holdings had the right to require such
Management Investor to sell his shares of common stock to Holdings (the "Call"),
and, upon certain events resulting in the termination of a Management Investor's
employment with Holdings or its subsidiaries, the Management Investor had the
right to require Holdings to
37
<PAGE>
repurchase his shares of Common Stock (the "Put"), in each case at a price
determined by a formula generally based on fair value and the factual
circumstances giving rise to the exercise of either the Put or Call. The fifth
anniversary of the Acquisition was October 26, 1994. The Put right will not be
available to any Management Investor whose employment is terminated for "cause"
(as defined in the Management Stock Agreements). In addition, Holdings may defer
its obligation to purchase Common Stock pursuant to the exercise of a Call or a
Put if the consummation of such purchase would violate any law or regulation or
would cause Holdings to be in default under the terms of any of its
indebtedness. Upon exercise of a Call or Put, any unexercised options held by
the Management Investor will be terminated upon payment by Holdings to the
Management Investor of the price specified in such Management Investor's
Management Stock Agreement.
Pursuant to the Management Stock Agreements, the Management Investors have
agreed not to transfer their common stock, except for certain permitted
transfers, for five years after their purchase thereof, and, in addition, have
granted Holdings, first, and the other parties to the Stockholders Agreement,
second, a right of first refusal in respect of third party offers to purchase
the common stock received by the Management Investors after the expiration of
such five year period.
During fiscal 1994, Holdings paid an aggregate of $19,996 to one Management
Investor in satisfaction of its obligations upon exercise of Put rights under
such person's Management Stock Agreement.
LOANS TO EXECUTIVE OFFICERS
In prior fiscal years, Holdings made interest-free loans of $600,000,
$375,000 and $375,000 to Messrs. O'Leary, Casey and Chamison, respectively,
which loans are forgiven in equal monthly increments. As of November 9, 1994,
the remaining balances of $199,992 and $135,409 on interest-free loans made by
Holdings to Messrs. O'Leary and Chamison, respectively, where forgiven in full.
As of November 9, 1994, the interest-free loan to Mr. Casey had an outstanding
principal balance of $213,536 and is being forgiven by Holdings in equal monthly
increments of $10,417. In the event of the occurrence of a "Change of Control"
(as defined in the letter of understanding between Holdings and Mr. Casey),
which includes consummation of the Merger, the remaining balance of the loan
will be forgiven. The largest aggregate amount outstanding during fiscal 1994 to
each of Messrs. O'Leary, Casey and Chamison pursuant to such loans were
$199,992, $135,409 and $364,583, respectively. See "Executive Compensation --
Employment Agreements."
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedules.
The financial statements and financial statement schedules set forth in the
Index to Financial Statements and Financial Statement Schedules on page F-1 are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of fiscal
1994.
(c) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger dated as of July 6, 1989, among AMI, Holdings and IMA Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Holdings ("Acquisition"), filed as
Exhibit 2(a) to Holdings' Registration Statement on Form S-4, Registration No. 33-33674, filed on
March 6, 1990 (the "1990 Form S-4") and incorporated herein by reference.
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of October 7, 1989, among AMI, Holdings
and Acquisition, filed as Exhibit 18 to the 1990 Form S-4 and incorporated herein by reference.
2.3 -- Amendment No. 2 to Agreement and Plan of Merger dated as of December 1, 1989, among AMI, Holdings
and Acquisition, filed as Exhibit 2(c) to the 1990 Form S-4 and incorporated herein by reference.
2.4 -- Agreement and Plan of Merger dated as of April 23, 1990 among AMI, Holdings and Amigo Holdings
Corp. ("Amigo"), filed as Exhibit 3 to AMI's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1990 and incorporated herein by reference.
2.5 -- Agreement and Plan of Merger, dated as of October 10, 1994, by and among NME, AMH Acquisition Co.
and Holdings.
3.1 -- Restated Certificate of Incorporation of Holdings as amended to date, filed as Exhibit 3 (a) to
the 1990 Form S-4 and incorporated herein by reference.
3.2 -- Bylaws of Holdings as amended to date filed as Exhibit 3.2 to Holdings' Registration Statement on
Form S-1 filed on June 17, 1991 and incorporated herein by reference.
3.3 -- Restated Certificate of Incorporation of AMI as amended to date, filed as Exhibit 3 to AMI's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1990 and incorporated herein by
reference.
3.4 -- Bylaws of AMI as amended to date, filed as Exhibit 3.2 to AMI's Registration Statement on Form S-1
filed on August 14, 1991 (the "AMI Form S-1") and incorporated herein by reference.
4.1 -- Amended and Restated Note Purchase Agreement dated as of June 11, 1993 among AMI and the
purchasers listed therein, filed as Exhibit 4.1 to AMI's Registration Statement on Form S-4
Registration No. 33-50239 filed on September 20, 1993 (the "1993 Form S-4") and incorporated
herein by reference.
4.2 -- Indenture dated as of April 21, 1993 between AMI and NationsBank of Texas, N.A., as trustee (the
"Trustee"), filed as Exhibit 4.2 to the 1993 Form S-4 and incorporated herein by reference.
4.3 -- Supplemental Indenture dated as of October 25, 1993 between AMI and the Trustee, filed as Exhibit
4.3 to Amendment No. 1 to the 1993 Form S-4 and incorporated herein by reference.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------
<C> <C> <S>
4.6 -- Indenture dated as of October 1, 1991 between AMI, as issuer, and The Citizens and Southern
National Bank, as trustee, relating to the 11% Senior Notes Due October 2001, filed as Exhibit 4.1
to AMI's Registration Statement on Form S-1 filed on October 8, 1991 and incorporated herein by
reference.
4.7 -- Indenture between AMI, as issuer, and The Connecticut National Bank, as trustee, relating to the
13 1/2% Senior Subordinated Notes Due August 2001 filed as Exhibit 4.1 to AMI's Registration
Statement on Form S-1, Registration No. 33-41416, filed on January 24, 1992 and incorporated
herein by reference.
4.8 -- Indenture dated as of August 1, 1991 between AMI, as issuer, and United States Trust Company of
New York, as trustee, relating to the 15% Junior Discount Debentures Due November 2005, filed as
Exhibit 4.1 to AMI's Registration Statement on Form S-2, Registration No. 33-45292, filed on
January 24, 1992 and incorporated herein by reference.
4.9 -- First Supplemental Indenture dated as of February 15, 1992 between AMI, as issuer, and United
States Trust Company of New York, as trustee, relating to AMI's 15% Junior Subordinated Discount
Debentures Due November 2005, filed as Exhibit 4.1 to Amendment No. 2 to AMI's registration
Statement, Registration No. 33-45292, on Form S-2, filed on March 4, 1992 and incorporated herein
by reference.
4.10 -- Amendment No. 1 dated as of April 25, 1994 to the Credit Agreement among AMI, Holdings, the
Lenders, the Agent and the Bank of Nova Scotia, as Co-Agent and the Long Term Credit Bank of
Japan, Ltd., Los Angeles Agency, as Co-Agent (collectively, the "Co-Agents").
4.11 -- Amendment No. 2 dated as of June 20, 1994 to the Credit Agreement among AMI, Holdings, the
Lenders, the Agent and the Co-Agents.
4.12 -- Amendment No. 3 dated as of June 20, 1994 to the Credit Agreement among AMI, Holdings, the
Lenders, the Agent and the Co-Agents.
Instruments with respect to certain long-term debt of AMI have not been filed since the amount of
securities authorized thereunder does not exceed 10% of the total assets of AMI and its
subsidiaries on a consolidated basis. AMI hereby agrees to furnish copies of such instruments to
the Securities and Exchange Commission upon request.
10.1 -- Credit and Guaranty Agreement dated as of August 18, 1993 (the "Credit Agreement") among AMI,
American Medical Holdings, Inc., a Delaware corporation, the lenders referred to therein (the
"Lenders"), Chemical Bank, as Agent (the "Agent"), The Bank of Nova Scotia, as Co-Agent, and The
Long Term Credit Bank of Japan, Ltd., Los Angeles Agency, as Co-Agent filed as Exhibit 10.1 to the
1993 Form S-4 and incorporated herein by reference.
10.2 -- Holdings Pledge Agreement dated as of August 18, 1993 between AMI and the Agent on behalf of the
Lenders filed as Exhibit 10.2 to the 1993 Form S-4 and incorporated herein by reference.
10.3 -- Collateral Trust Agreement dated as of August 18, 1993 between AMI and IBJ Schroder Bank & Trust
Company, a New York banking corporation, as trustee ("IBJ") filed as Exhibit 10.3 to the 1993 Form
S-4 and incorporated herein by reference.
10.4 -- Collateral Trust Pledge Agreement dated as of August 18, 1993 between AMI and IBJ filed as Exhibit
10.4 to the 1993 Form S-4 and incorporated herein by reference.
10.5 -- Pledge and Security Agreement dated as of August 18, 1993 between AMI and the Agent on behalf of
the Lenders filed as Exhibit 10.5 to the 1993 Form S-4 and incorporated herein by reference.
10.6 -- Guaranty and Security Agreement dated as of August 18, 1993 between American Medical Finance
Company, a Delaware corporation, and the Agent on behalf of the Lenders filed as Exhibit 10.6 to
the 1993 Form S-4 and incorporated herein by reference.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------
<C> <C> <S>
10.7 -- Agreement for Purchase of Stock dated as of September 26, 1988 by and among AMI, EPIC and various
subsidiaries of AMI, filed as Exhibit 2(a) to AMI's Current Report on Form 8-K dated October 14,
1988 and incorporated herein by reference.
10.8 -- Amended and Restated Stockholders' Agreement dated as of July 30, 1991 by and among the Fund,
GKHPL, First Plaza, MBLP, MIP and the other parties thereto, filed as Exhibit 10.39 to Amendment
No. 3 to Holdings' Registration Statement on Form S-1, Registration No. 33-41206, on July 26, 1991
and incorporated herein by reference.
10.9 -- Amended and Restated Registration Rights Agreement dated as of July 30, 1991 by and among
Holdings, the Fund, GKHPL, MBLP, MIP, the Bank Investor and the Management Purchasers, filed as
Exhibit 10.40 to Amendment No. 3 to Holdings' Registration Statement on Form S-1, Registration No.
33-41206, on July 26, 1991 and incorporated herein by reference.
10.10 -- American Medical Holdings, Inc. 1993 Employee Stock Purchase Plan, filed as Exhibit A to Holdings'
Proxy Statement dated January 13, 1993 (the "1993 Proxy") and incorporated herein by reference.
10.11 -- Amendments to Each of the Nonqualified Employee Stock Option Plan and the Nonqualified Performance
Stock Option Plan for Key Employees (Exhibits 10.12 and 10.13 below) filed as Exhibit D to AMI's
1993 Proxy and incorporated herein by reference.
10.12 -- Nonqualified Employee Stock Option Plan, filed as Exhibit A to Holdings' Proxy Statement dated as
of January 8, 1991 and incorporated herein by reference.
10.13 -- Nonqualified Performance Stock Option Plan for Key Employees, filed as Exhibit B to Holdings'
Proxy Statement dated as of January 8, 1991 and incorporated herein by reference.
10.14 -- Executive Deferred Compensation Plan filed as Exhibit 10.27 to Holdings' Registration Statement on
Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated herein by reference.
10.15 -- Supplemental Executive Retirement Plan filed as Exhibit 10.28 to Holdings' Registration Statement
on Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated herein by
reference.
10.16 -- Senior Executive Deferred Compensation Plan filed as Exhibit 10.29 to Holdings' Registration
Statement on Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated herein
by reference.
10.17 -- Letter of Understanding, between Holdings and Robert W. O'Leary, filed as Exhibit 10.30 to
Amendment No. 3 to Holdings' Registration Statement on Form S-1, filed on July 26, 1991,
Registration No. 33-41206, and incorporated herein by reference.
10.18 -- Letter of Understanding dated as of August 4, 1991 between AMI and Alan J. Chamison filed as
Exhibit 10.36 to AMI's Registration Statement on Form S-1, Registration No. 33-41206, filed
September 25, 1991 and incorporated herein by reference.
10.19 -- Agreement, dated as of March 7, 1990, among American Medical International, Inc. Healthcare
Holding Company and Generale De Sante International PLC, filed as Exhibit 10.36 to Amendment No. 3
to Holdings' Registration Statement on Form S-1, Registration No. 33-41206, filed on July 26, 1991
and incorporated herein by reference.
10.20 -- Acquisition Agreement, among AMI Information Systems Group, Inc., A.M. International and Klinik
Hirslanden AG, filed as Exhibit 10.37 to Amendment No. 3 to Holdings' Registration Statement on
Form S-1, Registration No. 33-41206, filed on July 26, 1991 and incorporated herein by reference.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------
<C> <C> <S>
10.21 -- Asset Purchase and Sale Agreement, by and among Holdings, AMI, AMISUB (PSL), Inc., New H Acute,
Inc. New H PSL, Inc. and PSL HealthCare System, dated as of November 15, 1990, as amended, filed
as Exhibit 10.38 to Amendment No. 3 to Holdings' Registration Statement on Form S-1 filed on July
26, 1991 and incorporated herein by reference.
10.22 -- Exchange Agreement dated as of January 27, 1992 by and among EPIC Healthcare Group, Inc., EPIC
Holdings, Inc., EPIC Transaction Co., American Medical International, Inc., American Medical
(Central), Inc., American Information Systems Group, Inc., Brookwood Health Services, Inc., and
Lifemark Hospitals, Inc. filed as Exhibit 10.1 to Form 8-K filed on March 25, 1992 and
incorporated herein by reference.
10.23 -- Letter of Understanding between the Company and AMI and John T. Casey filed as Exhibit 10.31 to
Holdings' and AMI's Annual Report on Form 10-K for the fiscal year ended August 31, 1992 (the
"Annual Report") and incorporated herein by reference.
10.24 -- Letter of Understanding between the Company and AMI and O. Edwin French filed as Exhibit 10.32 to
the Annual Report and incorporated herein by reference.
10.25 -- Amendment to Letters of Understanding between the Company and AMI and each of Robert W. O'Leary,
Alan J. Chamison, John T. Casey, and O. Edwin French, filed as Exhibit 10.34 to the Annual Report
and incorporated herein by reference.
10.26 -- Letter of Understanding dated as of August 19, 1994, from Holdings to Terry Linn.
10.27 -- Letter of Understanding dated as of October 30, 1992 from AMI to Lawrence N. Kugelman.
10.28 -- Letter of Understanding dated as of June 1, 1990 from AMI to W. Randolph Smith.
10.29 -- Employment Agreement dated as of November 1, 1992 between AMI and Thomas J. Sabatino, Jr.
10.30 -- Amendment dated as of October 10, 1994 to Employment Agreement dated as of November 1, 1992
between AMI and Thomas J. Sabatino, Jr.
10.31 -- Letter of Understanding dated as of June 1, 1990 from Holdings to Michael N. Murdock.
10.32 -- Amendment dated as of October 10, 1994 to Employment Agreement dated as of June 1, 1990 from
Holdings' to Michael N. Murdock.
10.33 -- Letter of Understanding dated as of June 1, 1990 from Holdings to Bary G. Bailey.
10.34 -- Amendment dated October 10, 1994 to Employment Agreement dated as of June 1, 1990 from Holdings'
to Bary G. Bailey.
10.35 -- Loan Agreement dated as of July 14, 1993 between Holdings and John T. Casey.
10.36 -- Directors Retirement Plan.
10.37 -- Amendment dated as of October 10, 1994 to Directors Retirement Plan.
10.38 -- Supplemental Benefit Plan.
10.39 -- 1990 Supplemental Benefit Plan Amended and Restated Effective January 1, 1992.
10.40 -- Amendment dated as of December, 1992 to Employment Agreement dated as of October 30, 1992 between
Holdings and Lawrence N. Kugelman.
11 -- Statement re computations of per share earnings for the period ended August 31, 1994.
21.1 -- List of subsidiaries of Holdings filed as Exhibit 22 to Holdings' Registration Statement on Form
S-1 filed on June 17, 1991 and incorporated herein by reference.
21.2 -- List of subsidiaries of AMI filed as Exhibit 22 to the AMI Form S-1 and incorporated herein by
reference.
24 -- Powers of Attorney.
</TABLE>
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on the day of November, 1994. The following officers and
directors have executed this report as of November 16, 1994.
AMERICAN MEDICAL HOLDINGS, INC.
AMERICAN MEDICAL INTERNATIONAL, INC.
By /s/ ALAN J. CHAMISON
--------------------------------------
Alan J. Chamison
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, by the following persons in the capacities
indicated:
SIGNATURE TITLE
- ----------------------------------- -----------------------------------------
/s/ ROBERT W. O'LEARY*
- ----------------------------------- Chairman and Chief Executive Officer
Robert W. O'Leary (Principal Executive Officer)
/s/ ALAN J. CHAMISON Executive Vice President and
- ----------------------------------- Chief Financial Officer
Alan J. Chamison (Principal Financial Officer)
/s/ BARY G. BAILEY
- ----------------------------------- Vice President, Controller
Bary G. Bailey (Principal Accounting Officer)
/s/ J. ROBERT BUCHANAN, M.D.*
- ----------------------------------- Director
J. Robert Buchanan, M.D.
/s/ ROBERT B. CALHOUN, JR.*
- ----------------------------------- Director
Robert B. Calhoun, Jr.
/s/ JOHN T. CASEY*
- ----------------------------------- Director
John T. Casey
/s/ HARRY J. GRAY*
- ----------------------------------- Director
Harry J. Gray
43
<PAGE>
SIGNATURE TITLE
- ----------------------------------- -----------------------------------------
/s/ HAROLD S. HANDELSMAN*
- ----------------------------------- Director
Harold S. Handelsman
/s/ SHELDON S. KING*
- ----------------------------------- Director
Sheldon S. King
/s/ MELVYN N. KLEIN*
- ----------------------------------- Director
Melvyn N. Klein
/s/ DAN W. LUFKIN*
- ----------------------------------- Director
Dan W. Lufkin
/s/ WILLIAM E. MAYER*
- ----------------------------------- Director
William E. Mayer
/s/ ROBERT W. O'LEARY*
- ----------------------------------- Director
Robert W. O'Leary
/s/ HAROLD M. WILLIAMS*
- ----------------------------------- Director
Harold M. Williams
*By: /s/ BARY G. BAILEY
- -----------------------------------
Bary G. Bailey
As Attorney-In-Fact
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(A).
<TABLE>
<CAPTION>
PAGE
REFERENCE
-------------
<S> <C>
Financial Statements:
Report of Independent Accountants................................................................. F-2
Consolidated Balance Sheets as of August 31, 1994 and 1993........................................ F-4
Consolidated Statements of Income
for the Years Ended August 31, 1994, 1993 and 1992............................................... F-6
Consolidated Statements of Cash Flows
for the Years Ended August 31, 1994, 1993 and 1992............................................... F-7
Consolidated Statements of Shareholders' Equity
for the Years Ended August 31, 1994, 1993 and 1992............................................... F-8
Notes to Consolidated Financial Statements........................................................ F-9
Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules................................ S-1
Schedule II -- Amounts Receivable from Directors, Officers and Employees.......................... S-2
Schedule V -- Property and Equipment.............................................................. S-3
Schedule VI -- Accumulated Depreciation of Property and Equipment................................. S-4
Schedule VIII -- Reserves for Uncollectible Accounts.............................................. S-5
Schedule X -- Supplementary Income Statement Information.......................................... S-6
</TABLE>
All other schedules are not submitted because they are not applicable, not
required, or the information is included in the consolidated financial
statements or notes thereto.
Separate financial statements of the parent company have been omitted since
restricted net assets of consolidated subsidiaries are less than 25% of
consolidated net assets.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Boards of Directors and
Shareholders of American Medical Holdings, Inc.
and American Medical International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of American
Medical Holdings, Inc. and subsidiaries and American Medical International, Inc.
and subsidiaries at August 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Companies' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
October 20, 1994
F-2
<PAGE>
[This page has been intentionally left blank]
F-3
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
AS OF AUGUST 31,
----------------------------------------------------------
1994 1993
---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 31,941 $ 31,941 $ 44,335 $ 44,335
Accounts receivable, less reserves for uncollectible
accounts of $98,622 in 1994 and $98,143 in 1993..... 147,415 147,415 90,596 90,596
Inventory of supplies................................ 63,444 63,444 59,516 59,516
Income taxes, net (including current portion of
deferred income taxes).............................. 30,876 30,876 24,641 24,641
Prepaid expenses..................................... 15,133 15,133 11,617 11,617
------------- ------------- ------------- -------------
288,809 288,809 230,705 230,705
------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT:
Land................................................. 117,841 117,841 104,723 104,723
Buildings and improvements........................... 1,253,411 1,253,411 1,151,890 1,151,890
Equipment............................................ 577,687 577,687 507,505 507,505
Construction in progress............................. 22,457 22,457 35,827 35,827
------------- ------------- ------------- -------------
1,971,396 1,971,396 1,799,945 1,799,945
Less -- Accumulated depreciation..................... 507,653 507,653 395,736 395,736
------------- ------------- ------------- -------------
1,463,743 1,463,743 1,404,209 1,404,209
------------- ------------- ------------- -------------
OTHER ASSETS:
Notes receivable..................................... 15,559 15,559 10,791 10,791
Investments.......................................... 24,523 24,523 27,982 27,982
Cost in excess of net assets acquired, net........... 1,153,887 1,153,887 1,165,435 1,165,435
Deferred costs....................................... 30,026 30,026 29,248 29,248
------------- ------------- ------------- -------------
1,223,995 1,223,995 1,233,456 1,233,456
------------- ------------- ------------- -------------
$ 2,976,547 $ 2,976,547 $ 2,868,370 $ 2,868,370
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS OF AUGUST 31,
----------------------------------------------------------
1994 1993
---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ 156,028 $ 156,028 $ 40,831 $ 40,831
Accounts payable..................................... 86,898 86,898 84,513 84,513
Accrued liabilities:
Payroll and benefits............................... 116,961 116,961 131,170 131,170
Interest........................................... 20,563 20,563 20,641 20,641
Taxes, other than income........................... 26,322 26,322 26,353 26,353
Other.............................................. 69,692 69,692 67,147 67,147
------------- ------------- ------------- -------------
476,464 476,464 370,655 370,655
------------- ------------- ------------- -------------
LONG-TERM DEBT....................................... 1,130,967 1,130,967 1,283,665 1,283,665
------------- ------------- ------------- -------------
CONVERTIBLE SUBORDINATED DEBT........................ 10,707 10,707 10,487 10,487
------------- ------------- ------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes................................ 218,651 218,651 211,451 211,451
Reserve for professional liability risks............. 103,099 103,099 100,496 100,496
Other deferred credits and liabilities............... 187,941 187,941 187,743 187,743
------------- ------------- ------------- -------------
509,691 509,691 499,690 499,690
------------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS....... -- -- 6,046 --
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY:
AMI common stock, $0.01 par value -- 200,000 shares
authorized 72,481 shares issued and outstanding in
1994 and 1993....................................... -- 725 -- 725
Holdings preferred stock, $0.01 par value --
5,000 shares authorized No shares outstanding....... -- -- -- --
Holdings common stock, $0.01 par value -- 200,000
shares authorized 77,491 shares issued and
outstanding in 1994 and 76,873 in 1993.............. 775 -- 768 --
Additional paid-in capital........................... 608,096 592,494 596,623 587,060
Retained earnings.................................... 245,547 261,199 108,436 124,088
Adjustment for minimum pension liability............. (5,700) (5,700) (8,000) (8,000)
------------- ------------- ------------- -------------
848,718 848,718 697,827 703,873
------------- ------------- ------------- -------------
$ 2,976,547 $ 2,976,547 $ 2,868,370 $ 2,868,370
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES............................. $ 2,381,689 $ 2,381,689 $ 2,238,525 $ 2,238,525 $ 2,237,912 $ 2,237,912
OPERATING COSTS AND EXPENSES:
Salaries and benefits.................. 869,020 869,020 815,323 815,323 838,727 838,727
Supplies............................... 339,985 339,985 315,935 315,935 316,541 316,541
Provision for uncollectible accounts... 165,539 165,539 148,135 148,135 163,824 163,824
Depreciation and amortization.......... 156,718 156,718 147,397 147,397 149,051 149,051
Other operating costs.................. 524,221 524,221 505,614 505,614 496,180 496,180
------------- ------------- ------------- ------------- ------------- -------------
Total operating costs and expenses... 2,055,483 2,055,483 1,932,404 1,932,404 1,964,323 1,964,323
------------- ------------- ------------- ------------- ------------- -------------
OPERATING INCOME......................... 326,206 326,206 306,121 306,121 273,589 273,589
Gains on sales of securities........... 69,328 69,328 -- -- 119,803 119,803
Interest expense, net.................. (154,507) (154,507) (166,582) (166,582) (204,556) (204,556)
------------- ------------- ------------- ------------- ------------- -------------
INCOME BEFORE TAXES, MINORITY EQUITY
INTEREST AND EXTRAORDINARY LOSS......... 241,027 241,027 139,539 139,539 188,836 188,836
Provision for income taxes............. (98,300) (98,300) (68,800) (68,800) (77,900) (77,900)
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME BEFORE MINORITY EQUITY
INTEREST AND EXTRAORDINARY LOSS......... 142,727 142,727 70,739 70,739 110,936 110,936
Minority equity interest............... (3,707) (3,707) (3,770) (3,770) (1,318) (1,318)
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME BEFORE EXTRAORDINARY LOSS..... 139,020 139,020 66,969 66,969 109,618 109,618
Extraordinary loss on early
extinguishment of debt................ (1,909) (1,909) (25,431) (25,431) (9,997) (9,997)
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME............................... $ 137,111 $ 137,111 $ 41,538 $ 41,538 $ 99,621 $ 99,621
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
PER SHARE DATA:
Net income before extraordinary loss..... $1.80 N/A $0.87 N/A $1.43 N/A
Extraordinary loss on early
extinguishment of debt................ (0.02) N/A (0.33) N/A (0.13) N/A
---- ---- ----
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE........................ $1.78 N/A $0.54 N/A $1.30 N/A
---- ---- ----
---- ---- ----
SHARES USED FOR COMPUTATION OF NET INCOME
PER SHARE............................... 77,143 N/A 76,760 N/A 76,645 N/A
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------
1994 1993 1992
-------------------- -------------------- --------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary loss.......................... $ 139,020 $ 139,020 $ 66,969 $ 66,969 $ 109,618 $ 109,618
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization........................... 156,718 156,718 147,397 147,397 149,051 149,051
Deferred income taxes................................... (8,100) (8,100) 300 300 19,600 19,600
Amortization of debt discount, deferred financing costs
and non-cash interest.................................. 49,021 49,021 60,617 60,617 62,396 62,396
Gains on sales of securities............................ (43,428) (43,428) -- -- (119,803) (119,803)
Financing fees paid..................................... (1,630) (1,630) (5,515) (5,515) (3,297) (3,297)
Foreign exchange translation (income) loss.............. 215 215 (613) (613) 7,761 7,761
Decrease (increase) in accounts receivable, net......... (18,745) (18,745) 25,512 25,512 36,859 36,859
Increase in inventory of supplies and prepaid
expenses............................................... (1,206) (1,206) (515) (515) (4,980) (4,980)
Decrease in accounts payable and accrued liabilities.... (10,086) (10,086) (9,671) (9,671) (54,064) (54,064)
Decrease in accrued interest............................ (664) (664) (1,409) (1,409) (1,553) (1,553)
Income taxes, net....................................... 18,283 18,283 (17,983) (17,983) 81,687 81,687
Decrease in other liabilities........................... (14,273) (14,273) (6,751) (6,751) (27,527) (27,527)
Other non-cash items, net............................... 4,506 4,506 (1,058) (1,058) (301) (301)
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 269,631 269,631 257,280 257,280 255,447 255,447
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt.......................................... (62,169) (62,169) (653,884) (653,884) (506,406) (506,406)
Reducing Revolving Credit Facility........................ (21,000) (21,000) 287,000 287,000 -- --
Borrowing Base Facility................................... -- -- -- -- (39,495) (39,495)
Borrowings................................................ 890 890 152,047 152,047 185,794 185,794
Contribution to AMI by Holdings........................... -- 5,434 -- 2,381 -- 9,988
Stock repurchases......................................... (20) -- (118) -- (3,170) --
Issuance of Holdings common stock......................... 5,454 -- 2,499 -- 11,927 --
--------- --------- --------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES....................... (76,845) (76,845) (212,456) (212,456) (351,350) (350,119)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.......................... (112,214) (112,214) (116,322) (116,322) (96,816) (96,816)
Acquisitions.............................................. (111,606) (111,606) -- -- -- --
Disposition of assets..................................... -- -- -- -- 100,089 100,089
Sales of securities....................................... 46,537 46,537 -- -- 153,371 153,371
Decrease (increase) in deferred costs..................... (7,279) (7,279) (3,956) (3,956) 4,107 4,107
Additions to notes receivable and investments............. (15,536) (15,536) (4,969) (4,969) (43,531) (43,531)
Decrease in notes receivable and investments.............. 7,270 7,270 63,758 63,758 33,204 33,204
Other, net................................................ (12,352) (12,352) (9,536) (9,536) (14,848) (14,848)
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................................. (205,180) (205,180) (71,025) (71,025) 135,576 135,576
--------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (12,394) (12,394) (26,201) (26,201) 39,673 40,904
Cash and cash equivalents, beginning of period.............. 44,335 44,335 70,536 70,536 30,863 29,632
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 31,941 $ 31,941 $ 44,335 $ 44,335 $ 70,536 $ 70,536
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE THREE YEARS ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
ADJUSTMENT FOR
ADDITIONAL RETAINED MINIMUM
PAID-IN EARNINGS PENSION
SHARES AMOUNT CAPITAL (DEFICIT) LIABILITY
--------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
HOLDINGS
Balance, August 31, 1991...................................... 75,615 $ 756 $ 584,145 $ (32,723) $ --
--------- ----- ----------- ----------- -------
Issuance of stock........................................... 1,315 13 11,914 -- --
Stock repurchases........................................... (290) (3) (3,167) -- --
Common Stock Subject to Repurchase
Obligations................................................ -- -- 3,105 -- --
Net income.................................................. -- -- -- 99,621 --
--------- ----- ----------- ----------- -------
Balance, August 31, 1992...................................... 76,640 766 595,997 66,898 --
--------- ----- ----------- ----------- -------
Issuance of stock........................................... 247 2 2,497 -- --
Stock repurchases........................................... (14) -- (118) -- --
Common Stock Subject to Repurchase
Obligations................................................ -- -- (1,753) -- --
Net income.................................................. -- -- -- 41,538 --
Adjustment for minimum pension liability.................... -- -- -- -- (8,000)
--------- ----- ----------- ----------- -------
Balance, August 31, 1993...................................... 76,873 768 596,623 108,436 (8,000)
--------- ----- ----------- ----------- -------
Issuance of stock........................................... 621 7 5,447 -- --
Stock repurchases........................................... (3) -- (20) -- --
Common Stock Subject to Repurchase
Obligations................................................ -- -- 6,046 -- --
Net income.................................................. -- -- -- 137,111 --
Adjustment for minimum pension liability.................... -- -- -- -- 2,300
--------- ----- ----------- ----------- -------
Balance, August 31, 1994...................................... 77,491 $ 775 $ 608,096 $ 245,547 $ (5,700)
--------- ----- ----------- ----------- -------
--------- ----- ----------- ----------- -------
AMI
Balance, August 31, 1991...................................... 72,481 $ 725 $ 567,444 $ (17,071) $ --
--------- ----- ----------- ----------- -------
Contributions from Holdings................................. -- -- 17,235 -- --
Net income.................................................. -- -- -- 99,621 --
--------- ----- ----------- ----------- -------
Balance, August 31, 1992...................................... 72,481 725 584,679 82,550 --
--------- ----- ----------- ----------- -------
Contributions from Holdings................................. -- -- 2,381 -- --
Net income.................................................. -- -- -- 41,538 --
Adjustment for minimum pension liability.................... -- -- -- -- (8,000)
--------- ----- ----------- ----------- -------
Balance, August 31, 1993...................................... 72,481 725 587,060 124,088 (8,000)
--------- ----- ----------- ----------- -------
Contributions from Holdings................................. -- -- 5,434 -- --
Net income.................................................. -- -- -- 137,111 --
Adjustment for minimum pension liability.................... -- -- -- -- 2,300
--------- ----- ----------- ----------- -------
Balance, August 31, 1994...................................... 72,481 $ 725 $ 592,494 $ 261,199 $ (5,700)
--------- ----- ----------- ----------- -------
--------- ----- ----------- ----------- -------
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
American Medical Holdings, Inc. ("Holdings") was organized in July 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company"). As a result of this transaction, Holdings is the owner of all of
the outstanding shares of common stock of AMI.
The accompanying consolidated financial statements include the accounts of
Holdings, AMI and all majority owned subsidiary companies and have been prepared
in accordance with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to prior years' financial statements to be
consistent with the fiscal 1994 presentation.
AMI's financial statements are the same as Holdings' financial statements,
except for the components of shareholders' equity, and for the years ended
August 31, 1993 and 1992 the impact of Holdings' common stock subject to
repurchase obligations (See Note 9 Capital Stock).
CASH AND CASH EQUIVALENTS
All highly liquid debt instruments purchased with an original maturity of
three months or less are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company receives payment for services rendered to patients from (i) the
federal and state governments under the Medicare, Medicaid and CHAMPUS programs,
(ii) privately sponsored managed care programs for which payment is made based
on terms defined under contracts and (iii) other payers. As of August 31, 1994
and 1993, government patient receivables represented approximately 37% and 30%,
respectively, contracted patient receivables represented approximately 32% and
35%, respectively, and other third party payer receivables represented
approximately 31% and 35%, respectively of net patient receivables.
Receivables from government agencies represent a concentrated group of
credit for the Company; however, management does not believe that there are any
credit risks associated with these governmental agencies. The only other
significant credit concentration is with various Blue Cross affiliates. The
remaining balance of payers including entities and individuals involved in
diverse activities, and subject to differing economic conditions, do not
represent any known concentrated credit risks to the Company. Furthermore,
management continually monitors and adjusts its reserves and allowances
associated with these receivables.
INVENTORY OF SUPPLIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Amounts capitalized as part of property and equipment, including additions
and improvements to existing facilities, are recorded at cost, including
interest capitalized during construction which is computed at the cost of funds
borrowed. Maintenance costs and repairs are expensed as incurred. Buildings and
improvements and equipment are depreciated using the straight-line method of
depreciation over their estimated useful lives. The estimated lives of buildings
and improvements are generally 20 to 25 years and equipment is 3 to 15 years.
F-9
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments are accounted for under either the equity method or the cost
method. Investments accounted for under the cost method are stated at the lower
of cost or market in the accompanying financial statements.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over 40 years from
the original acquisition date of AMI resulting in an annual amortization of
approximately $32.0 million. The cumulative amortization of cost in excess of
net assets acquired as of August 31, 1994 and 1993 is $157.2 million and $125.2
million, respectively.
DEFERRED COSTS
Deferred financing costs are amortized under the interest method over the
term of the expected life of the debt. Costs incurred prior to the opening of
new facilities and costs incurred in the development of data processing systems
are deferred and amortized on a straight-line basis over a two to five-year
period.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires deferred tax liabilities or assets be recognized for the anticipated
tax effects of temporary differences that arise as a result of differences in
the book basis and tax basis of assets and liabilities.
NET REVENUES
The Company's sources of revenues are primarily provided from patient
services and are presented net of reserves to recognize the difference between
the hospitals' established billing rates for covered services and the amounts
paid by third party or private payers. Patient revenues received under
government and privately sponsored insurance programs are based on cost as
defined under the programs or at predetermined rates based upon the diagnosis,
plus capital costs, return on equity and other adjustments rather than customary
charges. Adjustments are recorded in the period the services are rendered based
on estimated amounts to be reimbursed and contract interpretations, however,
such adjustments are generally subject to final audit and settlement. Net
revenues include adjustments for the years ended August 31, 1994, 1993 and 1992
of $2.1 billion, $1.9 billion and $1.8 billion, respectively. In management's
opinion, the reserves established are adequate to cover the ultimate liabilities
that may result from final settlements.
The Company provides healthcare services free of charge to individuals who
meet certain financial or economic criteria (i.e. charity care). The billings
for such services have not been recognized as receivables or revenues in the
financial statements since they are not expected to result in cash flows.
TRANSLATION OF FOREIGN CURRENCIES
Revaluation gains or losses on assets and liabilities denominated in
currencies other than the functional currency are included in the determination
of income. Revaluation gains or losses for debt denominated in foreign
currencies for the years ended August 31, 1994 and 1993 were immaterial.
Revaluation losses for debt denominated in foreign currencies for the year ended
August 31, 1992 totaled $7.8 million. As of September 1, 1992, substantially all
of the Company's foreign denominated debt obligations have been redeemed or the
Company has entered into swap agreements that hedge
F-10
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
against any future fluctuations and, therefore, eliminated any future material
revaluation gains or losses associated with the applicable debt obligations (See
Note 5 Long Term Debt -- Swap Agreements).
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions to estimate the fair
value of its financial instruments at August 31, 1994:
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value due
to the short-term nature of these instruments.
INVESTMENTS
The Company has various investments for which the determination of the fair
value is not practicable.
LONG-TERM DEBT
Fair values of publicly traded notes have been determined using the quoted
market prices at August 31, 1994. The fair value of certain non-publicly traded
notes is based on cash flows discounted using interest rates found on comparable
traded securities. The aggregate carrying value of long-term debt at August 31,
1994, of $1,297.7 million had an estimated fair value of $1,392.3 million.
3. ACQUISITIONS
Effective May 1, 1994, the Company completed the purchase of Saint Francis
Hospital located in Memphis, Tennessee. In conjunction with this purchase, in
June 1994 the Company completed the acquisition of a management services
organization in the Memphis area. During fiscal 1994, the Company also acquired
additional outpatient businesses, including home health, diagnostic centers and
physician practices.
During fiscal 1993, the Company merged the operations of AMI's Tarzana
Regional Medical Center with the operations of HealthTrust, Inc. -- The Hospital
Company's ("HealthTrust") Encino Hospital. AMI owns 75% of the combined hospital
operations and therefore the results of operations for the hospitals are fully
consolidated with the results of operations of the Company for periods
subsequent to January 1, 1993.
4. DISPOSITIONS
During 1994, AMI recognized a $69.3 million pre-tax gain ($43.4 million net
of tax), related to the sale of the Company's interest in EPIC Holdings, Inc.
During fiscal 1992, the Company completed the sale of $89.3 million principal
amount of Zero Coupon Notes Due 2001, issued by EPIC Healthcare Group, Inc. in
September 1988 as partial consideration for AMI's sale of certain hospitals. AMI
also completed the sale of its investment in EPIC Holdings, Inc. Class A and
Class B Preferred Stock for aggregate cash proceeds of $130 million. The total
pre-tax gain recorded in fiscal 1992 from these transactions was $119.8 million
($80.7 million, net of tax). The gains on the sale of the EPIC securities in
fiscal 1994 and 1992 is presented in the accompanying financial statements as
"Gains on sales of securities."
During fiscal 1992, the Company sold four domestic acute care hospitals for
aggregate cash proceeds of approximately $100.1 million. These assets were
valued at their respective sales prices, and therefore, no gains or losses were
recognized from these sales in fiscal 1992.
F-11
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
The components of Holding's and AMI's long-term debt at August 31, 1994 and
1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Reducing Revolving Credit Facility, 5.7% at August 31, 1994......................... $ 266,000 $ 287,000
Senior debt, 11 1/4% to 11 3/8% at August 31, 1994, net of unamortized discount at
August 31, 1994 of $9.4 million and due from 1995 through 2015..................... 127,179 125,854
11% Senior Notes, due 2000.......................................................... 100,000 100,000
6 1/2% Swiss franc/dollar dual currency senior notes due 1997, $74.9 million face
value, net of $11.2 million unamortized discount at August 31, 1994................ 63,760 60,526
11 1/4% Senior notes due 1995, L37 million face value, net of $0.9 million
unamortized discount at August 31, 1994............................................ 61,793 60,084
5% Swiss franc bonds due 1996, SFr.78 million face value, net of $5.1 million
unamortized discount at August 31, 1994............................................ 47,379 44,537
Zero Coupon Guaranteed Bonds due 1997 and 2002, $179.3 million face value, net of
$83.6 million unamortized discount at August 31, 1994.............................. 95,714 84,577
9 1/2% Senior Subordinated Notes, due 2006.......................................... 150,000 150,000
13 1/2% Senior Subordinated Notes, due 2001......................................... 193,790 193,790
15% Junior Subordinated Discount Debentures, due 2005............................... 104,473 104,485
Notes, and capital lease obligations (notes secured by trust deeds on real property
with an aggregate net book value of approximately $96.8 million at August 31, 1994)
with varying maturities through 2014 with interest at an average rate of 9.6%...... 76,907 113,643
------------- -------------
1,286,995 1,324,496
Less -- current maturities.......................................................... 156,028 40,831
------------- -------------
$ 1,130,967 $ 1,283,665
------------- -------------
------------- -------------
</TABLE>
REVOLVING CREDIT FACILITY
The Company's $600 million revolving credit facility ("Reducing Revolving
Credit Facility") was amended in June 1994 extending the term to September 1999
and reducing the rate at which interest accrues. Amounts outstanding under the
Reducing Revolving Credit Facility will accrue interest, at the option of AMI,
at (i) adjusted LIBOR plus .875% (subject to reduction upon the satisfaction of
certain conditions) or (ii) at the alternative base rate specified for the
Reducing Revolving Credit Facility. Upon completion of the fiscal 1994 loan
compliance report, anticipated to be prior to the end of the first quarter of
fiscal 1995, the rate at which interest accrues based on LIBOR will be reduced
to LIBOR plus .75%. Under the Reducing Revolving Credit Facility, $31.3 million
in letters of credit were outstanding as of August 31, 1994.
SWAP AGREEMENTS
AMI has entered into swap agreements which hedge any foreign currency gains
or losses on the L37 million senior notes, face amount $62.7 million, and the
SFr.78 million bonds, face amount $52.4 million. At August 31, 1994 no loss
would be recognized if the counter parties to these swap agreements failed to
perform their obligations.
F-12
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
DEBT COVENANTS
The terms of certain of the Company's indebtedness impose operating and
financial restrictions requiring the Company to maintain certain financial
ratios and restrict the Company's ability to incur additional indebtedness and
enter into leases and guarantees of debt; to make capital expenditures; to make
loans and investments; to pay dividends or repurchase shares of stock; to
repurchase, retire or refinance indebtedness prior to maturity, and to purchase
or sell assets. The Company has pledged the capital stock of certain direct
(first tier) subsidiaries as security its obligations under the Reducing
Revolving Credit Facility and certain other senior indebtedness. In addition,
the Company has granted a security interest in its accounts receivable as
security for its obligations under the Reducing Revolving Credit Facility.
Management believes that the Company is currently in compliance with all
covenants and restrictions contained in all financing agreements.
MATURITIES OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
As of August 31, 1994 the maturities of long-term debt, including capital
lease obligations, for the five years ending August 31, 1999 are $156.0 million
in fiscal 1995, $57.0 million in fiscal 1996, $182.1 million in fiscal 1997,
$2.3 million in fiscal 1998 and $2.3 million in fiscal 1999.
CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debentures are unsecured obligations of the Company
and are redeemable at declining premiums prior to their respective payment
dates. The 9 1/2% Convertible Subordinated Debentures Due 2001, of which $3.4
million and $3.3 million was outstanding at August 31, 1994 and 1993,
respectively, are convertible at $24.38 per share into 209,639 shares of
Holdings' common stock at August 31, 1994, net of unamortized discount of $1.7
million. The 8 1/4% Convertible Subordinated Debentures Due 2008 of which $7.3
million and $7.2 million was outstanding at August 31, 1994 and 1993,
respectively, are convertible at $40.00 per share into 361,400 shares of
Holdings' common stock at August 31, 1994 net of unamortized discount of $7.1
million.
6. BENEFIT PLANS
PENSION PLANS
The Company has defined benefit pension plans (the "Plans") covering
substantially all of the Company's employees. The benefits are based on years of
service and the employee's base compensation as defined in the Plans. The
Company's policy is to fund pension costs accrued within the limits allowed
under federal income tax regulations. Contributions are intended to provide not
only for benefits attributed to credited service to date, but also for those
expected to be earned in the future.
F-13
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
In accordance with SFAS No. 87 Holdings and AMI have recorded an adjustment
to recognize a minimum pension liability. The following table sets forth the
funded status of the Plans and amounts recognized in the consolidated financial
statements as of August 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.............................................................................. $ 182,600 $ 147,600
------------ ------------
------------ ------------
Accumulated......................................................................... $ 167,900 $ 155,100
------------ ------------
------------ ------------
Projected benefit obligation.......................................................... $ 209,600 $ 170,500
Plan assets at fair value, primarily listed stock and corporate bonds................. (204,600) (133,000)
------------ ------------
Projected benefit obligation in excess of plan assets................................. 5,000 37,500
Unrecognized net loss................................................................. (24,700) (25,900)
Adjustment for minimum pension liability.............................................. 6,500 10,500
------------ ------------
Pension liability..................................................................... $ (13,200) $ 22,100
------------ ------------
------------ ------------
</TABLE>
Holdings' and AMI's net pension cost for the years ended August 31, 1994,
1993 and 1992 includes the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned during the period........................... $ 8,300 $ 6,800 $ 7,600
Interest cost on projected benefit obligation............................... 14,200 12,200 10,000
Actual return on plan assets................................................ (14,400) (18,500) (4,500)
Net amortization and deferral............................................... 1,100 7,000 (7,100)
---------- ---------- ----------
Net periodic pension cost................................................... $ 9,200 $ 7,500 $ 6,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In addition, Holdings and AMI have a unfunded supplemental defined benefit
retirement plan for Company executives ("SERP"). The following table sets forth
the amounts recognized for the unfunded SERP in the consolidated financial
statements as of August 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested................................................................................... $ 43,500 $ 43,000
--------- ---------
--------- ---------
Accumulated.............................................................................. $ 45,100 $ 43,900
--------- ---------
--------- ---------
Projected benefit obligation (unfunded).................................................... $ 52,200 $ 49,700
Unrecognized net gain (loss)............................................................... 700 (900)
Unrecognized transition costs.............................................................. (200) (300)
Unrecognized prior service costs........................................................... 200 200
Adjustment for minimum pension liability................................................... 3,100 2,900
--------- ---------
SERP liability............................................................................. $ 56,000 $ 51,600
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
Holdings' and AMI's net cost of the SERP plan for the years ended August 31,
1994, 1993 and 1992 includes the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the period.................................. $ 1,400 $ 900 $ 100
Interest cost on projected benefit obligation...................................... 3,800 3,600 3,700
Net amortization and deferral...................................................... 600 (300) (100)
--------- --------- ---------
Net periodic SERP cost............................................................. $ 5,800 $ 4,200 $ 3,700
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation for the SERP and the pension plan
approximated 8.75% and 7.5% as of August 31, 1994 and 1993, respectively. The
rate of increase in future compensation levels for the pension plan was 5.0%,
3.5% and 5.0% for the years ended August 31, 1994, 1993 and 1992, respectively.
The rate of increase in future compensation levels for the SERP was 6.0%, 5.0%
and 8.0% for the years ended August 31, 1994, 1993 and 1992, respectively. The
expected long-term rate of return on assets was 10.0% for the years ended August
31, 1994 and 1993, for the pension plan.
DEFERRED SAVINGS PLAN
The Company also has a tax deferred savings plan. Expenses relating to this
plan were $8.8 million, $7.3 million and $5.6 million for the years ended August
31, 1994, 1993 and 1992, respectively, for Holdings and AMI.
OTHER
The Company does not provide any post-retirement or post-employment
healthcare or life insurance benefits to retired or former employees.
Disclosures for the Company's Options Plans and the Employee Stock Purchase
Plan are included in Note 9 Capital Stock.
7. PROFESSIONAL LIABILITY RISKS
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. The Company
self-insures the professional and general liability claims for nine of its
hospitals up to $500,000 per occurrence and for 26 of its hospitals up to $3
million per occurrence. Prior to June 1993, the self-insured retention was $5
million per occurrence. Coverage for professional and general liability claims
for the Company's two remaining hospitals is maintained with outside insurance
carriers.
The Company owns a 35% equity interest in an insurance company which insures
excess professional and general liability risks for those hospitals which are
self-insured. The excess coverage provided by this insurance company is limited
to $25 million per claim. The Company purchases additional excess insurance from
a commercial carrier. For the period from January 1986 to February 1991, the
Company had no excess coverage for the majority of its hospitals. However, in
March 1991 the Company purchased prior acts coverage which substantially reduces
the uninsured liability for claims during this period. For the years ended
August 31, 1994, 1993 and 1992, the Company paid $4.3 million, $5.0 million and
$4.6 million, respectively, in premiums to this insurance company. In fiscal
1993 and 1992, the Company received distributions of prior year premiums of $2.4
million and $3.8 million, respectively, from this insurance company. In fiscal
1994, the Company received no distributions of prior years premiums. The Company
also received dividends of $3.5 million, $2.7 million and $4.7 million from this
insurance company in fiscal 1994, 1993 and 1992, respectively.
F-15
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROFESSIONAL LIABILITY RISKS (CONTINUED)
The Company maintains an unfunded reserve for its professional liability
risks which is based, in part, on actuarial estimates calculated and evaluated
by an independent actuary. Actual hospital professional and general liability
costs for a particular period are not normally known for several years after the
period has ended. The delay in determining the actual cost associated with a
particular period is due to the amount of lapsed time between the occurrence of
an incident, the reporting thereof and the settlement of related claims. As a
result, reserves for losses and related expenses are estimated using expected
loss reporting patterns determined in conjunction with the actuary and are
discounted using a rate of 9% to their present value. Adjustments to the total
reserves are determined in conjunction with the actuary and on an annual basis
are recorded by the Company as an increase or decrease in the current year's
earnings.
As of August 31, 1994 and 1993, the unfunded reserve for self insurance was
$118.8 million and $117.6 million, respectively, of which $15.7 and $17.0
million in fiscal 1994 and 1993, respectively is included in current
liabilities. For the fiscal years ended August 31, 1994, 1993 and 1992, payments
for claims and expenses totaled $15.7 million, $19.3 million and $17.1 million,
respectively. For the fiscal years ended August 31, 1994, 1993 and 1992, the
Company recorded self insurance expense of $16.9 million, $19.7 million and
$13.5 million, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, office equipment and medical
equipment. Future minimum payments under these operating leases for fiscal 1995,
1996, 1997, 1998, 1999 and thereafter are $35.3 million, $22.2 million, $17.4
million, $13.9 million, $10.0 million and $38.2 million, respectively. Future
minimum payments for six acute care hospitals leased under a REIT agreement are
$36.9 million for each of the years ended fiscal 1995, 1996, 1997, and 1998,
$23.3 million for fiscal 1999 and $43.5 million for the remaining years
thereafter. In addition, the Company incurs certain additional rents
(contingency rents), in relation to the REIT agreements, based on a percentage
of the increase in net revenues. These additional rents were $6.7 million, $6.4
million and $5.7 million for the years ended August 31, 1994, 1993 and 1992,
respectively.
CONSTRUCTION COMMITMENTS
The Company has approximately $19.5 million of construction commitments
outstanding for new construction and renovations as of August 31, 1994.
GUARANTEES
The Company has guaranteed long-term debt and lease obligations of
unconsolidated subsidiaries and affiliates aggregating $30.8 million at August
31, 1994.
LEGAL PROCEEDINGS
LITIGATION RELATING TO THE MERGER (SEE NOTE 17 SUBSEQUENT EVENTS). To date,
a total of nine purported class action suits (the "Class Actions") have been
filed against Holdings and the directors of Holdings (and in two cases against
NME). Seven of such Class Actions have been filed in the Delaware Court of
Chancery and are entitled (i) JEFFREY STARK AND GARY PLOTKIN V. ROBERT W.
O'LEARY, ROBERT J. BUCHANAN, JOHN T. CASEY, ROBERT B. CALHOUN, HARRY J. GRAY,
HAROLD J. [SIC] HANDELSMAN, SHELDON S. KING, MELVYN N. KLEIN, DAN W. LUFKIN,
WILLIAM E. MAYER AND HAROLD S. WILLIAMS (THE "HOLDINGS DIRECTORS") AND HOLDINGS,
C.A. NO. 13792, (ii)7457 Partners v. the Holdings Directors and Holdings, C.A.
No. 13793, (iii) MOISE KATZ V. THE HOLDINGS DIRECTORS AND HOLDINGS, C.A. NO.
13794, (iv) CONSTANTINOS KAFALAS V. THE HOLDINGS DIRECTORS AND HOLDINGS, C.A.
NO. 13795, (v) F. RICHARD MANSON V. THE HOLDINGS DIRECTORS, NME AND HOLDINGS,
C.A. NO. 13797, (vi) LISBETH GREENFELD V. THE
F-16
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
HOLDINGS DIRECTORS AND HOLDINGS, C.A. NO. 13799 and (vii) JOSEPH FRANKEL V. THE
HOLDINGS DIRECTORS AND HOLDINGS, C.A. NO. 13800 and two purported Class Actions
have been filed in the Superior Court of the State of California, County of Los
Angeles, entitled RUTH LEWINTER AND RAYMOND CAYUSO V. THE HOLDINGS DIRECTORS
(WITH THE EXCEPTION OF HAROLD S. WILLIAMS), NME AND HOLDINGS, CASE NO. BC115206
AND DAVID F. AND SYLVIA GOLDSTEIN V. O'LEARY, NME, AMI, ET AL., CASE NO.
BC116104. The complaints filed in each of the Class Actions are substantially
similar, are brought by purported stockholders of Holdings and, in general,
allege that the defendants breached their fiduciary duties to the plaintiffs and
other members of the purported class. One of the Class Actions alleges that the
defendants have committed or aided and abetted a gross abuse of trust. The
complaints further allege that the directors of Holdings wrongfully failed to
hold an open auction and encourage bona fide bids for Holdings and failed to
take action to maximize value for Holdings stockholders. The complaints seek
preliminary and permanent injunctions against the proposed transaction until
such time as a transaction to be entered into between Holdings and NME results
from bona fide arms' length negotiation and/or requiring a fair auction for
Holdings. In addition, if the Merger is consummated, the complaints seek
recision or recessionary damages and two of the Class Actions seek an accounting
of all profits realized and to be realized by the defendants in connection with
the Merger and the imposition of a constructive trust for the benefit of the
plaintiffs and other members of the purported classes pending such an
accounting. The complaints also seek monetary damages of an unspecified amount
together with prejudgment interest and attorneys' and experts' fees. Holdings
and NME believe that the complaints are without merit and intend to defend them
vigorously.
In addition, Holdings and AMI are subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of all pending legal proceedings will not have a material adverse
effect on the business, results of operations or financial condition of Holdings
and AMI.
9. CAPITAL STOCK
OPTION PLANS
The Company maintains two stock option plans, the Nonqualified Employee
Stock Option Plan (the "Option Plan") and the Nonqualified Performance Stock
Option Plan for Key Employees (the "Key Employees Plan"), pursuant to which
employees of Holdings and its subsidiaries are eligible to receive stock options
to purchase shares of common stock.
The table below summarizes the transactions in the Company's stock option
plans for the years ended August 31, 1994, 1993 and 1992 (shares of common
stock):
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of period................... 3,342,683 3,179,317 3,450,246
Granted.............................................. 437,862 525,696 565,000
Exercised............................................ (471,549) (192,548) (114,849)
Cancelled or expired................................. (175,311) (169,782) (721,080)
----------- ----------- -----------
Outstanding at end of period......................... 3,133,685 3,342,683 3,179,317
----------- ----------- -----------
----------- ----------- -----------
Exercisable at end of period......................... 1,402,780 1,280,513 908,999
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Option Plan generally provides options that are exercisable at prices
ranging from $7.03 to $19.21 per share, vest over a period of five years and
expire ten years from the date of grant. The Key
F-17
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK (CONTINUED)
Employees Plan generally provides options that are exercisable at prices ranging
from $7.03 to $22.17 per share, vest over a period of five to ten years based on
the attainment of specified performance goals and expire ten years from the date
of grant.
EMPLOYEE STOCK PURCHASE PLAN
In January 1993 the Company adopted an Employee Stock Purchase Plan (the
"Plan"). The purpose of the Plan is to provide an incentive for employees of the
Company to own Holdings' common stock. The plan allows eligible employees to
contribute up to 10% of their base earnings to purchase Holdings' common stock
quarterly, through payroll deductions, at 85% of the lower of the closing price
on the first or last day of the Plan quarter. The Company has reserved 2,300,000
shares of Holdings' common stock for the Plan.
COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS
The Company's obligation to repurchase shares of Holdings' common stock held
by certain executive officers no longer exists. Accordingly, the amount related
to common stock subject to repurchase obligations was recognized as
shareholders' equity as of August 31, 1994. As of August 31, 1993 and 1992,
shares of Holdings' common stock subject to repurchase obligations were 431,858
and 445,976, respectively.
10. RELATED PARTY TRANSACTIONS
In connection with the sale of the Company's interest in EPIC Holdings,
Inc., during fiscal 1994 the Company was represented by and paid a fee of
approximately $2.3 million to a major shareholder.
In fiscal 1992, an affiliate of a major shareholder served as the lead
managing underwriter of the public offering of 16.2 million shares of Holdings
common stock, the issuance of the 13 1/2% Senior Subordinated Notes Due 2001 and
the 11% Senior Notes Due 2000. This related party received underwriting fees of
$.9 million and in addition received advisory fees of $1.3 million in connection
with divestitures during fiscal 1992.
An entity associated with a general partner of a major shareholder agreed to
provide credit support to domestic hospital subsidiaries of AMI for which such
entity received an annual fee in fiscal 1993 and 1992 of $750,000. The credit
support commitment was replaced with the fiscal 1993 refinancing of the bank
credit facility.
11. EARNINGS PER SHARE
Holdings' earnings per share for the years ended August 31, 1994, 1993 and
1992 is based upon the weighted average number of shares of Holdings' common
stock outstanding. The impact of common stock equivalents is not considered
since they either have an anti-dilutive effect or the effect on dilution is less
than three percent.
F-18
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
(Provision) benefit for income taxes, excluding the tax effect of minority
equity interest and the extraordinary loss, for the years ended August 31, 1994,
1993 and 1992 for Holdings and AMI consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------ ---------- ----------
<S> <C> <C> <C>
Current (including current portion of deferred)
Federal.............................................. $ (95,500) $ (58,600) $ (50,100)
State................................................ (10,900) (9,900) (8,200)
------------ ---------- ----------
(106,400) (68,500) (58,300)
------------ ---------- ----------
Deferred
Federal.............................................. 10,400 (400) (18,700)
State................................................ (2,300) 100 (900)
------------ ---------- ----------
8,100 (300) (19,600)
------------ ---------- ----------
Total provision for income taxes................... $ (98,300) $ (68,800) $ (77,900)
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The net tax effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities as of August 31, 1994 and 1993 are
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment............................................ $ 294,000 $ 278,700
Change in accounting method....................................... 18,800 20,000
Debt discounts and deferred loan costs............................ 9,900 10,400
Other, net........................................................ 45,169 59,951
----------- -----------
Total deferred tax liabilities................................ 367,869 369,051
----------- -----------
Deferred tax assets:
Self-insurance reserves........................................... 55,700 54,300
Other deferred expenses........................................... 20,100 20,900
Deferred gains and losses......................................... 16,000 26,400
Bad debt reserves................................................. 5,400 4,600
Deferred compensation............................................. 36,300 46,800
Other, net........................................................ 76,100 43,000
----------- -----------
Total deferred tax assets..................................... 209,600 196,000
----------- -----------
Net deferred tax lability........................................... $ 158,269 $ 173,051
----------- -----------
----------- -----------
</TABLE>
The net deferred tax liability of $158.3 million and $173.1 million as of
August 31, 1994 and 1993, respectively, includes a current asset of $60.3
million and $38.4 million, respectively, and a noncurrent liability of $218.6
million and $211.5 million, respectively. No valuation allowance has been
recorded against any deferred tax asset.
In August 1993, the Revenue Reconciliation Act of 1993 was enacted. Among
other tax law changes, such law increased the corporate income tax rate from 34%
to 35% effective for the period beginning on or after January 1, 1993. For the
year ended August 31, 1994, the U.S. statutory tax rate for the Company is 35%.
F-19
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Holdings' and AMI's income tax provision differed from the amount computed
using the U.S. statutory rate for the years ended August 31, 1994, 1993 and 1992
for the following reasons (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rate.............................. $ (84,400) $ (48,400) $ (64,200)
Amortization of goodwill................................ (11,200) (11,100) (11,000)
State income tax, net of federal benefit................ (8,600) (5,500) (6,000)
Impact on deferred taxes of change in federal tax
rate................................................... -- (4,000) --
Other, net.............................................. 5,900 200 3,300
---------- ---------- ----------
Provision for income taxes.............................. $ (98,300) $ (68,800) $ (77,900)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Prior to fiscal 1992, Holdings had operating loss and capital loss
carryforwards for tax purposes of $42 million and $9 million, respectively,
which were fully utilized against net income and capital gains arising in fiscal
1992 and against capital gains on assets sold prior to the acquisition of AMI.
13. EXTRAORDINARY LOSSES ON EARLY EXTINGUISHMENT OF DEBT
The Company has recognized extraordinary losses on early extinguishment of
debt in fiscal 1994, 1993, and 1992. Fiscal 1994 includes an extraordinary loss
of $1.9 million ($3.0 million pre-tax) from the repurchase of $15.4 million
principal amount of the 15% Junior Subordinated Discount Debentures Due 2005.
Fiscal 1993 includes an extraordinary loss of $25.4 million ($41.0 million pre-
tax) from the repurchase or redemption of $146.8 million principal amount of
outstanding indebtedness. Fiscal 1992 includes an extraordinary loss of $10.0
million ($15.6 million pre-tax) from the repurchase or redemption of $159.0
million of senior indebtedness and $55.4 million of the 9 7/8% unsecured loan
stock due 2011.
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes (net of refunds) of $86.0 million and $83.6
million for the years ended August 31, 1994 and 1993, respectively, and received
income tax refunds (net of payments) of $22.5 million for the year ended August
31, 1992. The Company paid interest (net of capitalized costs) for the years
ended August 31, 1994, 1993 and 1992 of $108.3 million, $120.5 million and
$154.1 million, respectively. Capitalized interest costs were $3.5 million, $1.4
million and $2.6 million for August 31, 1994, 1993 and 1992. Interest income was
$2.7 million, $13.9 million and $10.0 million for the years ended August 31,
1994, 1993 and 1992.
NON-CASH TRANSACTIONS
During fiscal 1994, the Company assumed net assets of approximately $92.0
million related to the purchase of Saint Francis Hospital and during fiscal
1993, the Company assumed net assets of approximately $8.0 million as a result
of the merger of AMI's Tarzana Regional Medical Center and HealthTrust's Encino
Hospital.
For the years ended August 31, 1993 and 1992 an $8.2 million and $9.3
million loss, net of tax, respectively, was recognized as a result of the
write-off of the discounts and deferred financing costs associated with the
early extinguishment of debt.
For the year ended August 31, 1994 approximately $6.0 million was recognized
as an increase in shareholders' equity of Holdings due to the elimination of
common stock subject to repurchase
F-20
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
obligations. For the year ended August 31, 1993 $1.8 million was recognized as a
decrease in shareholders' equity of Holdings for the common stock subject to
repurchase obligations due to market price changes. For the year ended August
31, 1992, there was no market price change and, therefore, no effect on the
value of the common stock subject to repurchase obligations.
In fiscal 1992, the Company recognized $27.1 million of debt as a result of
the acquisition of the remaining interest in an entity that was previously
unconsolidated.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for Holdings and AMI for the two years ended
August 31, 1994 is summarized below (in millions, except per share amounts):
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1993
-------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
--------- ----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... $ 558 $ 583 $ 602 $ 638 $ 542 $ 566 $ 565 $ 565
Income before extraordinary loss..... 17 24 71 27 11 18 22 16
Extraordinary loss................... -- -- (2) -- -- -- (7) (18)
Net income (loss).................... $ 17 $ 24 $ 69 $ 27 $ 11 $ 18 $ 15 $ (2)
Holdings' income (loss) per share:
Income before extraordinary loss... $ 0.21 $ 0.32 $ 0.92 $ 0.35 $ 0.14 $ 0.24 $ 0.28 $ 0.21
Extraordinary loss................. -- -- (0.02) -- -- -- (0.09) (0.24)
Net income (loss).................. $ 0.21 $ 0.32 $ 0.90 $ 0.35 $ 0.14 $ 0.24 $ 0.19 $ (0.03)
</TABLE>
The third quarter of fiscal 1994 includes the gain on sale of securities of
$43.4 million, net of tax, (See Note 4 Dispositions). The results of operations
of Saint Francis Hospital were consolidated with the Company's results of
operations effective May 1, 1994.
The fourth quarter of fiscal 1993 reflects a charge of $3.5 million for
costs incurred related to the relocation of the Houston regional office to the
Dallas headquarters. Additional charges totaling $3.0 million were recognized in
previous quarters offset by benefits. Income before extraordinary loss includes
an $8.6 million refund of interest paid to the Internal Revenue Service in prior
periods. Additionally in the fourth quarter of fiscal 1993, the provision for
income taxes includes the impact of a $5.1 million increase in the provision for
income taxes due to the enactment of the Revenue Reconciliation Act of 1993
which increased the corporate income tax rate.
16. BUSINESS SEGMENT
The Company's only material business segment is "healthcare" which accounted
for substantially all of its revenues and operating results for each of the
periods presented.
17. SUBSEQUENT EVENTS
On October 10, 1994, Holdings, National Medical Enterprises, Inc, a Nevada
corporation ("NME") and a wholly-owned subsidiary of NME ("Merger Sub"),
executed an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to
the Merger Agreement, Merger Sub will merge with and into Holdings (the
"Merger"). As a result of the Merger, Holdings will become a wholly-owned
subsidiary of NME and the resulting company will be the second-largest
healthcare services company in the nation. Under terms of the Merger Agreement
each share of common stock of Holdings will be converted into (i) $19.00 in
cash, if the closing occurs on or before March 31, 1995,
F-21
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS (CONTINUED)
and $19.25 thereafter and (ii) 0.42 of a newly issued share of NME common stock.
Under the Merger Agreement, Holdings will pay a special dividend of $0.10 per
share before the effective date of the Merger. Following the Merger, Holdings
will have the right to nominate three members to the 13 member board of the
combined company. Approximately 50% of the Company's indebtedness contains put
provisions whereby the holders of such debt have the right to require repayment
following a change of control of the Company. The transaction has been approved
by shareholders of approximately 61.4% of Holdings' outstanding shares of common
stock and, therefore, further action by Holdings' shareholders is not required.
The transaction, which is currently anticipated to close in the first quarter of
calendar 1995, is subject to certain conditions including, among other things,
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
On September 1, 1994, a limited partnership, of which AMI is the general
partner, acquired Hilton Head Hospital in Hilton Head, South Carolina containing
68 beds. In connection with the Company's efforts to re-establish a presence in
Europe, the Company has entered into a joint venture agreement with a community
organization (the "Burgergemeinde") located in Cham, Canton Zug, Switzerland.
The joint venture will be owned 90% by the Company and 10% by the
Burgergemeinde. Under the terms of the proposed transaction, the Company has
entered into a long term lease for the land where the existing hospital is
located and will then construct a new 56 bed acute care wing, convert an
existing structure into a medical office building and renovate and remodel the
existing acute care facility. In addition, the Company plans to contract to
provide management, food, physical therapy and rehabilitation services to the
hospital, an on-site nursing home and an affiliated retirement community.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of American Medical Holdings, Inc. and
American Medical International, Inc.
Our audits of the consolidated financial statements referred to in our
report dated October 20, 1994 appearing on page F-2 of this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedules of
American Medical Holdings, Inc. (Holdings) and American Medical International,
Inc. (AMI) as of and for the years ended August 31, 1994, August 31, 1993 and
August 31, 1992 as listed in Item 14(a) of the Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
October 20, 1994
S-1
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM DIRECTORS,
OFFICERS AND EMPLOYEES
FOR THE THREE YEARS ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
BALANCE AT COLLEC- BALANCE AT COLLEC- BALANCE AT COLLEC-
AUGUST 31, TIONS/ AUGUST 31, TIONS/ AUGUST 31, TIONS/
NAME OF DEBTOR 1991 (1) ADVANCES OTHER 1992 (1) ADVANCES OTHER 1993 (1) OTHER
- ------------------------------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. O'Leary.............. $ 600,000(2) $ -- $(200,000) $ 400,000 $ -- $(200,000) $ 200,000 $(200,000)
John T. Casey.................. -- 150,000(3) (150,000) -- 375,000(2) (15,626) 359,374 (125,000)
Alan J. Chamison............... -- 375,000(2) (115,000) 260,000 -- (125,000) 135,000 (125,000)
Marshall I. Smith.............. -- 150,000(4) -- 150,000 -- -- 150,000 (150,000)
----------- ----------- --------- ----------- ----------- --------- ----------- ---------
$ 600,000 $ 675,000 $(465,000) $ 810,000 $ 375,000 $(340,626) $ 844,374 $(600,000)
----------- ----------- --------- ----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<CAPTION>
BALANCE AT
AUGUST 31,
NAME OF DEBTOR 1994 (1)
- ------------------------------- -----------
<S> <C>
Robert W. O'Leary.............. $ --
John T. Casey.................. 234,374
Alan J. Chamison............... 10,000
Marshall I. Smith.............. --
-----------
$ 244,374
-----------
-----------
<FN>
- ------------------------------
(1) The balances outstanding for each of the years presented have been
reflected as long term receivables in the consolidated financial
statements.
(2) These interest free loans were made to the borrowers for the purchase of
common stock. These loans are due and payable 10 days after the termination
of the borrower's employment. The loans will be forgiven by the Company in
equal monthly increments for 36 months continuing from the original date of
grant until fully amortized for so long as the borrower serves as an
officer of the Company. In the event of termination prior to 36 months of
service, these loans become due and payable 10 days after the termination
date.
(3) This interest free loan was made to the borrower for the purchase of his
principal place of residence and is repaid upon the sale of his previous
residence.
(4) This interest free loan was made to the borrower for the purchase of his
principal place of residence and was to be repaid upon the sale of his
previous residence. As of August 31, 1993, such employee was terminated and
based on the terms of the severance agreement set therewith, the loan was
repaid during fiscal 1994.
</TABLE>
S-2
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT AT
BEGINNING COST AND SALES AND BALANCE AT
OF PERIOD TRANSFERS RETIREMENTS OTHER END OF PERIOD
------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
HOLDINGS AND AMI:
YEAR ENDED AUGUST 31, 1994
Land..................................... $ 104,723 $ 13,088 $ (139) $ 169(1) $ 117,841
Buildings and improvements............... 1,151,890 103,900 (2,736) 357(1) 1,253,411
Equipment................................ 507,505 76,718 (8,166) 1,630(1) 577,687
Construction in progress................. 35,827 (13,293) (77) -- 22,457
------------- ----------- ------------ ------------- -------------
$ 1,799,945 $ 180,413 $ (11,118) $ 2,156 $ 1,971,396
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
YEAR ENDED AUGUST 31, 1993
Land..................................... $ 105,241 $ -- $ (518) $ -- $ 104,723
Buildings and improvements............... 1,111,163 39,547 -- 1,180(2) 1,151,890
Equipment................................ 443,561 63,667 (6,464) 6,741(2) 507,505
Construction in progress................. 24,419 9,470 (162) 2,100(2) 35,827
------------- ----------- ------------ ------------- -------------
$ 1,684,384 $ 112,684 $ (7,144) $ 10,021 $ 1,799,945
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
HOLDINGS:
YEAR ENDED AUGUST 31, 1992
Land..................................... $ 113,417 $ 490 $ (9,677) $ 1,011(3) $ 105,241
Buildings and improvements............... 1,099,312 51,546 (65,743) 26,048(3) 1,111,163
Equipment................................ 415,747 55,251 (27,437) -- 443,561
Construction in progress................. 28,507 (3,951) (137) -- 24,419
------------- ----------- ------------ ------------- -------------
$ 1,656,983 $ 103,336 $ (102,994) $ 27,059 $ 1,684,384
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
AMI:
YEAR ENDED AUGUST 31, 1992
Land..................................... $ 112,632 $ 490 $ (9,677) $ 1,796(4) $ 105,241
Buildings and improvements............... 1,064,919 51,546 (65,743) 60,441(4) 1,111,163
Equipment................................ 402,831 55,251 (27,437) 12,916(4) 443,561
Construction in progress................. 26,607 (3,951) (137) 1,900(4) 24,419
------------- ----------- ------------ ------------- -------------
$ 1,606,989 $ 103,336 $ (102,994) $ 77,053(4) $ 1,684,384
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
<FN>
- ------------------------
(1) Recognition of the consolidation of investments previously recorded on the
equity method.
(2) Represents the assumption of net assets as a result of (a) the merger of
AMI's Tarzana Regional Medical Center and HealthTrust's Encino Hospital and
(b) the recognition of the consolidation of investments previously recorded
on the equity method.
(3) Recognition of the consolidation of a joint venture previously recorded on
the equity method.
(4) Reflects the effect of Holdings' contribution of all the common stock of
New H, a wholly owned subsidiary of Holdings, to AMI as well as the
recognition of the consolidation of a joint venture previously recorded on
the equity method.
</TABLE>
S-3
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING SALES AND BALANCE AT
OF PERIOD PROVISION RETIREMENTS OTHER END OF PERIOD
----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
HOLDINGS AND AMI:
YEAR ENDED AUGUST 31, 1994
Buildings and improvements.................... $ 176,317 $ 55,025 $ (645) $ -- $ 230,697
Equipment..................................... 219,419 63,107 (6,346) 776(1) 276,956
----------- ----------- ----------- ------------ -------------
$ 395,736 $ 118,132 $ (6,991) $ 776 $ 507,653
----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ------------ -------------
YEAR ENDED AUGUST 31, 1993
Buildings and improvements.................... $ 125,551 $ 50,787 $ (21) $ -- $ 176,317
Equipment..................................... 164,485 59,481 (4,547) -- 219,419
----------- ----------- ----------- ------------ -------------
$ 290,036 $ 110,268 $ (4,568) $ -- $ 395,736
----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ------------ -------------
HOLDINGS:
YEAR ENDED AUGUST 31, 1992
Buildings and improvements.................... $ 85,416 $ 50,497 $ (10,362) $ -- $ 125,551
Equipment..................................... 116,981 59,120 (11,616) -- 164,485
----------- ----------- ----------- ------------ -------------
$ 202,397 $ 109,617 $ (21,978) $ -- $ 290,036
----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ------------ -------------
AMI:
YEAR ENDED AUGUST 31, 1992
Buildings and improvements.................... $ 80,067 $ 50,497 $ (10,362) $ 5,349(2) $ 125,551
Equipment..................................... 113,121 59,120 (11,616) 3,860(2) 164,485
----------- ----------- ----------- ------------ -------------
$ 193,188 $ 109,617 $ (21,978) $ 9,209 $ 290,036
----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ------------ -------------
<FN>
- ------------------------
(1) Recognition of the consolidation of investments previously recorded on the
equity method.
(2) Reflects the effect of Holdings' contribution of all the common stock of
New H, a wholly owned subsidiary of Holdings, to AMI.
</TABLE>
S-4
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE VIII -- RESERVES FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING REDUCTIONS NET BALANCE AT
OF PERIOD PROVISIONS OF RECOVERIES OTHER END OF PERIOD
----------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
HOLDINGS AND AMI:
YEAR ENDED AUGUST 31, 1994
Reserves for Uncollectible Accounts......... $ 98,143 $ 165,539 $ (165,060) $ -- $ 98,622
----------- ----------- -------------- ------------ -------------
----------- ----------- -------------- ------------ -------------
YEAR ENDED AUGUST 31, 1993
Reserves for Uncollectible Accounts......... $ 86,744 $ 148,135 $ (136,736) $ -- $ 98,143
----------- ----------- -------------- ------------ -------------
----------- ----------- -------------- ------------ -------------
HOLDINGS:
YEAR ENDED AUGUST 31, 1992
Reserves for Uncollectible Accounts......... $ 68,326 $ 163,824 $ (145,406) $ -- $ 86,744
----------- ----------- -------------- ------------ -------------
----------- ----------- -------------- ------------ -------------
AMI:
YEAR ENDED AUGUST 31, 1992
Reserves for Uncollectible Accounts......... $ 62,570 $ 163,824 $ (145,406) $ 5,756(1) $ 86,744
----------- ----------- -------------- ------------ -------------
----------- ----------- -------------- ------------ -------------
<FN>
- ------------------------
(1) Reflects the effect of Holdings' contribution of all the common stock of
New H, a wholly owned subsidiary of Holdings to AMI.
</TABLE>
S-5
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
ITEM
HOLDINGS AND AMI:
Maintenance and repairs......................................... $ 37,168 $ 33,294 $ 30,716
Depreciation and amortization of intangibles and other assets... $ 38,586 $ 37,129 $ 39,434
Taxes, other than payroll and income taxes...................... $ 31,476 $ 29,677 $ 27,370
</TABLE>
S-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL MEDICAL ENTERPRISES, INC.,
AMH ACQUISITION CO.
AND
AMERICAN MEDICAL HOLDINGS, INC.
DATED AS OF OCTOBER 10, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................................................... 00
Section 1.2 Effective Time of the Merger............................................................. 00
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation............................................................. 00
Section 2.2 By-Laws.................................................................................. 00
Section 2.3 Directors and Officers of Surviving Corporation.......................................... 00
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Merger Consideration..................................................................... 00
Section 3.2 Exchange of Certificates Representing Shares............................................. 00
Section 3.3 Dividends................................................................................ 00
Section 3.4 No Fractional Securities................................................................. 00
Section 3.5 Closing of Company Transfer Books........................................................ 00
Section 3.6 Unclaimed Amounts........................................................................ 00
Section 3.7 Lost Certificates........................................................................ 00
Section 3.8 Dissenting Shares........................................................................ 00
Section 3.9 Closing.................................................................................. 00
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 Organization............................................................................. 00
Section 4.2 Capitalization; Registration Rights...................................................... 00
Section 4.3 Subsidiaries............................................................................. 00
Section 4.4 Material Investments..................................................................... 00
Section 4.5 Authority Relative to this Agreement..................................................... 00
Section 4.6 Consents and Approvals; No Violations.................................................... 00
Section 4.7 Parent SEC Reports....................................................................... 00
Section 4.8 Absence of Certain Changes or Events..................................................... 00
Section 4.9 Litigation............................................................................... 00
Section 4.10 Absence of Undisclosed Liabilities....................................................... 00
Section 4.11 No Default............................................................................... 00
Section 4.12 Taxes.................................................................................... 00
Section 4.13 Title to Certain Properties; Encumbrances................................................ 00
Section 4.14 Medicare Participation/Accreditation and Recapture....................................... 00
Section 4.15 Labor Matters............................................................................ 00
Section 4.16 Employee Benefit Plans; ERISA............................................................ 00
Section 4.17 Patents, Licenses, Franchises and Formulas............................................... 00
Section 4.18 Insurance................................................................................ 00
Section 4.19 Board Approvals; Opinion of Financial Advisor............................................ 00
Section 4.20 Brokers.................................................................................. 00
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Organization............................................................................. 00
Section 5.2 Capitalization........................................................................... 00
Section 5.3 Subsidiaries............................................................................. 00
Section 5.4 Material Investments..................................................................... 00
Section 5.5 Authority Relative to this Agreement..................................................... 00
Section 5.6 Consents and Approvals; No Violations.................................................... 00
Section 5.7 Company SEC Reports...................................................................... 00
Section 5.8 Absence of Certain Changes or Events..................................................... 00
Section 5.9 Litigation............................................................................... 00
Section 5.10 Absence of Undisclosed Liabilities....................................................... 00
Section 5.11 No Default............................................................................... 00
Section 5.12 Taxes.................................................................................... 00
Section 5.13 Title to Certain Properties; Encumbrances................................................ 00
Section 5.14 Compliance with Applicable Law........................................................... 00
Section 5.15 Medicare Participation/Accreditation and Recapture....................................... 00
Section 5.16 Labor Matters............................................................................ 00
Section 5.17 Employee Benefit Plans; ERISA............................................................ 00
Section 5.18 Patents, Licenses, Franchises and Formulas............................................... 00
Section 5.19 Insurance................................................................................ 00
Section 5.20 Board Approval; Opinion of Financial Advisor............................................. 00
Section 5.21 Brokers.................................................................................. 00
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by the Company Pending the Merger.................................... 00
Section 6.2 Conduct of Business by Parent Pending the Merger......................................... 00
Section 6.3 Conduct of Business of SUB............................................................... 00
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information................................................................... 00
Section 7.2 Acquisition Proposals.................................................................... 00
Section 7.3 Registration Statement................................................................... 00
Section 7.4 Listing Application...................................................................... 00
Section 7.5 Information Statement and Stockholder Approval........................................... 00
Section 7.6 Filings; Other Action.................................................................... 00
Section 7.7 Public Announcements..................................................................... 00
Section 7.8 Company Indemnification Provision........................................................ 00
Section 7.9 Registration Statement for Securities Act Affiliates..................................... 00
Section 7.10 Certain Benefits......................................................................... 00
Section 7.11 Directors of Parent...................................................................... 00
Section 7.12 Special Dividend......................................................................... 00
Section 7.13 Additional Agreements.................................................................... 00
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger............................... 00
Section 8.2 Conditions to Obligation of the Company to Effect the Merger............................. 00
Section 8.3 Conditions to Obligations of Parent and SUB to Effect the Merger......................... 00
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination by Mutual Consent............................................................ 00
Section 9.2 Termination by Either Parent or the Company.............................................. 00
Section 9.3 Termination by the Company............................................................... 00
Section 9.4 Termination by Parent.................................................................... 00
Section 9.5 Effect of Termination and Abandonment.................................................... 00
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Representations, Warranties and Agreements................................... 00
Section 10.2 Notices.................................................................................. 00
Section 10.3 Descriptive Headings..................................................................... 00
Section 10.4 Entire Agreement: Assignment............................................................. 00
Section 10.5 Governing Law............................................................................ 00
Section 10.6 Expenses................................................................................. 00
Section 10.7 Amendment................................................................................ 00
Section 10.8 Waiver................................................................................... 00
Section 10.9 Counterparts; Effectiveness.............................................................. 00
Section 10.10 Severability; Validity; Parties in Interest.............................................. 00
Section 10.11 Enforcement of Agreement................................................................. 00
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 10, 1994, by and among
National Medical Enterprises, Inc., a Nevada corporation ("Parent"), AMH
Acquisition Co., a Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and American Medical Holdings, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent and Sub and the Company have
approved the merger upon the terms and subject to the conditions set forth
herein (the "Merger").
WHEREAS, in conjunction with the execution and delivery of this Agreement
and as an inducement to Parent's and Sub's willingness to enter into this
Agreement, certain holders of shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), have agreed to and will enter into
Stockholder Voting and Profit Sharing Agreements with Parent, in the form
attached hereto as Exhibit A (the "Stockholder Voting and Profit Sharing
Agreements").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2 hereof), Sub shall be
merged with and into the Company and the separate corporate existence of Sub
shall thereupon cease, and the Company shall be the surviving corporation in the
Merger (the "Surviving Corporation") and all of its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger. The
Merger shall have the effects set forth in Section 259 of the General
Corporation Law of the State of Delaware (the "DGCL").
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective when a properly executed Certificate of Merger meeting the
requirements of Section 251 of the DGCL is duly filed with the Secretary of
State of the State of Delaware or at such later time as the parties hereto shall
have designated in such filing as the Effective Time of the Merger (the
"Effective Time"), which filing shall be made as soon as practicable after the
closing of the transactions contemplated by this Agreement in accordance with
Section 3.9 hereof.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of the Surviving Corporation shall be the Certificate of Incorporation of Sub in
effect immediately prior to the Effective Time.
Section 2.2 BY-LAWS. The By-Laws of Sub as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation.
Section 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub immediately prior to the Effective Time shall be
the directors of the Surviving Corporation as of the Effective Time.
(b) The officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation at the Effective Time and
shall hold office from the Effective Time until
A-2
<PAGE>
their respective successors are duly elected or appointed and qualify in the
manner provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 MERGER CONSIDERATION. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each share of Common Stock (the "Shares"), issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares (as
hereinafter defined) and Shares held in the treasury of the Company or owned
by Parent or any subsidiary of the Company or the Parent) shall be converted
into the right to receive (i) 0.42 of a share of Common Stock, par value
$.075 per share ("Parent Shares"), of Parent (holders of which shall
thereafter be entitled to issuance of Parent's Series A Junior Participating
Preferred Stock issuable in connection with Parent's Preferred Stock
Purchase Rights (as hereinafter defined) in the circumstances specified in
Parent's Certificate of Designation relating thereto), subject to the right
of holders of Shares pursuant to Section 6.2(c) to elect, under certain
circumstances, to receive cash in lieu of such fraction of a Parent Share as
set forth in such Section 6.2(c); and (ii) $19.00 in cash or, if the Closing
shall not have been consummated on or before March 31, 1995, $19.25 in cash,
all of which shall be payable upon the surrender of the certificate(s)
formerly representing such Shares (the Parent Shares (or cash in lieu
thereof as aforesaid) and cash so deliverable being herein referred to
collectively as the "Merger Consideration"). As of the Effective Time, all
such Shares shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall cease to have any rights with
respect thereto, except to receive the Merger Consideration, without
interest.
(b) At the Effective Time, all options (individually, a "Company Option"
or collectively, the "Company Options") then outstanding under the Company's
Nonqualified Employee Stock Option Plan and the Company's Nonqualified
Performance Stock Option Plan for Key Employees, each as amended
(collectively, the "Company Stock Option Plans"), shall, by virtue of the
Merger and without any further action on the part of the Company or any
holder of such Company Options, unless otherwise agreed to in writing by the
holder of a Company Option, be cancelled in consideration for payment by the
Surviving Corporation to holders of Company Options of cash in an amount
equal to (i)(A) the sum of (x) the cash component of the Merger
Consideration, plus (y) 0.42 times the Average Price (as hereinafter
defined) of a Parent Share, multiplied by (B) the Shares subject to Company
Options, less (ii) the exercise price of such Company Options.
(c) Each Share issued and held in the treasury of the Company or owned
by any subsidiary of the Company and each Share held by Parent or any
subsidiary of Parent immediately prior to the Effective Time shall be
cancelled and retired and cease to exist and no payment shall be made with
respect thereto.
(d) Each share of common stock, par value $.01 per share, of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become a fully paid and non-assessable share of Common Stock of the
Surviving Corporation.
Section 3.2 EXCHANGE OF CERTIFICATES REPRESENTING SHARES.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent and reasonably satisfactory
to the Company (the "Exchange Agent"), for the benefit of the holders of Shares,
for exchange in accordance with this Article III, (i)(x) certificates
representing the number of Parent Shares issuable as part of the Merger
Consideration
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(subject to the election contained in Section 6.2(c)) and (y) cash in an amount
equal to the aggregate cash component of the Merger Consideration, in each case
to be paid in respect of all Shares outstanding immediately prior to the
Effective Time and which are to be exchanged pursuant to the Merger (exclusive
of shares to be cancelled pursuant to Section 3.1(c)), and (ii) cash to be paid
in lieu of the issuance of fractional shares as provided in Section 3.4 hereof
(such cash and certificates for Parent Shares, if any, together with dividends
or distributions with respect thereto being hereinafter referred to collectively
as the "Exchange Fund").
(b) Promptly after the Effective Time, Parent shall cause the Exchange Agent
to mail (or deliver at its principal office) to each holder of record of a
certificate or certificates representing Shares (i) a letter of transmittal
which shall specify that delivery shall be effected, and risk of loss and title
to the certificates for Shares shall pass, only upon delivery of the
certificates for Shares to the Exchange Agent and shall be in such form and have
such other provisions, including appropriate provisions with respect to back-up
withholding, as Parent may reasonably specify, and (ii) instructions for use in
effecting the surrender of the certificates for Shares. Upon surrender of a
certificate for Shares for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder thereof shall be entitled to receive in
exchange therefor that portion of the Exchange Fund which such holder has the
right to receive pursuant to the provisions of this Article III, after giving
effect to any required withholding tax, and the certificate for Shares so
surrendered shall forthwith be cancelled. No interest will be paid or accrued on
the cash to be paid as part of the Merger Consideration. In the event of any
transfer of ownership of Shares which has not been registered in the transfer
records of the Company, certificates representing the proper number of Parent
Shares, if any, together with a check in an amount equal to the cash component
of the Exchange Fund, will be issued to the transferee of the certificate
representing the transferred Shares presented to the Exchange Agent, accompanied
by all documents required to evidence and effect the prior transfer thereof and
to evidence that any applicable stock transfer taxes associated with such
transfer were paid.
Section 3.3 DIVIDENDS. No dividends or other distributions with respect to
securities of Parent constituting part of the Merger Consideration shall be paid
to the holder of any unsurrendered certificates representing Shares until such
certificates are surrendered as provided in Section 3.1. Upon such surrender,
all dividends and other distributions payable in respect of such securities on a
date subsequent to, and in respect of a record date after the Effective Time,
shall be paid, without interest, to the person in whose name the certificates
representing the securities of Parent into which such Shares were converted are
registered or as otherwise directed by that person. In no event shall the person
entitled to receive such dividends or distributions be entitled to receive
interest on any such dividends or distributions.
Section 3.4 NO FRACTIONAL SECURITIES. No certificates or scrip
representing fractional Parent Shares shall be issued upon the surrender for
exchange of certificates representing Shares pursuant to this Article III and no
dividend, stock split or other change in the capital structure of the Company
shall relate to any fractional interest, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional interest, each holder of Shares who would otherwise have
been entitled to a fraction of a Parent Share upon surrender of stock
certificates for exchange pursuant to this Article III will be paid cash upon
such surrender in an amount equal to the product of such fraction multiplied by
the average closing sale price of Parent Shares on the New York Stock Exchange
over the ten (10) consecutive trading days immediately preceding the Closing
Date, as such closing sale price shall be reported in THE WALL STREET JOURNAL
or, if not available, such other authoritative publication as may be reasonably
selected by Parent (such average over such period being the "Average Price").
Section 3.5 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Shares
shall thereafter be made. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the Merger Consideration.
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Section 3.6 UNCLAIMED AMOUNTS. Any portion of the Exchange Fund which is
attributable to Dissenting Shares or which remains unclaimed by the former
stockholders of the Company one year after the Effective Time shall be delivered
by the Exchange Agent to the Parent. Any former stockholders of the Company who
have not theretofore complied with this Article III shall thereafter look only
to the Parent for payment of the Merger Consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions in respect of Parent
Shares deliverable as part of the Merger Consideration as determined pursuant to
this Agreement, in all cases without any interest thereon. None of Parent, the
Surviving Corporation, the Exchange Agent or any other person will be liable to
any former holder of Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
Section 3.7 LOST CERTIFICATES. In the event any certificate evidencing
Shares shall have been lost, stolen or destroyed, upon the making and delivery
of an affidavit of that fact by the person claiming such certificate to have
been lost, stolen or destroyed and, if required by Parent, the posting by such
person of a bond in such reasonable amount as Parent may direct as indemnity
against any claim that would be made against the Company or Parent with respect
to such certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed certificate the portion of the Exchange Fund deliverable in
respect thereof pursuant to this Agreement.
Section 3.8 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, any issued and outstanding Shares held by a stockholder (a
"Dissenting Stockholder") who objects to the Merger and complies with all the
provisions of the DGCL concerning the right of holders of Shares to dissent from
the Merger and require appraisal of the Shares ("Dissenting Shares") shall not
be converted as described in Section 3.1 but shall become the right to receive
such consideration as may be determined to be due to such Dissenting Stockholder
pursuant to the DGCL. If, after the Effective Time, such Dissenting Stockholder
withdraws his demand for appraisal or fails to perfect or otherwise loses his
right of appraisal, in any case pursuant to the DGCL, or if the Parent otherwise
consents thereto, his Shares shall be deemed to be converted as of the Effective
Time into the right to receive the Merger Consideration, without interest. The
Company shall give Parent (a) prompt notice of any demands for appraisal of
Shares received by the Company and (b) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands. The
Company shall not, without the prior written consent of Parent, make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
Section 3.9 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Neal, Gerber &
Eisenberg, 2 North LaSalle Street, Chicago, Illinois, at 10:00 a.m., local time,
on the later of (a) twenty (20) business days after the mailing of the
Information Statement/Prospectus (as defined in Section 7.3 hereof), (b) the
third business day following notice from Parent to the Company that it has
obtained the proceeds from the financing necessary to provide for consummation
of the Merger (except that the foregoing shall not prejudice the rights of the
Company under Section 9.3(d) hereof) and (c) the day on which all of the
conditions set forth in Article VIII hereof are satisfied or waived, or at such
other date, time and place as Parent and the Company shall agree (the "Closing
Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as otherwise disclosed to the Company in a letter delivered to it
prior to the execution hereof (which letter shall contain appropriate references
to identify the representations and warranties herein to which the information
in such letter relates) (the "Parent Disclosure Letter"), the Parent represents
and warrants to the Company as follows:
Section 4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has the
corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. Parent is duly qualified as a foreign
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corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified would not individually or in the aggregate have a material adverse
effect on the business, assets, liabilities, results of operations or financial
condition of Parent and the Parent Subsidiaries (as defined below), taken as a
whole (a "Parent Material Adverse Effect"). Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sub has not engaged in any business since the date of its incorporation other
than in connection with this Agreement.
Section 4.2 CAPITALIZATION; REGISTRATION RIGHTS. The authorized capital
stock of Parent consists of 450,000,000 Parent Shares and 2,500,000 shares of
preferred stock, par value $.15 per share ("Parent Preferred Stock"). As of
September 30, 1994, (i) 166,324,747 Parent Shares were issued and outstanding,
19,262,919 Parent Shares were issued and held in treasury and no shares of
Parent Preferred Stock were outstanding, (ii) employee stock options to acquire
15,107,151 Parent Shares (the "Parent Employee Stock Options") were outstanding
under all employee stock option plans of Parent, (iii) non-employee director
stock options to acquire 248,740 Parent Shares (the "Parent Director Stock
Options") were issued and outstanding under all non-employee director stock
option plans of Parent, (iv) 2,102 shares of Series B Convertible Preferred
Stock were reserved for issuance upon conversion of Parent's Convertible
Floating Rate Debentures due 1996, (v) 13,977,549 Parent Shares were reserved
for issuance upon conversion of Parent's Series B Convertible Preferred Stock,
(vi) 500,000 Parent Shares were reserved for issuance in connection with
Parent's Deferred Compensation Plan Trust, (vii) 1,000,000 Parent Shares were
reserved for issuance in connection with Parent's 1994 SERP Trust, and (viii)
225,000 shares of Parent Series A Junior Participating Preferred Stock were
reserved for issuance upon the exercise of Parent's Preferred Stock Purchase
Rights. All of the issued and outstanding Parent Shares are validly issued,
fully paid and nonassessable and free of pre-emptive rights. All of the Parent
Shares reserved for issuance in exchange for Shares at the Effective Time in
accordance with this Agreement will be, when so issued, duly authorized, validly
issued, fully paid and nonassessable and free of pre-emptive rights. The
authorized capital stock of Sub consists of 1,000 shares of common stock, par
value $.01 per share, all of which shares are validly issued and outstanding,
fully paid and nonassessable and are owned by Parent. Except as set forth above
or as specified in Section 4.2 of the Parent Disclosure Letter, as of the date
of this Agreement there are no shares of capital stock of Parent issued or
outstanding or any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Parent to issue,
transfer, sell, redeem, repurchase or otherwise acquire any shares of its
capital stock or securities, or the capital stock or securities of Sub. Except
as provided in this Agreement or as disclosed in Section 4.2 of the Parent
Disclosure Letter, after the Effective Time Parent will have no obligation to
issue, transfer or sell any shares of its capital stock pursuant to any employee
benefit plan or otherwise.
Section 4.3 SUBSIDIARIES.
(a) The subsidiaries of Parent that (i) directly or indirectly own or lease
any interest in any hospitals, health care facilities or medical office
buildings, (ii) directly or indirectly conduct any insurance activities or (iii)
are otherwise material to Parent (collectively, the "Parent Subsidiaries") are
listed in Section 4.3(a) of the Parent Disclosure Letter. Each Parent Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not
individually or in the aggregate have a Parent Material Adverse Effect. Each
Parent Subsidiary is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not individually or in the
aggregate have a Parent Material Adverse Effect.
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(b) Except as set forth in Section 4.3(b) of the Parent Disclosure Letter,
Parent is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the Parent Subsidiaries, there
are no proxies with respect to any such shares, and no equity securities of any
Parent Subsidiary are or may become required to be issued by reason of any
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock of any Parent Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which
Parent or any Parent Subsidiary is or may be bound to issue, redeem, purchase or
sell additional shares of its capital stock or securities convertible into or
exchangeable or exercisable for any such shares. All of such shares so owned by
Parent are validly issued, fully paid and nonassessable and are owned by it free
and clear of any claim, mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance or similar agreement of any kind or nature
whatsoever ("Lien"), restraint on alienation, or any other restriction with
respect to the transferability or assignability thereof (other than restrictions
on transfer imposed by federal or state securities laws).
Section 4.4 MATERIAL INVESTMENTS. Except as set forth in Section 4.4 of
the Parent Disclosure Letter, Parent does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation (other
than a subsidiary), partnership, joint venture or other business association or
entity that directly or indirectly owns or leases any interest in any hospital
or health care facility, directly or indirectly conducts any insurance activity,
or which is otherwise material to Parent. With respect to those entities
indicated on Section 4.4 of the Parent Disclosure Letter, Parent has heretofore
delivered to the Company financial statements (audited to the extent available)
and interim unaudited financial statements of each of such entities (through the
most recently concluded fiscal quarter for each of such persons) and, to the
best knowledge of Parent, such financial statements fairly present, in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis (except as may be indicated in the notes thereto or in Section
4.4 of the Parent Disclosure Letter), the financial condition of each thereof as
at and the results of operations for the periods so indicated (subject to normal
year-end adjustments in the case of the interim unaudited financial statements),
and Parent's disclosures with respect to its investment in each such entities
otherwise included in the Parent SEC Reports (as defined below) do not contain
any untrue statements of material fact or omit to state any material fact
required to be stated therein or which are necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Section 4.4 of the Parent Disclosure
Letter, Parent (or, as indicated thereon, a Parent Subsidiary) has good and
marketable title to the securities evidencing its investment in the entities
indicated in Section 4.4 of the Parent Disclosure Letter, which have been
validly issued and are fully paid and non-assessable and are held by Parent or a
Parent Subsidiary free and clear of any Lien, restraint on alienation, or any
other restriction with respect of the transferability or assignability thereof
(other than restrictions on transfer imposed by federal or state securities
laws).
Section 4.5 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Sub
has the power to enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by Parent
and Sub and the consummation by Parent and Sub of the transactions contemplated
hereby have been duly authorized by the Boards of Directors of Parent and Sub,
and by Parent as the sole shareholder of Sub, and no other corporate proceedings
on the part of Parent or Sub are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Sub and constitutes a valid and
binding agreement of each of Parent and Sub, enforceable against Parent and Sub
in accordance with its terms.
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act") (the
HSR Act, Securities Act and Exchange Act, collectively, the "Governmental
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Requirements"), state or foreign laws relating to takeovers, if applicable,
state securities or blue sky laws, state and local laws and regulations relating
to the licensing and transfer of hospitals and health care facilities and
similar matters and the filing of the Certificate of Merger as required by the
DGCL, no filing with, and no permit, authorization, consent or approval of, any
court or tribunal or administrative, governmental or regulatory body, agency or
authority is necessary for the execution, delivery and performance of this
Agreement by Parent and Sub of the transactions contemplated by this Agreement.
Neither the execution, delivery nor performance of this Agreement by Parent or
Sub, nor the consummation by Parent or Sub of the transactions contemplated
hereby, nor compliance by Parent or Sub with any of the provisions hereof, will
(i) conflict with or result in any breach of any provisions of the Articles of
Incorporation or By-Laws of Parent and Sub or the Articles or Certificate of
Incorporation, as the case may be, or By-Laws of any of the Parent Subsidiaries,
(ii) except as set forth in Section 4.6(ii) of the Parent Disclosure Letter,
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, acceleration, vesting, payment, exercise, suspension or
revocation) under, any of the terms, conditions or provisions of any note, bond,
mortgage, deed of trust, security interest, indenture, license, contract,
agreement, plan or other instrument or obligation to which Parent or any of the
Parent Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or affected, (iii) except as set forth in
Section 4.6(iii) of the Parent Disclosure Letter, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any Parent
Subsidiary or any of their properties or assets, (iv) except as set forth in
Schedule 4.6(iv) of the Parent Disclosure Letter, result in the creation or
imposition of any Lien on any asset of Parent or any Parent Subsidiary, or (v)
except as set forth in Section 4.6(v) of the Parent Disclosure Letter, cause the
suspension or revocation of any certificates of need, accreditation,
registrations, licenses, permits and other consents or approvals of governmental
agencies or accreditation organizations, except in the case of clauses (ii),
(iii), (iv) and (v) for violations, breaches, defaults, terminations,
cancellations, accelerations, creations, impositions, suspensions or revocations
which would not individually or in the aggregate have a Parent Material Adverse
Effect.
Section 4.7 PARENT SEC REPORTS. Parent has delivered to the Company true
and complete copies of each registration statement, report and proxy or
information statement, including, without limitation, its Annual Reports to
Shareholders incorporated in material part by reference in certain of such
reports, in the form (including exhibits and any amendments thereto) required to
be filed with the Securities and Exchange Commission ("SEC") since June 1, 1992
(collectively, the "Parent SEC Reports"). Except as set forth in Section 4.7 of
the Parent Disclosure Letter, as of the respective dates such Parent SEC Reports
were filed or, if any such Parent SEC Reports were amended, as of the date such
amendment was filed, each of the Parent SEC Reports (i) complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, and the rules and regulations promulgated thereunder, and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent (including any related notes
and schedules) included (or incorporated by reference) in its Annual Reports on
Form 10-K for each of the three fiscal years ended May 31, 1992, 1993 and 1994
and Quarterly Reports on Form 10-Q for all interim periods subsequent thereto
fairly present, in conformity with GAAP applied on a consistent basis (except as
may be indicated in the notes thereto), the consolidated financial position of
the Parent and the Parent Subsidiaries as of its date and the consolidated
results of operations and changes in financial position for the period then
ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements).
Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1994,
except as set forth in Section 4.8 of the Parent Disclosure Letter or in the
Parent SEC Reports or as otherwise permitted in Section 6.2 hereof, Parent and
the Parent Subsidiaries have in all material respects conducted their business
in the ordinary course consistent with past practices.
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Section 4.9 LITIGATION. Except for litigation disclosed in the notes to
the financial statements included in the Parent SEC Reports or as set forth in
Section 4.9 of the Parent Disclosure Letter, there is no suit, action or
proceeding (whether at law or equity, before or by any federal, state or foreign
court, tribunal, commission, board, agency or instrumentality, or before any
arbitrator) pending or, to the best knowledge of Parent, threatened against or
affecting Parent or any of the Parent Subsidiaries, the outcome of which, in the
reasonably judgment of Parent, is likely individually or in the aggregate to
have a Parent Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against Parent or any of the
Parent Subsidiaries having, or which, insofar as can reasonably be foreseen, in
the future may have, any such effect.
Section 4.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in Parent's financial
statements (or reflected in the notes thereto) included in the Parent SEC
Reports or which were incurred after May 31, 1994 in the ordinary course of
business and consistent with past practices or in connection with the
transactions contemplated by this Agreement, Parent and the Parent Subsidiaries
do not have any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet (or reflected in the notes thereto).
Section 4.11 NO DEFAULT. Except as set forth in Section 4.11 of the Parent
Disclosure Schedule, neither Parent, Sub nor any of the Parent Subsidiaries is
in violation or breach of, or default under (and no event has occurred which
with notice or the lapse of time or both would constitute a violation or breach
of, or default under) any term, condition or provision of (a) its Articles or
Certificate of Incorporation, as the case may be, or By-Laws, (b) any note,
bond, mortgage, deed of trust, security interest, indenture, license, agreement,
plan, contract, lease, commitment or other instrument or obligation to which
Parent or any of the Parent Subsidiaries is a party or by which they or any of
their properties or assets may be bound or affected, (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent or any of
the Parent Subsidiaries or any of their properties or assets, or (d) any
certificate of need, accreditation, registration, license, permit and other
consent or approval of governmental agencies or accreditation organization,
except in the case of clauses (b), (c) and (d) above for violations, breaches or
defaults which would not individually or in the aggregate have a Parent Material
Adverse Affect.
Section 4.12 TAXES. Except as set forth in Section 4.12 of the Parent
Disclosure Letter:
(a) Parent and each of the Parent Subsidiaries has (i) timely filed (or
has had timely filed on its behalf) or will cause to be timely filed all
material Tax Returns (as defined below) required by applicable law to be
filed by any of them for tax years ended prior to the date of this Agreement
and all such Tax Returns and amendments thereto are or will be true,
complete, and correct in all material respects, (ii) has paid (or has had
paid on its behalf) all Taxes due or has properly accrued or reserved for
all such Taxes for such periods and (iii) has accrued for all Taxes for
periods subsequent to the periods covered by such Tax Returns.
(b) There are no material liens for Taxes upon the assets of Parent or
any of the Parent Subsidiaries, except liens for Taxes not yet due.
(c) There are no material deficiencies or adjustments for Taxes that
have been proposed or assessed by any Tax Authority (as defined below)
against Parent or any of the Parent Subsidiaries and which remain unpaid.
(d) The Federal income tax returns of Parent and each of the Parent
Subsidiaries have been examined by the Internal Revenue Service for all past
taxable years and periods to and including the year ended May 31, 1985, and
all material deficiencies finally assessed as a result of such examinations
have been paid. Section 4.12 of the Parent Disclosure Letter sets forth (i)
all taxable years and periods of Parent and the Parent Subsidiaries that are
presently under Audit (as defined below) or in respect of which Parent or
any of the Parent Subsidiaries has been notified in
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writing by the relevant Tax Authority that it will be Audited, (ii) the
taxable years of Parent and the Parent Subsidiaries in respect of which the
statutory period of limitations for the assessment of Federal, state and
local income or franchise Taxes has expired, and (iii) all waivers extending
the statutory period of limitation applicable to any material Tax Return
filed by Parent or any of the Parent Subsidiaries for any taxable period
ending prior to the date of this Agreement.
(e) Prior to the date hereof, Parent and the Parent Subsidiaries have
disclosed all material Tax sharing, Tax indemnity, or similar agreements to
which Parent or any of the Parent Subsidiaries is a party to, is bound by,
or has any obligation or liability for Taxes.
(f) Parent and the Parent Subsidiaries have not paid, and do not expect
to pay, in any taxable year commencing on or after January 1, 1994,
remuneration that would result in a disallowance of any material amount of
tax deductions under section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). There are no changes in the tax accounting methods
subject to section 481(a) of the Code which have an ongoing material effect
on Parent or any of the Parent Subsidiaries. No "consent" within the meaning
of section 341(f) of the Code has been filed with respect to Parent or any
of the Parent Subsidiaries.
(g) As used in this Agreement, (i) "Audit" shall mean any audit,
assessment of Taxes, other examination by any Tax Authority, proceeding or
appeal of such proceeding relating to Taxes, (ii) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto, (iii) "Tax
Authority" shall mean the Internal Revenue Service and any other domestic or
foreign governmental authority responsible for the administration of any
Taxes, and (iv) "Tax Returns" shall mean all Federal, state, local and
foreign tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax Return relating to Taxes.
Section 4.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES. Except as set
forth in Section 4.13 of the Parent Disclosure Letter, no person has any
contractual right or option to purchase or acquire, directly or indirectly, any
interest in, and there are no contracts pursuant to which the Parent or any
Parent Subsidiary is or may be bound to sell, lease, transfer or otherwise
dispose of, any of the hospitals owned by the Parent or any Parent Subsidiary.
Section 4.14 MEDICARE PARTICIPATION/ACCREDITATION AND RECAPTURE.
(a) All hospitals or significant health care facilities owned or operated as
continuing operations by the Parent or the Parent Subsidiaries (the "Parent
Facilities") are certified for participation or enrollment in the Medicare,
Medicaid and Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") programs, have a current and valid provider contract with the
Medicare, Medicaid and CHAMPUS programs, are in substantial compliance with the
terms and conditions of participation of such programs and have received all
approvals or qualifications necessary for capital reimbursement of Parent's
assets except where the failure to be so certified, to have such contracts, to
be in such compliance or to have such approvals or qualifications would not
individually or in the aggregate have a Parent Material Adverse Effect. To the
knowledge of Parent, the amounts established as provisions for Medicare,
Medicaid, or CHAMPUS adjustments and adjustments by any other third party payors
on the financial statements of Parent and the Parent Subsidiaries are sufficient
in all material respects to pay any amounts for which Parent or any of the
Parent Subsidiaries may be liable. Neither Parent nor any of the Parent
Subsidiaries has received notice from the regulatory authorities which enforce
the statutory or regulatory provisions in respect of the Medicare, Medicaid or
CHAMPUS programs of any pending or threatened investigations, surveys (other
than routine surveys conducted by accreditation organizations) or
decertification proceedings, and neither Parent nor any of the Parent
Subsidiaries has any reason to believe that any such investigations, surveys or
proceedings are pending, threatened or imminent which may individually or in the
aggregate have a Parent Material Adverse Effect. All Parent Facilities eligible
for such accreditation are accredited by
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the Joint Commission on Accreditation on Healthcare Organizations, the
Commission on Accreditation of Rehabilitation or other appropriate accreditation
agency. Section 4.14(a) of the Parent Disclosure Letter sets forth a complete
and correct list of all hospitals and significant separately licensed health
care facilities owned or operated by Parent and the Parent Subsidiaries and
their respective accreditation.
(b) Each such Parent Facility is licensed by the proper state department of
health to conduct its business in substantially the manner conducted by such
Parent Facility and is authorized to operate the number of beds utilized
therein. The Parent Facilities are presently in substantial compliance with all
of the terms, conditions and provisions of such licenses. Parent has heretofore
made available to the Company correct and complete copies of all such licenses.
The facilities, equipment, staffing and operations of the Parent Facilities
satisfy the applicable state hospital licensing requirements in all material
respects.
(c) No funds were received on behalf of the Parent or any of the Parent
Subsidiaries to construct, improve or acquire any of its facilities under the
"Hill-Burton" Act as a result of which Parent or any of the Parent Subsidiaries
are currently or will in the future be required to pay any amounts for which
there shall be any "recapture" as a result of the consummation of the
transactions contemplated by this Agreement.
Section 4.15 LABOR MATTERS. Except as set forth in Section 4.15 of the
Parent Disclosure Letter, neither Parent nor any of the Parent Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Parent, threatened against Parent or the Parent Subsidiaries
relating to their business, except for any such proceeding which would not
individually or in the aggregate have a Parent Material Adverse Effect. To the
knowledge of Parent, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Parent or any of the Parent Subsidiaries. There is no
labor strike, dispute, slow down, work stoppage, or lockout actually pending or,
to the knowledge of Parent, threatened against Parent or the Parent
Subsidiaries. To the knowledge of Parent, there are no labor union or
organization claims to represent the employees of Parent or any of the Parent
Subsidiaries, nor does any question concerning the representation of such
employees by any labor union or organization exist.
Section 4.16 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.16(a) of the Parent Disclosure Letter contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agreement or arrangement (the
"Parent Plans"), maintained or contributed to or required to be contributed to
by (i) Parent, (ii) any Parent Subsidiary or (iii) any trade or business,
whether or not incorporated, that together with Parent would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA") (a "Parent ERISA Affiliate"), for the benefit of any
employee or former employee of Parent, any Parent Subsidiary or any Parent ERISA
Affiliate. Section 4.16(a) of the Parent Disclosure Letter identifies each of
the Parent Plans that is an "employee benefit plan," as that term is defined in
Section 3(3) of ERISA (such plans being hereinafter referred to collectively as
the "Parent ERISA Plans").
(b) With respect to each of the Parent Plans, Parent has heretofore
delivered to the Company true and complete copies of each of the following
documents: (i) a copy of the Parent Plan (including all amendments thereto),
(ii) a copy of the annual report and actuarial report, if required under ERISA,
with respect to the Parent ERISA Plan for the last two years, (iii) a copy of
the most recent Summary Plan Description, together with each Summary of Material
Modification, required under ERISA with respect to the Parent ERISA Plan, (iv)
if the Parent Plan is funded through a trust or any third party
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funding vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, and (v) the
most recent determination letter received from the Internal Revenue Service with
respect to each Parent ERISA Plan intended to qualify under Section 401 of the
Code.
(c) No liability under Title IV of ERISA has been incurred by Parent, any
Parent Subsidiary or any Parent ERISA Affiliate since the effective date of
ERISA that has not been satisfied in full, and, except as set forth in Section
4.16(c) of the Parent Disclosure Letter, no condition exists that presents a
material risk to Parent, any Parent Subsidiary or any Parent ERISA Affiliate of
incurring any liability under such Title (other than liability for premiums due
to the Pension Benefit Guaranty Corporation (the "PBGC"). To the extent this
representation applies to Sections 4064, 4069 or 4204 of Title IV of ERISA, it
is made not only with respect to the Parent ERISA Plans but also with respect to
any employee benefit plan, program, agreement or arrangement subject to Title IV
of ERISA to which Parent, a Parent Subsidiary or a Parent ERISA Affiliate made,
or was required to make, contributions during the five-year period ending on the
date of this Agreement.
(d) With respect to each Parent ERISA Plan which is subject to Title IV of
ERISA, except as set forth in Section 4.16(d) of the Parent Disclosure Letter,
the present value of accrued benefits under such plan, based upon the actuarial
assumptions used for financial reporting purposes in the most recent actuarial
report prepared by such plan's actuary with respect to such plan, did not
exceed, as of its latest valuation date, the then current value of the assets of
such plan allocable to such accrued benefits.
(e) No Parent ERISA Plan or any trust established thereunder has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each Parent ERISA Plan ended prior to the date of this
Agreement, and all contributions required to be made with respect thereto
(whether pursuant to the terms of any Parent ERISA Plan or otherwise) on or
prior to the date of this Agreement have been timely made. (f) Except as set
forth in Section 4.16(f) of the Parent Disclosure Letter, no Parent ERISA Plan
is a "multi-employer pension plan," as defined in Section 3(37) of ERISA, nor is
any Parent ERISA Plan a plan described in Section 4063(a) of ERISA.
(g) Except as set forth in Section 4.16(g) of the Parent Disclosure Letter,
each Parent ERISA Plan intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and the trusts maintained thereunder have been determined to be exempt
from taxation under Section 501(a) of the Code and, to the best knowledge of
Parent, no event has occurred nor does any condition exist which would adversely
affect such qualification and exemption.
(h) Except as set forth in Section 4.16(h) of the Parent Disclosure Letter,
each of the Parent Plans has been operated and administered in all material
respects in accordance with applicable laws, including, but not limited to,
ERISA and the Code.
(i) Except as set forth in Section 4.16(i) of the Parent Disclosure Letter,
no amounts payable under the Parent Plans or any other contract, arrangement or
agreement will fail to be deductible for federal income tax purposes by virtue
of Section 280G of the Code.
(j) Except as set forth in Section 4.16(j) of the Parent Disclosure Letter,
no Parent Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
of Parent, any Parent Subsidiary or any Parent ERISA Affiliate beyond such
employees' retirement or other termination of service, other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (iii)
deferred compensation benefits accrued as liabilities on the books of Parent,
any Parent Subsidiary or any Parent ERISA Affiliate or (iv) benefits the full
cost of which is borne by such employees or their beneficiaries.
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(k) Except as set forth in Section 4.16(k) of the Parent Disclosure Letter,
the consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of Parent, any Parent
Subsidiary or any Parent ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided by this
Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount, of any compensation due any such employee or officer, or (iii) result in
any prohibited transaction described in Section 406 of ERISA or Section 4975 of
the Code for which an exemption is not available.
(l) With respect to each Parent Plan that is funded wholly or partially
through an insurance policy, there will be no liability of Parent, any Parent
Subsidiary or any Parent ERISA Affiliate, as of the Effective Time, under any
such insurance policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring prior to the closing.
(m) There are no pending, threatened or anticipated claims by or on behalf
of any of the Parent Plans, by any employee or beneficiary covered under any
such Parent Plan, or otherwise involving any such Parent Plan (other than
routine claims for benefits).
(n) None of Parent, any Parent Subsidiary, any Parent ERISA Affiliate, any
of the Parent ERISA Plans, any trust created thereunder or any trustee or
administrator thereof has engaged in a transaction in connection with which
Parent, any Parent Subsidiary or any Parent ERISA Affiliate, any of the Parent
ERISA Plans, any such trust, or any trustee or administrator thereof, or any
party dealing with the Parent ERISA Plans or any such trust could be subject to
either a material civil liability under Section 409 of ERISA, Section 502(i) of
ERISA, or Section 502(l) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code.
Section 4.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of Parent
and the Parent Subsidiaries owns all of the patents, trademarks, service marks,
copyrights, permits, trade names, licenses, franchises and formulas, or rights
with respect to the foregoing, and has obtained assignments of all such rights
and other rights of whatever nature, necessary for the present conduct of its
business, in each case except as would not individually or in the aggregate have
a Parent Material Adverse Effect.
Section 4.18 INSURANCE. Section 4.18 of the Parent Disclosure Letter sets
forth a complete and correct list of all material insurance policies currently
in force insuring against risks of Parent and the Parent Subsidiaries. Parent
previously has delivered to the Company true and correct schedules listing the
name of carrier, policy coverage, policy limits and deductibles with respect to
the policies listed in Section 4.18 of the Parent Disclosure Letter. Parent and
the Parent Subsidiaries are in compliance with the terms of such policies and
except as set forth in Section 4.18 of the Parent Disclosure Letter, there are
no claims by Parent or any of the Parent Subsidiaries under any such policy as
to which any insurance company is denying liability or defending under a
reservation of rights clause, in each case except as would not individually or
in the aggregate result in a Parent Material Adverse Effect.
Section 4.19 BOARD APPROVALS; OPINION OF FINANCIAL ADVISOR. Each of the
Board of Directors of Parent and Sub (at meetings duly called and held) has
unanimously determined that the transactions contemplated hereby are fair to and
in the best interests of Parent and Sub. Parent has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Parent's financial
advisor, substantially to the effect that the Merger Consideration to be paid by
Parent in the Merger is fair to Parent from a financial point of view.
Section 4.20 BROKERS. No broker, finder or investment banker (other than
DLJ) is entitled to any brokerage, finder's fee or other fee or commission
payable by Parent in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Parent.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Sub in a letter delivered to
them prior to the execution hereof (which letter shall contain appropriate
references to identify the representations and warranties herein to which the
information in such letter relates) (the "Company Disclosure Letter"), the
Company represents and warrants to Parent and Sub as follows:
Section 5.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. The Company is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company and the Company Subsidiaries
(as defined below), taken as a whole (a "Company Material Adverse Effect").
Section 5.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 200,000,000 Shares and 5,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"). As of September 30, 1994 (i)
77,563,054 Shares were issued and outstanding, (ii) Company Options to acquire
3,081,005 Shares were outstanding under all stock option plans and agreements of
the Company, (iii) 6,306,601 Shares (including Shares issuable upon exercise of
the options identified in clause (ii) above) were reserved for issuance pursuant
to all employee plans of the Company, and (iv) there were no shares of Preferred
Stock outstanding. All of the issued and outstanding Shares are validly issued,
fully paid and nonassessable and free of preemptive rights. Except as set forth
above or as specified in Section 5.2 of the Company Disclosure Letter, as of the
date of this Agreement there are no shares of capital stock of the Company
issued or outstanding or any options, warrants, subscriptions, calls, rights,
convertible securities or other agreements or commitments obligating the Company
to issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of
its capital stock or securities. Except as provided in this Agreement or as set
forth in Section 5.2 of the Company Disclosure Letter, after the Effective Time
the Company will have no obligation to issue, transfer or sell any shares of its
capital stock pursuant to any employee benefit plan or otherwise.
Section 5.3 SUBSIDIARIES.
(a) The subsidiaries of the Company that (i) directly or indirectly own or
lease any interest in any hospitals, health care facilities or medical office
buildings, (ii) directly or indirectly conduct any insurance activities, or
(iii) are otherwise material to the Company (collectively, the "Company
Subsidiaries") are listed in Section 5.3(a) of the Company Disclosure Letter.
Each Company Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority would not individually or in the aggregate have a Company Material
Adverse Effect. Each Company Subsidiary is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
individually or in the aggregate have a Company Material Adverse Effect.
(b) Except as set forth in Section 5.3(b) of the Company Disclosure Letter,
the Company is, directly or indirectly, the record and beneficial owner of all
of the outstanding shares of capital stock of each of the Company Subsidiaries,
there are no proxies with respect to any such shares, and no equity securities
of any Company Subsidiary are or may become required to be issued by reason of
any
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options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock of any Company Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any Company Subsidiary is or may be bound to issue, redeem, purchase
or sell additional shares of its capital stock or any Company Subsidiary or
securities convertible into or exchangeable or exercisable for any such shares.
Except as set forth in Section 5.3(b) of the Company Disclosure Letter, all of
such shares so owned by the Company are validly issued, fully paid and
nonassessable and are owned by it free and clear of any Lien, restraint on
alienation, or any other restriction with respect to the transferability or
assignability thereof (other than restrictions on transfer imposed by federal or
state securities laws).
Section 5.4 MATERIAL INVESTMENTS. Except as set forth in Section 5.4 of
the Company Disclosure Letter, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation (other than a subsidiary), partnership, joint venture or other
business association or entity that directly or indirectly owns or leases any
interest in any hospital or health care facility, directly or indirectly
conducts any insurance activity, or which is otherwise material to the Company.
With respect to those entities listed on Section 5.4 of the Company Disclosure
Letter, the Company has heretofore delivered to Parent financial statements
(audited to the extent available) and interim unaudited financial statements of
each of such entities (through the most recently concluded fiscal quarter for
each of such persons) and, to the best knowledge of the Company, such financial
statements fairly present, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto or in Section 5.4 of the
Company Disclosure Letter), the financial condition of each thereof as at and
the results of operations for the periods so indicated (subject to normal
year-end adjustments in the case of the interim unaudited financial statements),
and the Company's disclosures with respect to its investment in each of such
entities otherwise included in the Company SEC Reports (as defined below) do not
contain any untrue statements of material fact or omit to state any material
fact required to be stated therein or which are necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Schedule 5.4 of the Company Disclosure
Letter, the Company (or, as indicated thereon, a Company Subsidiary) has good
and marketable title to the securities evidencing its investment in the entities
listed on Section 5.4 of the Company Disclosure Letter, which have been validly
issued and are fully paid and non-assessable and are held by the Company (or, as
indicated thereon, a Company Subsidiary) free and clear of any Lien, restraint
on alienation, or any other restriction with respect of the transferability or
assignability thereof (other than restrictions on transfer imposed by federal or
state securities laws).
Section 5.5 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
power to enter into this Agreement and to carry out its obligations hereunder.
The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by the Company's Board of Directors and, except for the approval
of its stockholders to be provided by written consent pursuant to Section 7.5
hereof promptly but in any event within ten (10) days after the execution of
this Agreement and notification to all stockholders of such action in accordance
with the DGCL and Regulation 14C of the Exchange Act, no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or the transactions contemplated hereby. Subject to the foregoing, this
Agreement has been duly and validly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
Section 5.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the Governmental Requirements, state or foreign laws relating to
takeovers, if applicable, state securities or blue sky laws, state and local
laws and regulations relating to the licensing and transfer of hospitals and
health care facilities and similar matters and the filing of a Certificate of
Merger as required by the DGCL, no filing with, and no permit, authorization,
consent or approval of, any court or tribunal
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or administrative, governmental or regulatory body, agency, public body or
authority is necessary for the execution, delivery and performance of this
Agreement by the Company of the transactions contemplated by this Agreement.
Neither the execution, delivery and performance of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby, nor compliance by the Company with any of the provisions hereof, will
(i) conflict with or result in any breach of any provisions of the Certificate
of Incorporation or By-Laws of the Company or the Certificate or Articles of
Incorporation, as the case may be, or By-Laws of any of the Company
Subsidiaries, (ii) except as set forth in Section 5.6(a)(ii) of the Company
Disclosure Letter, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, vesting, payment, exercise, acceleration,
suspension or revocation) under, any of the terms, conditions or provisions of
any note, bond, mortgage, deed of trust, security interest, indenture, license,
contract, agreement, plan or other instrument or obligation to which the Company
or any of the Company Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or affected, (iii) except as set forth
in Section 5.6(a)(iii) of the Company Disclosure Letter, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company,
any of the Company Subsidiaries or any of their properties or assets, (iv)
except as set forth in Section 5.6(a)(iv) of the Company Disclosure Letter,
result in the creation or imposition of any Lien on any asset of the Company or
any Company Subsidiary or (v) except as set forth in Section 5.6(a)(v) of the
Company Disclosure Letter, cause the suspension or revocation of any
certificates of need, accreditation, registrations, licenses, permits and other
consents or approvals of governmental agencies or accreditation organizations,
except in the case of clauses (ii), (iii), (iv) and (v) for violations,
breaches, defaults, terminations, cancellations, accelerations, creations,
impositions, suspensions or revocations which would not individually or in the
aggregate have a Company Material Adverse Effect.
Section 5.7 COMPANY SEC REPORTS. The Company has delivered to Parent true
and complete copies of each registration statement, report and proxy or
information statement, including, without limitation, its Annual Reports to
Stockholders incorporated in material part by reference in certain of such
reports, in the form (including exhibits and any amendments thereto) required to
be filed with the SEC since September 1, 1992 (collectively, the "Company SEC
Reports"). As of the respective dates the Company SEC Reports were filed or, if
any such Company SEC Reports were amended, as of the date such amendment was
filed, each of the Company SEC Reports (i) complied in all material respects
with all applicable requirements of the Securities Act and Exchange Act, and the
rules and regulations promulgated thereunder, and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company (including any related notes and schedules)
included (or incorporated by reference) in its Annual Reports on Form 10-K for
each of the three fiscal years ended August 31, 1991, 1992 and 1993 and its
Quarterly Reports on Form 10-Q for all interim periods subsequent thereto fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and the Company Subsidiaries as of its date and the consolidated results
of operations and changes in financial position for the period then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
Section 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1994,
except as set forth in Section 5.8 of the Company Disclosure Letter or in the
Company SEC Reports or as otherwise permitted in Section 6.1 hereof, the Company
and the Company Subsidiaries have in all material respects conducted their
business in the ordinary course consistent with past practices.
Section 5.9 LITIGATION. Except for litigation disclosed in the notes to
the financial statements included in the Company SEC Reports or as set forth in
Section 5.9 of the Company Disclosure Letter, there is no suit, action or
proceeding (whether at law or equity, before or by any federal, state or
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foreign commission, court, tribunal, board, agency or instrumentality, or before
any arbitrator) pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of the Company Subsidiaries, the outcome
of which, in the reasonable judgment of the Company, is likely individually or
in the aggregate to have a Company Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or any of the Company Subsidiaries having, or which, insofar
as can reasonably be foreseen, in the future many have, any such effect.
Section 5.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in the Company's financial
statements (or reflected in the notes thereto) included in the Company's SEC
Reports or which were incurred after August 31, 1993 in the ordinary course of
business and consistent with past practices, the Company and the Company
Subsidiaries do not have any material liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of a nature required by GAAP to be
reflected in a consolidated balance sheet (or reflected in the notes thereto).
Section 5.11 NO DEFAULT. Neither the Company nor any of the Company
Subsidiaries is in violation or breach of, or default under (and no event has
occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or a default under) any term, condition or provision of
(a) its Articles or Certificate of Incorporation, as the case may be, or
By-Laws, (b) any note, bond, mortgage, deed of trust, security interest,
indenture, license, agreement, plan, contract, lease, commitment or other
instrument or obligation to which the Company or any of the Company Subsidiaries
is a party or by which they or any of their properties or assets may be bound or
affected, (c) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of the Company Subsidiaries or any of their
properties or assets, or (d) any certificate of need, accreditation,
registration, license, permit and other consent or approval of governmental
agencies or accreditation organizations, except in the case of clauses (b), (c)
and (d) above for breaches, defaults or violations which would not individually
or in the aggregate have a Company Material Adverse Effect.
Section 5.12 TAXES. Except as set forth in Section 5.12 of the Company
Disclosure Letter,
(a) The Company and each of the Company Subsidiaries has (i) timely filed
(or has had timely filed on its behalf) or will cause to be timely filed all
material Tax Returns required by applicable law to be filed by any of them for
tax years ended prior to the date of this Agreement and all such Tax Returns and
amendments thereto are or will be true, complete, and correct in all material
respects, (ii) has paid (or has had paid on its behalf) all Taxes due or has
properly accrued or reserved for all such Taxes for such periods and (iii) has
accrued for all Taxes for periods commencing after the periods covered by such
Tax Returns and ending prior to the date hereof.
(b) There are no material liens for Taxes upon the assets of the Company or
any of the Company Subsidiaries, except liens for taxes not yet due.
(c) There are no material deficiencies or adjustments for Taxes that have
been proposed or assessed and which remain unpaid (except as heretofore
disclosed by the Company to Parent) by any Tax Authority against the Company or
any of the Company Subsidiaries.
(d) Set forth in Section 5.12 of the Company Disclosure Schedule is a
listing of the Federal income tax returns of the Company and each of the Company
Subsidiaries which are currently being examined by the Internal Revenue Service
or which are the subject of litigation. Section 5.12 of the Company Disclosure
Letter sets forth (i) all taxable years and periods of the Company and the
Company Subsidiaries that are presently under Audit or in respect of which the
Company or any of the Company Subsidiaries has been notified in writing by the
relevant Tax Authority that it will be Audited, (ii) the taxable years of the
Company and the Company Subsidiaries in respect of which the statutory period of
limitations for the assessment of material Federal, state and local income or
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franchise Taxes has expired, and (iii) all waivers extending the statutory
period of limitation applicable to any material Tax Return filed by the Company
or any of the Company Subsidiaries for any taxable period ending prior to the
date of this Agreement.
(e) Prior to the date hereof, the Company and the Company Subsidiaries have
disclosed all material Tax sharing, Tax indemnity, or similar agreements to
which the Company or any of the Company Subsidiaries is a party to, is bound by,
or has any obligation or liability for Taxes.
(f) The Company and the Company Subsidiaries have not paid, and do not
expect to pay, in any taxable year commencing on or after January 1, 1994,
remuneration that would result in a disallowance of any material amount of tax
deductions under section 162(m) of the Code, PROVIDED, that certain plans must
be submitted to the Company's stockholders for approval by written consent or at
the next meeting of stockholders of the Company. There are no changes in the tax
accounting methods subject to section 481(a) of the Code which have an ongoing
material effect on the Company or any of the Company Subsidiaries. No "consent"
within the meaning of section 341(f) of the Code has been filed with respect to
the Company or any of the Company Subsidiaries.
Section 5.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES. Except as set
forth in Section 5.13 of the Company Disclosure Letter, no person has any
contractual right or option to purchase or acquire, directly or indirectly, any
interest in, and there are no contracts pursuant to which the Company or any
Company Subsidiary is or may be bound to sell, lease, transfer or otherwise
dispose of, any hospital owned by the Company or any Company Subsidiary.
Section 5.14 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the
Company SEC Reports, each of the Company and the Company Subsidiaries is in
compliance with all applicable Laws, except where the failure to be in such
compliance would not individually or in the aggregate have a Company Material
Adverse Effect.
Section 5.15 MEDICARE PARTICIPATION/ACCREDITATION AND RECAPTURE.
(a) All hospitals and significant health care facilities owned or operated
by the Company and the Company Subsidiaries (the "Company Facilities") are
certified for participation or enrollment in the Medicare, Medicaid and CHAMPUS
programs, have a current and valid provider contract with the Medicare, Medicaid
and CHAMPUS programs, are in substantial compliance with the terms and
conditions of participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of the Company's assets
except where the failure to be so certified, to have such contracts, to be in
such compliance or to have such approvals or qualifications would not
individually or in the aggregate have a Company Material Adverse Effect. To the
knowledge of the Company, the amount established as provisions for Medicare,
Medicaid or CHAMPUS adjustments and adjustments by any other third party payors
on the financial statements of the Company and the Company Subsidiaries are
sufficient in all material respects to pay any amounts for which the Company or
any of the Company Subsidiaries may be liable. Neither the Company nor any of
the Company Subsidiaries has received notice from the regulatory authorities
which enforce the statutory or regulatory provisions in respect of the Medicare,
Medicaid or CHAMPUS programs of any pending or threatened investigations,
surveys or decertification proceedings, and neither Company nor any of the
Company Subsidiaries has any reason to believe that any such investigations,
surveys (other than routine surveys conducted by accreditation organizations) or
proceedings are pending, threatened or imminent which may individually or in the
aggregate have a Company Material Adverse Effect. Except as set forth in Section
5.15(a) of the Company Disclosure letter, all of the Company Facilities eligible
for such accreditation are accredited by the Joint Commission on Accreditation
of Healthcare Organizations, the Commission on Accreditation of Rehabilitation
or other appropriate accreditation agency. Section 5.15(a) of the Company
Disclosure Letter sets forth a complete and correct list of all hospitals and
significant separately licensed health care facilities owned and operated by the
Company and the Company Subsidiaries and their respective accreditation.
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(b) Each Company Facility is licensed by the proper state department of
health to conduct its business in substantially the manner conducted by such
Company Facility and is authorized to operate the number of beds utilized
therein. The Company Facilities are presently in substantial compliance with all
of the terms, conditions and provisions of such licenses. The Company has
heretofore made available to Parent correct and complete copies of all such
licenses. The facilities, equipment, staffing and operations of such Company
Facilities satisfy the applicable state hospital licensing requirements in all
material respects.
(c) No funds were received on behalf of the Company or any of the Company
Subsidiaries to construct, improve or acquire any of its facilities under the
"Hill-Burton" Act as a result of which the Company or any of the Company
Subsidiaries are currently or will in the future be required to pay any amounts
for which there shall be any "recapture" as a result of the consummation of the
transactions contemplated by this Agreement.
Section 5.16 LABOR MATTERS. Except as set forth in Section 5.16 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of the Company, threatened against the Company or
the Company Subsidiaries relating to their business, except for any such
proceeding which would not have individually or in the aggregate have a Company
Material Adverse Effect. To the knowledge of the Company, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or
any of the Company Subsidiaries. There is no labor strike, dispute, slow down,
work stoppage, or lockout actually pending or, to the knowledge of the Company,
threatened against the Company or the Company Subsidiaries. To the knowledge of
the Company, there are no labor union or organization claims to represent the
employees of the Company or any of the Company Subsidiaries, nor does any
question concerning the representation of such employees by any labor union or
organization exist.
Section 5.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 5.17(a) of the Company Disclosure Letter contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agreement or arrangement (the
"Company Plans"), maintained or contributed to or required to be contributed to
by (i) the Company, (ii) any Company Subsidiary or (iii) any trade or business,
whether or not incorporated, that together with the Company would be deemed a
"single employer" within the meaning of ERISA (a "Company ERISA Affiliate"), for
the benefit of any employee or former employee of the Company, any Company
Subsidiary or any Company ERISA Affiliate. Section 5.17(a) of the Company
Disclosure Letter identifies each of the Company Plans that is an "employee
benefit plan," as that term is defined in Section 3(3) of ERISA (such plans
being hereinafter referred to collectively as the "Company ERISA Plans").
(b) With respect to each of the Company Plans, the Company has heretofore
delivered to Parent true and complete copies of each of the following documents:
(i) a copy of the Company Plan (including all amendments thereto), (ii) a copy
of the annual report and actuarial report, if required under ERISA, with respect
to the Company ERISA Plan for the last two years, (iii) a copy of the most
recent Summary Plan Description, together with each Summary of Material
Modifications, required under ERISA with respect to the Company ERISA Plan, (iv)
if the Company Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, and (v) the
most recent determination letter received from the Internal Revenue Service with
respect to each Company ERISA Plan intended to qualify under Section 401 of the
Code.
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(c) No liability under Title IV of ERISA has been incurred by the Company,
any Company Subsidiary or any Company ERISA Affiliate since the effective date
of ERISA that has not been satisfied in full, and except as disclosed in Section
5.17(c) of the Company Disclosure Letter, no condition exists that presents a
material risk to the Company, any Company Subsidiary or any Company ERISA
Affiliate of incurring any liability under such Title (other than liability for
premiums due to PBGC). To the extent this representation applies to Sections
4064, 4069 or 4204 of Title IV of ERISA, it is made not only with respect to the
Company ERISA Plans but also with respect to any employee benefit plan, program,
agreement or arrangement subject to Title IV of ERISA to which the Company, a
Company Subsidiary or a Company ERISA Affiliate made, or was required to make,
contributions during the five-year period ending on the date of this Agreement.
(d) With respect to each Company ERISA Plan which is subject to Title IV of
ERISA, except as set forth in Section 5.17(d) of the Company Disclosure Letter,
the present value of accrued benefits under such plan, based upon the actuarial
assumptions used for financial reporting purposes in the most recent actuarial
report prepared by such plan's actuary with respect to such plan, did not
exceed, as of its latest valuation date, the then current value of the assets of
such plan allocable to such accrued benefits.
(e) No Company ERISA Plan or any trust established thereunder has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each Company ERISA Plan ended prior to the date of this
Agreement, and all contributions required to be made with respect thereto
(whether pursuant to the terms of any Company ERISA Plan or otherwise) on or
prior to the date of this Agreement have been timely made.
(f) Except as set forth in Section 5.17(f) of the Company Disclosure Letter,
no Company ERISA Plan is a "multi-employer pension plan," as defined in section
3(37) of Company ERISA, nor is any ERISA Plan a plan described in Section
4063(a) of ERISA.
(g) Except as set forth in Section 5.17(g) of the Company Disclosure Letter,
each Company ERISA Plan intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and the trusts maintained thereunder have been determined to be exempt
from taxation under Section 501(a) of the Code and, to the best knowledge of the
Company, no event has occurred nor does any condition exist which would
adversely affect such qualification and exemption.
(h) Except as set forth in Section 5.17(h) of the Company Disclosure Letter,
each of the Company Plans has been operated and administered in all material
respects in accordance with applicable laws, including, but not limited to,
ERISA and the Code.
(i) Except as set forth in Section 5.17(i) of the Company Disclosure Letter,
no amounts payable under the Company Plans or any other contract, arrangement or
agreement will fail to be deductible for federal income tax purposes by virtue
of Section 280G of the Code.
(j) Except as set forth in Section 5.17(j) of the Company Disclosure
Letter, no Company Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of the Company, any Company Subsidiary or any Company ERISA Affiliate
beyond such employees' retirement or other termination of service, other than
(i) coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of the Company, any Company Subsidiary or any Company ERISA Affiliate
or (iv) benefits the full cost of which is borne by such employees or their
beneficiaries.
(k) Except as set forth in Section 5.17(k) of the Company Disclosure Letter,
the consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of the Company, any Company
Subsidiary or any Company ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement,
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(ii) accelerate the time of payment or vesting, or increase the amount, of any
compensation due any such employee or officer, or (iii) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code for
which an exemption is not available.
(l) With respect to each Company Plan that is funded wholly or partially
through an insurance policy, there will be no liability of the Company, any
Company Subsidiary or any Company ERISA Affiliate, as of the Effective Time,
under any such insurance policy or ancillary agreement with respect to such
insurance policy in the nature of a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring prior to the closing.
(m) There are no pending, threatened or anticipated claims by or on behalf
of any of the Company Plans, by any employee or beneficiary covered under any
such Company Plan, or otherwise involving any such Company Plan (other than
routine claims for benefits).
(n) None of the Company, any Company Subsidiary, any Company ERISA
Affiliate, any of the Company ERISA Plans, any trust created thereunder or any
trustee or administrator thereof has engaged in a transaction in connection with
which the Company, any Company Subsidiary or any Company ERISA Affiliate, any of
the Company ERISA Plans, any such trust, or any trustee or administrator
thereof, or any party dealing with the Company ERISA Plans or any such trust
could be subject to either a material civil liability under Section 409 of
ERISA, Section 502(i) of ERISA, or Section 502(l) of ERISA or a material tax
imposed pursuant to Section 4975 or 4976 of the Code.
Section 5.18 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of the
Company and the Company Subsidiaries owns all of the patents, trademarks,
service marks, copyrights, permits, trade names, licenses, franchises and
formulas, or rights with respect to the foregoing, and has obtained assignments
of all such rights and other rights of whatever nature, necessary for the
present conduct of its business, in each case except as would not individually
or in the aggregate have a Company Material Adverse Effect.
Section 5.19 INSURANCE. Section 5.19 of the Company Disclosure Letter sets
forth a complete and correct list of all material insurance policies currently
in force insuring against risks of the Company and the Company Subsidiaries. The
Company previously has delivered to Parent true and correct schedules listing
the name of carrier, policy coverage, policy limits and deductibles with respect
to the policies listed in Section 5.19 of the Company Disclosure Letter. The
Company and the Company Subsidiaries are in compliance with the terms of such
policies and except as set forth in Section 5.19 of the Company Disclosure
Letter, there are no claims by the Company or any of the Company Subsidiaries
under any such policy as to which any insurance company is denying liability or
defending under a reservation of rights clause, in each case except as would not
individually or in the aggregate result in a Company Material Adverse Effect.
Section 5.20 BOARD APPROVAL; OPINION OF FINANCIAL ADVISOR. The Board of
Directors of the Company (at a meeting duly called and held) has unanimously
approved this Agreement and the transactions contemplated hereby. The Board of
Directors of the Company has received the opinion of Salomon Brothers Inc
("SBI"), one of the Company's financial advisors, substantially to the effect
that the Merger Consideration to be received in the Merger by the holders of the
Shares is fair to such stockholders from a financial point of view (the
"Fairness Opinion").
Section 5.21 BROKERS. No broker, finder or investment banker (other than
SBI, CS First Boston and GKH Partners, L.P.) is entitled to any brokerage,
finder's fee or other fee or commission payable by the Company in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of the Company.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From
the date hereof until the Effective Time, unless Parent shall otherwise agree in
writing, or except as set forth in the Company Disclosure Letter or as otherwise
contemplated by this Agreement, the Company and the Company Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and key employees, subject to the terms of
this Agreement. Except as set forth in the Company Disclosure Letter or as
otherwise provided in this Agreement, from the date hereof until the Effective
Time, without the prior written consent of Parent, which consent shall not be
unreasonably withheld:
(a) the Company will not adopt or propose any change in its Certificate of
Incorporation or By-Laws;
(b) the Company will not, and will not permit any Company Subsidiary to,
declare, set aside or pay any dividend or other distribution with respect to any
shares of capital stock of the Company (except as permitted by Section 7.12
hereof), or any repurchase, redemption or other acquisition or investment by the
Company or any Company Subsidiary of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company or any Company
Subsidiary;
(c) the Company will not, and will not permit any Company Subsidiary to,
merge or consolidate with any other person or acquire a material amount of
assets of any other person;
(d) the Company will not, and will not permit any Company Subsidiary to,
sell, lease, license or otherwise surrender, relinquish or dispose of (i) any
Company Facility or (ii) any assets or property which are material to the
Company and the Company Subsidiaries, taken as a whole, except (i) pursuant to
existing contracts or commitments (the terms of which have been disclosed to
Parent prior to the date hereof), or (ii) in the ordinary course of business
consistent with past practice;
(e) the Company will not settle any material Audit, make or change any
material Tax election or file amended Tax Returns;
(f) the Company will not issue any securities (except pursuant to existing
obligations), enter into any amendment of any material term of any outstanding
security of the Company or of any Company Subsidiary, incur any indebtedness
except pursuant to existing credit facilities or arrangements, fail to make any
required contribution to any Company ERISA Plan, increase compensation, bonus or
other benefits payable to any employee or former employee or enter into any
settlement or consent with respect to any pending litigation, except in the
ordinary course of business consistent with past practice or as otherwise
permitted by this Agreement;
(g) the Company will not change any method of accounting or accounting
practice by the Company or any Company Subsidiary, except for any such required
change in GAAP;
(h) the Company will not, and will not permit any Company Subsidiary to,
agree or commit to do any of the foregoing; and
(i) except to the extent necessary to comply with the requirements of
applicable laws and regulations, the Company will not, and will not permit any
Company Subsidiary to (i) take, or agree or commit to take, any action that
would make any representation and warranty of the Company hereunder inaccurate
in any respect at, or as of any time prior to, the Effective Time or (ii) omit,
or agree or commit to omit, to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time, provided however that the Company shall be permitted to take or omit to
take such action which can (without any uncertainty) be cured at or prior to the
Effective Time.
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Section 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. From the
date hereof until the Effective Time, unless the Company shall otherwise agree
in writing, or except as set forth in the Parent Disclosure Letter or as
otherwise contemplated by this Agreement or previously disclosed to the Company
in writing, Parent and the Parent Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
key employees, subject to the terms of this Agreement. Except as set forth in
the Parent Disclosure Letter or as otherwise provided in this Agreement, from
the date hereof until the Effective Time, without the prior written consent of
the Company, which consent shall not be unreasonably withheld:
(a) Parent will not adopt or propose any change in its Articles of
Incorporation or By-Laws which would have an adverse effect on the Merger
Consideration;
(b) Parent will not, and will not permit any Parent Subsidiary to, declare,
set aside or pay any dividend or other distribution with respect to any shares
of capital stock of Parent, or any repurchase, redemption or other acquisition
or investment by Parent or any Parent Subsidiary of any outstanding shares of
capital stock or other securities of, or other ownership interests in, Parent or
any Parent Subsidiary;
(c) Parent will not, and will not permit any Parent Subsidiary to, merge or
consolidate with any other person or acquire a material amount of assets of any
other person if, prior to the consummation of such transaction, the Company is
advised by SBI that, as a result of such transaction, SBI is required to
withdraw the Fairness Opinion unless Parent permits the Company's stockholders
to receive, at the election of the Company, $6.88 in cash in lieu of the 0.42 of
a Parent Share to be received as part of the Merger Consideration and, if so
elected, such cash consideration together with the balance of the Merger
Consideration is received prior to or simultaneously with the consummation of
such other transaction. The Company shall promptly notify Parent of its election
after receiving notice of any such transaction by Parent.
(d) Parent will not, and will not permit any Parent Subsidiary to, sell,
lease, license or otherwise surrender, relinquish or dispose of (i) any Parent
Facility or (ii) any assets or property which are material to Parent and the
Parent Subsidiaries, taken as a whole, except (x) pursuant to existing contracts
or commitments (the terms of which have heretofore been disclosed to the Company
prior to the date hereof), or (y) in the ordinary course of business consistent
with past practice;
(e) Parent will not, and will not permit any Parent Subsidiary to, settle
any material Audit, make or change any material Tax election or file amended tax
returns;
(f) the Parent will not issue any securities or indebtedness (except
pursuant to existing obligations or in transactions permitted by Section 6.2(c)
hereof), enter into any amendment of any material term of any outstanding
security or indebtedness of Parent or of any Parent Subsidiary which would have
an adverse effect on the Merger Consideration (or the ability of Parent to incur
indebtedness necessary to pay the Merger Consideration), incur any indebtedness
except pursuant to existing credit facilities or arrangements, fail to make any
required contribution to any Parent ERISA Plan, materially increase any
compensation or benefits payable to any employee or former employee or enter
into any settlement or consent with respect to any pending litigation, except in
the ordinary course of business consistent with past practice or as otherwise
contemplated or permitted by this Agreement;
(g) Parent will not change any method of accounting or accounting practice
by Parent or any Parent Subsidiary, except for any such required change in GAAP;
(h) Parent will not, and will not permit any Parent Subsidiary to, agree or
commit to do any of the foregoing; and
(i) except to the extent necessary to comply with the requirements of
applicable laws and regulations, Parent will not, and will not permit any Parent
Subsidiary to (i) take, or agree or commit
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to take, any action that would make any representation and warranty of Parent
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time or (ii) omit, or agree or commit to omit, to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time, provided however that Parent shall be permitted
to take or omit to take such action which can (without any uncertainty) be cured
at or prior to the Effective Time.
Section 6.3 CONDUCT OF BUSINESS OF SUB. From the date hereof to the
Effective Time, Sub shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION. The Company and Parent shall each
afford to the other and to the other's financial advisors, legal counsel,
accountants, consultants, financing sources, and other authorized
representatives access during normal business hours throughout the period prior
to the Effective Time to all of its books, records, properties, plants and
personnel and, during such period, each shall furnish promptly to the other (a)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (b) all
other information as such other party reasonably may request, provided that no
investigation pursuant to this Section 7.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Each party shall hold in confidence all
nonpublic information until such time as such information is otherwise publicly
available and, if this Agreement is terminated, each party will deliver to the
other all documents, work papers and other materials (including copies) obtained
by such party or on its behalf from the other party as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof.
Section 7.2 ACQUISITION PROPOSALS.
(a) From the date hereof until the termination hereof, the Company and the
Company Subsidiaries will not, and will cause their respective officers,
directors, employees or other agents not to, directly or indirectly, (i) take
any action to solicit, initiate or encourage any Acquisition Proposal (as
hereinafter defined), (ii) waive any provision of any standstill or similar
agreements entered into by the Company or the Company Subsidiaries, or (iii)
engage in negotiations with, or disclose any nonpublic information relating to
the Company or Company Subsidiaries, respectively, or afford access to their
respective properties, books or records to any person that may be considering
making, or has made, an Acquisition Proposal. Nothing contained in this Section
7.2 shall prohibit the Company and its Board of Directors from (i) taking and
disclosing a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2(a) promulgated by the SEC under the Exchange Act, or
(ii) furnishing information to, or entering into negotiations with, any person
or entity that makes an unsolicited bona fide proposal to acquire the Company
pursuant to a merger, consolidation, share exchange, purchase of a substantial
portion of the assets, business combination or other similar transaction, if,
and only to the extent that, (A) such Board of Directors determines in good
faith that such action is required for the Board of Directors to comply with its
fiduciary duties to stockholders imposed by law, (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, the Company provides written notice to the other party to this
Agreement to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) subject to any
confidentiality agreement with such person or entity (which such party
determined in good faith was required to be executed in order for the Board of
Directors to comply with its fiduciary duties to shareholders or stockholders
imposed by law), the Company keeps Parent informed of the status (but not the
terms) of any such negotiations or discussions.
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(b) The term "Acquisition Proposal" as used herein means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving the Company or any Company Subsidiary or the acquisition
of any equity interest in, or a substantial portion of the assets of, any such
party, other than the transactions contemplated by this Agreement.
Section 7.3 REGISTRATION STATEMENT. As promptly as practicable, Parent and
the Company shall cooperate and promptly prepare and file with the SEC the
Information Statement and Parent shall prepare and file with the SEC the
Registration Statement (collectively, such Information Statement and
Registration Statement, being the "Information Statement/Prospectus"). Parent
shall use its reasonable best efforts, and the Company will cooperate with
Parent, to have the Registration Statement declared effective by the SEC as
promptly as practicable. Parent shall also use its reasonable best efforts to
take any action required to be taken under state securities or blue sky laws in
connection with the issuance of the Parent Shares pursuant hereto. The Company
shall furnish Parent with all information concerning the Company and the holders
of its capital stock and shall take such other action as Parent reasonably may
request in connection with such Information Statement/ Prospectus and issuance
of the Parent Shares hereunder. Parent agrees that the Information
Statement/Prospectus and each amendment or supplement thereto at the time of
mailing thereof through twenty (20) business days thereafter, or, in the case of
the Registration Statement and each amendment or supplement thereto, at the time
it is filed or becomes effective, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
shall not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by Parent in reliance upon and in
conformity with written information concerning the Company furnished to Parent
by the Company specifically for use in the Information Statement/Prospectus. The
Company agrees that the information provided by it for inclusion in the
Information Statement/Prospectus and each amendment or supplement thereto, at
the time of mailing thereof through twenty (20) business days thereafter, or, in
the case of information provided by the Company for inclusion in the
Registration Statement or any amendment or supplement thereto, at the time it is
filed or becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Except as otherwise required by law, no amendment or
supplement to the Information Statement/Prospectus will be made by Parent or the
Company without the approval of the other party, which approval will not be
unreasonably withheld. Parent will advise the Company, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of Parent Shares issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Information Statement/Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
Section 7.4 LISTING APPLICATION. Parent shall promptly prepare and submit
to each of the New York Stock Exchange and Pacific Stock Exchange a listing
application covering the Parent Shares to be issued in connection with the
Merger and this Agreement, and shall use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such Parent Shares,
subject to official notice of issuance.
Section 7.5 INFORMATION STATEMENT AND STOCKHOLDER APPROVAL.
(a) The Company, acting through its Board of Directors, shall, in accordance
with applicable law and its Certificate of Incorporation and By-Laws (i)
promptly and duly, give notice of, as soon as practicable following the date
upon which the Registration Statement becomes effective, mail to
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stockholders of the Company the Information Statement/Prospectus in accordance
with the requirements of the DGCL and Regulation 14C of the Exchange Act and
take all lawful action necessary to provide notification of the written consent
of stockholders of the Company of the approval of the Merger as contemplated by
Section 7.1(b) hereof.
(b) Promptly hereafter, but in no event later than ten (10) days after the
execution of this Agreement by the parties hereto, stockholders representing the
requisite number of Shares necessary to approve the Merger will deliver written
consents in accordance with Section 228 of the DGCL.
Section 7.6 FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, as promptly as practicable, the Company, Parent and Sub shall:
(i) promptly make all filings and submissions under the HSR Act as reasonably
may be required to be made in connection with this Agreement and the
transactions contemplated hereby, (ii) use all reasonable efforts to cooperate
with each other in (A) determining which filings are required to be made prior
to the Effective Time with, and which material consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
or District of Columbia, and foreign jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (B) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations, and
(iii) use all reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary or appropriate to
consummate the transactions contemplated by this Agreement. In connection with
the foregoing, the Company will provide Parent and Sub, and Parent and Sub will
provide the Company, with copies of correspondence, filings or communications
(or memoranda setting forth the substance thereof) between such party or any of
its representatives, on the one hand, and any governmental agency or authority
or members of their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby. Each of Parent and the
Company acknowledge that certain actions may be necessary with respect to the
foregoing in making notifications and obtaining clearances, consents, approvals,
waivers or similar third party actions which are material to the consummation of
the transactions contemplated hereby, and each of Parent and the Company agree
to take such action as is necessary to complete such notifications and obtain
such clearances, approvals, waivers or third party actions, except where such
consequence, event or occurrence would have a Parent Material Adverse Effect or
Company Material Adverse Effect, as the case may be.
Section 7.7 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the
Company, on the other hand, agree that they will not issue any press release or
otherwise make any public statement or respond to any press inquiry with respect
to this Agreement or the transactions contemplated hereby without the prior
approval of the other party (which approval will not be unreasonably withheld),
except as may be required by applicable law.
Section 7.8 COMPANY INDEMNIFICATION PROVISION. Parent agrees that all
rights to indemnification existing in favor of the present or former directors,
officers, employees, fiduciaries and agents of the Company or any of the Company
Subsidiaries (collectively, the "Indemnified Parties") as provided in the
Company's Certificate of Incorporation or By-Laws or the certificate or articles
of incorporation, by-laws or similar organizational documents of any of the
Company Subsidiaries as in effect as of the date hereof or pursuant to the terms
of any indemnification agreements entered into between the Company and any of
the Indemnified Parties with respect to matters occurring prior to the Effective
Time shall survive the Merger and shall continue in full force and effect
(without modification or amendment, except as required by applicable law or
except to make changes permitted by law that would enlarge the Indemnified
Parties' right of indemnification), to the fullest extent and for the maximum
term permitted by law, and shall be enforceable by the Indemnified Party against
both the Company and Parent (which shall also directly assume such obligations
at the Effective Time). Parent shall cause to be maintained in effect for not
less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company (provided
that
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Parent may substitute therefor policies of at least equivalent coverage
containing terms and conditions which are no less advantageous) with respect to
matters occurring prior to the Effective Time, provided that in no event shall
Parent or the Surviving Corporation be required to expend to maintain or procure
insurance coverage pursuant to this Section 7.8 any amount per annum in excess
of 200% of the aggregate premiums paid in 1994 on an annualized basis for such
purpose. In the event the payment of such amount for any year is insufficient to
maintain such insurance or equivalent coverage cannot otherwise be obtained, the
Surviving Corporation shall purchase as much insurance as may be purchased for
the amount indicated. The provisions of this Section 7.8 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
Section 7.9 REGISTRATION STATEMENT FOR SECURITIES ACT AFFILIATES. Parent
shall enter into a Registration Rights Agreement substantially in the form
attached as Exhibit B, providing for the registration under the Securities Act
covering the Parent Shares receivable by Securities Act Affiliates (as therein
defined), which registration statement will permit such Securities Act
Affiliates and their partners, shareholders, beneficiaries or other similar
persons to whom they may distribute Parent Shares through a dividend,
partnership distribution or other similar distribution (collectively, the
"Distributees") to sell such Parent Shares.
Section 7.10 CERTAIN BENEFITS.
(a) From and after the Effective Time, subject to applicable law and except
as contemplated hereby, Parent and the Parent Subsidiaries will honor, in
accordance with their terms, all Company Plans; provided, however, that nothing
herein shall preclude any change effected on a prospective basis in any Company
Plan from and after the Effective Time. Parent and the Parent Subsidiaries will
provide benefits to employees of the Company and the Company Subsidiaries who
become employees of Parent and the Parent Subsidiaries or continue after the
Effective Time as employees of the Company or the Company Subsidiaries which
will, in the aggregate, be no less favorable than those provided to other
similarly situated employees of Parent and the Parent Subsidiaries from time to
time. With respect to the Parent Plans, Parent and the Surviving Corporation
shall grant all employees of the Company and the Company Subsidiaries from and
after the Effective Time credit for all service with the Company and the Company
Subsidiaries, their affiliates and predecessors prior to the Effective Time for
all purposes for which such service was recognized by the Company and the
Company Subsidiaries. To the extent the Parent Plans provide medical or dental
welfare benefits after the Effective Time, such plans shall waive any
pre-existing conditions and actively-at-work exclusions and shall provide that
any expenses incurred on or before the Effective Time shall be taken into
account under deductible, coinsurance and maximum out-of-pocket provisions.
(b) Parent agrees that it will cause the Company to comply with the WARN
Act, to the extent applicable to the Company and its subsidiaries, in connection
with actions taken after the Effective Time.
(c) The provisions of this Section 7.10 shall survive the consummation of
the Merger.
Section 7.11 DIRECTORS OF PARENT. Prior to the date of the mailing of the
Information Statement/ Prospectus, the Company shall nominate three persons who
are acceptable to Parent in its reasonable judgment to serve as directors of
Parent in accordance with the policies for directors of Parent and Parent shall
take such action as is necessary to cause such persons to become directors of
Parent effective as of the Effective Time.
Section 7.12 SPECIAL DIVIDEND. Notwithstanding anything contained in this
Merger Agreement to the contrary, the Board of Directors of the Company on or
prior to Closing shall declare a special dividend of $.10 per share payable to
holders of Shares on or prior to the Effective Time. Payment of such dividend,
which shall be made by the Company's transfer agent in accordance with the
requirements of applicable law and subject to the rules of the New York Stock
Exchange and the SEC, may be funded from the Company's available cash or
borrowings under the Company's Revolving Credit Agreement.
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Section 7.13 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using all reasonable efforts to obtain all necessary waivers, consents
and approvals in connection with the Governmental Requirements, to effect all
necessary registrations and filings and to obtain all necessary financing. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Parent, Sub and the Company shall take all such necessary
action.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and no action shall
have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceeding for such purpose shall be pending before or threatened by the
SEC.
(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of the
Company respectively in accordance with and subject to applicable law and
twenty (20) business days shall have passed since the mailing of the
Information Statement/Prospectus to the Company's stockholders.
(d) No statute, rule, regulation, executive order, decree, ruling or
preliminary or permanent injunction shall have been enacted, entered,
promulgated or enforced by any federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the consummation
of the Merger.
(e) Each of the Company and Parent shall have obtained such permits,
authorizations, consents, or approvals, required by the Governmental
Requirements to consummate the transactions contemplated hereby.
Section 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) Each of Parent and Sub shall have performed in all material respects
its obligations under this Agreement required to be performed by it at or
prior to the Effective Time and the representations and warranties of Parent
and Sub contained in this Agreement which are qualified with respect to
materiality shall be true and correct in all respects, and such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and at and as of the Effective Time as if made at and as of such
time, except as contemplated by the Parent Disclosure Letter or this
Agreement, and the Company shall have received a certificate of the Chairman
of the Board, the President, an Executive Vice President, a Senior Vice
President or the Chief Financial Officer of Parent as to the satisfaction of
this condition.
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(b) The Company shall have received a "comfort" letter from KPMG Peat
Marwick, L.L.P., Parent's independent accountants, dated the Effective Time
and addressed to the Company, of the kind contemplated by the Statement on
Auditing Standards with respect to Letters to Underwriters promulgated by
the American Institute of Certified Public Accountants (the "AICPA
Statement"), in form reasonably acceptable to the Company, in connection
with the procedures undertaken by KPMG Peat Marwick, L.L.P., with respect to
the financial statements of Parent included in the Registration Statement
and the other matters contemplated by the AICPA Statement and customarily
included in comfort letters relating to transactions similar to the Merger.
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of Parent and the Parent Subsidiaries, taken as a
whole, that would have or would be reasonably likely to have a Parent
Material Adverse Effect, other than any such change that affects both Parent
and the Company in a substantially similar manner.
(d) The Company shall have received an opinion from Scott M. Brown,
Senior Vice President, Secretary and General Counsel of Parent, or from
Skadden, Arps, Slate, Meagher & Flom, special counsel to Parent, dated the
Effective Time, in substantially the form set forth as Exhibit C hereto. As
to any matter in such opinion which involves matters of fact or matters
relating to laws other than federal securities or Delaware corporate law,
such counsel may rely upon the certificates of officers and directors of
Parent and Sub and of public officials and opinions of local counsel,
reasonably acceptable to the Company.
(e) The listing application referred to in Section 7.4 shall have been
approved by the New York Stock Exchange and the registration statement
referred to in Section 7.9 hereof shall have been declared effective and no
stop order shall have been issued with respect thereto.
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions:
(a) The Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time and the representations and warranties of the Company
contained in this Agreement which are qualified with respect to materiality
shall be true and correct in all respects, and such representations and
warranties that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and at and
as of the Effective Time as if made at and as of such time, except as
contemplated by the Company Disclosure Letter or this Agreement, and Parent
and Sub shall have received a Certificate of the Chairman of the Board, the
President, an Executive Vice President, Senior Vice President or the Chief
Financial Officer of the Company as to the satisfaction of this condition.
(b) Parent and Sub shall have received a letter from Price Waterhouse &
Co., the Company's independent accountants, dated the Effective Time and
addressed to Parent and Sub, in form and substance reasonably satisfactory
to Parent in connection with the procedures undertaken by them with respect
to the financial statements and other financial information of the Company
and the Company Subsidiaries contained in the Registration Statement and the
other matters contemplated by the AICPA Statement No. 72 and customarily
included in comfort letters relating to transactions similar to the Merger.
(c) Parent and Sub shall have received an opinion from Thomas J.
Sabatino, Jr., General Counsel of the Company, or from Neal Gerber &
Eisenberg, special counsel to the Company, dated the Effective Time, in
substantially the form set forth as Exhibit D hereto. As to any matter in
such opinion which involves matters of fact or matters relating to laws
other than federal
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securities or Delaware corporate law, such counsel may rely upon the
certificates of officers and directors of the Company and of public
officials and opinions of local counsel, reasonably acceptable to Parent and
Sub.
(d) From the date of the Agreement through the Effective Time, there
should not have occurred any change in the financial condition, business,
operations or prospects of the Company and the Company's Subsidiaries, taken
as a whole, that would have or would be reasonably likely to have a Company
Material Adverse Effect, other than any such change that affects both the
Company and Parent in a substantially similar manner.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Effective Time, whether before or after
approval by the stockholders of the Company by mutual written consent of Parent
and the Company.
Section 9.2 TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have been
consummated on or before May 31, 1995, or (b) a United States federal or state
court of competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (b) shall have used all reasonable efforts to remove
such injunction, order or decree.
Section 9.3 TERMINATION BY THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the adoption and approval by the stockholders of the Company referred
to in Section 7.5(b), by action of the Board of Directors of the Company, if (a)
in the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, the Board of Directors of the Company determines
that such termination is required by reason of an Acquisition Proposal having
been made to it, or (b) there has been a breach by Parent or Sub of any
representation or warranty contained in this Agreement which would have or would
be likely to have a Parent Material Adverse Effect, or (c) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of Parent, which breach is not curable or, if curable, is
not cured within thirty (30) days after written notice of such breach is given
by the Company to Parent or (d) Parent shall have been unable to obtain prior to
the Effective Time financing to provide for consummation of the Merger other
than as a result of a material breach by the Company of any representation or
warranty contained in this Agreement, the nonsatisfaction of the condition
contained in Section 8.3(d) or a material breach of any of the covenants or
agreements set forth in this Agreement on the part of the Company.
Section 9.4 TERMINATION BY PARENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by action of
the Board of Directors of Parent, if (a) there has been a breach by the Company
of any representation or warranty contained in this Agreement which would have
or would be reasonably likely to have a Company Material Adverse Effect, or (b)
there has been a material breach of any of the covenants or agreements set forth
in this Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within thirty (30) days after written notice of such
breach is given by Parent to the Company.
Section 9.5 EFFECT OF TERMINATION AND ABANDONMENT.
(a) (i) If this Agreement is terminated by (A) the Company pursuant to
Sections 9.3(b) through 9.3(d), then in any such event the Company shall be
entitled to receive from Parent the Termination Fee, and (ii) if this Agreement
is terminated by (A) Parent pursuant to Sections 9.4(a) and 9.4(b), or
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(B) by the Company pursuant to Section 9.3(a), then in any such event Parent
shall be entitled to receive from the Company the Termination Fee, provided in
the case of a termination by the Company pursuant to Section 9.3(a) hereof, the
Termination Fee shall be reduced by the amount of any payments received by
Parent under the Stockholder Voting and Profit Sharing Agreements. If Parent has
received payment under the Stockholder Voting and Profit Sharing Agreement, the
Company agrees to promptly reimburse in full the persons making such payments to
Parent, but in any event such reimbursement shall not exceed $75,000,000.
(b) Within three business days following any termination event described in
Section 9.5(a) above, the party entitled to compensation thereunder shall
receive a payment in the amount of $75,000,000 (less any amount received by
Parent under the Stockholder Voting and Profit Sharing Agreement as of such
date) in the event this Agreement is terminated pursuant to Section 9.3(a) or
$150,000,000 in the event this Agreement is terminated pursuant to any other
termination event described in Section 9.5(a) above (the "Termination Fee") from
the party whose action or failure to take action shall have given rise to the
right to such payment, it being understood and agreed by the parties hereto that
the Termination Fee is intended to constitute liquidated damages, except in the
case of fraud or a deliberate and wilful breach by a party hereto, since the
actual amount of damages which would be sustained by a non-breaching party
hereunder as a result of such termination is difficult, if not impossible, of
ascertainment and that the agreement of the parties with regard to the payment
of the foregoing sum as liquidated damages represents a good faith effort by
each of the parties to establish the reasonable amount of restitution necessary
to provide for recovery of all costs and expenses associated with efforts to
consummate the Merger, including, without limitation, opportunity costs.
(c) In the event of termination of the Agreement and the abandonment of the
Merger pursuant to this Article IX, all obligations of the parties shall
terminate, except the obligations of the parties pursuant to this Section 9.5
and except for the provisions of Sections 4.20, 5.21, 10.4 and 10.6, and the
last sentence of Section 7.1 hereof.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. No
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive beyond the Effective Time. This Section
10.1 shall not limit any covenant or agreement after the Effective Time.
Section 10.2 NOTICES. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given upon (a)
confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a
standard overnight carrier or when delivered by hand or (c) the expiration of
five business days after the day when mailed by registered or certified mail
(postage prepaid, return receipt requested), addressed to the respective parties
at the following addresses (or such other address for a party as shall be
specified by like notice):
(a) If to Parent or Sub, to:
National Medical Enterprises, Inc.
2700 Colorado Boulevard
Santa Monica, California 90404
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Brian J. McCarthy
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(b) if to the Company, to:
American Medical Holdings, Inc.
14001 Dallas Parkway
Dallas, Texas 75240
Attention: General Counsel
with a copy to:
Neal, Gerber & Eisenberg
Two LaSalle Street
Chicago, Illinois 60602
Attention: Charles Gerber
Section 10.3 DESCRIPTIVE HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 10.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Exhibits, Parent Disclosure Letter, Company Disclosure Letter and other
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings (other
than that certain confidentiality letter agreement between the parties dated
June 2, 1994, as thereafter supplemented by letter dated August 25, 1994, which
are hereby incorporated by reference herein), both written and oral among the
parties or any of them, with respect to the subject matter hereof, including,
without limitation, any transaction between or among the parties hereto; (b) is
not intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned by operation of law or otherwise, provided that
Parent or Sub may assign its rights and obligations hereunder to a direct or
indirect subsidiary of Parent, but no such assignment shall relieve Parent or
Sub, as the case may be, of its obligations hereunder.
Section 10.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 10.6 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that those expenses incurred in connection with printing the
Information Statement/Prospectus, as well as the filing fee relating to the
Registration Statement, will be shared equally by Parent and the Company.
Section 10.7 AMENDMENT. This Agreement may be amended by action taken by
Parent, Sub and the Company at any time before or after approval hereof by the
stockholders of the Company, but, after any such approval, no amendment shall be
made which alters the Merger Consideration or which in any way materially
adversely affects the rights of such stockholders, without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 10.8 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
Section 10.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same agreement. This Agreement shall
become effective with each party hereto shall have received counterparts thereof
signed by all of the other parties hereto.
Section 10.10 SEVERABILITY; VALIDITY; PARTIES IN INTEREST. If any
provision of this Agreement, or the application thereof to any person or
circumstance is held invalid or unenforceable, the remainder of
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this Agreement, and the application of such provision to other persons or
circumstances, shall not be affected thereby, and to such end, the provisions of
this Agreement are agreed to be severable. Except as provided in Section 7.8 and
the last sentence of Section 9.5(a) hereof, nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
Section 10.11 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunder to duly
authorized, all as of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By: /s/ JEFFREY BARBAKOW
-----------------------------------
Name: Jeffrey Barbakow
Title: Chairman and Chief Executive
Officer
AMH ACQUISITION CO.
By: /s/ JEFFREY BARBAKOW
-----------------------------------
Name: Jeffrey Barbakow
Title: Chairman and Chief Executive
Officer
AMERICAN MEDICAL HOLDINGS, INC.
By: /s/ ROBERT W. O'LEARY
-----------------------------------
Name: Robert W. O'Leary
Title: Chairman and Chief Executive
Officer
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EXHIBIT A
STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT
THIS STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT (this "Agreement") is
made and entered into as of this 10th day of October, 1994, by and among
National Medical Enterprises, Inc. a Nevada corporation ("Acquiror"), and the
stockholder named on the signature page hereto ("Stockholder"). On the date
hereof the Stockholder Beneficially Owns (as defined in Section 13(a) hereof)
the shares of common stock, par value $.01 per share (the "Company Shares"), of
American Medical Holdings, Inc., a Delaware corporation ("Company"), set forth
next to the Stockholder's name on the signature page hereto.
WHEREAS, Acquiror and the Company concurrently herewith are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of a
wholly owned subsidiary of Acquiror with and into the Company with the Company
as the surviving corporation; and
WHEREAS, as an inducement to Acquiror's execution of the Merger Agreement,
Acquiror has requested that the Stockholder agree, and the Stockholder has
agreed, to grant to Acquiror certain rights (i) to receive payment from the
Stockholder in the event that an Alternate Transaction (as defined in Section
1(a) hereof) is consummated; and (ii) to vote (or consent with regard to) all
Company Shares as to which the Stockholder has voting power as provided herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. PAYMENTS TO ACQUIROR UPON CERTAIN EVENTS.
(a) ALTERNATE TRANSACTION PAYMENT.
(i) If a person other than Acquiror or its Affiliates (as defined in
Section 13(c) hereof) (an "Acquiring Person"):
(A) acquires Beneficial Ownership of any or all of the Stockholder
Shares (as hereinafter defined); or
(B) consummates a merger, consolidation or other business combination
with, or purchases all or substantially all of the assets of, the Company
(each transaction specified in the foregoing clause (A) or in this clause
(B), an "Alternate Transaction"), the Stockholder shall pay to Acquiror
an amount (the "Alternate Transaction Payment") equal to the product of
(x) the excess of the Alternate Transaction Price (as hereinafter
defined), over $25.88, or, if the Alternate Transaction is consummated
after March 31, 1995, $26.13 (the "Base Price") times (y) the number of
Stockholder Shares, if any, sold or transferred by the Stockholder to an
Acquiring Person or received by a Stockholder by virtue of an Alternate
Transaction which is consummated, or with respect to which an agreement
is entered into, on or prior to June 30, 1995 (the "Outside Date"). Such
payment shall be made promptly following the transfer of Stockholder
Shares to an Acquiring Person. In the event that the consideration for
the Stockholder Shares consists in whole or in part of property other
than cash, the Alternate Transaction Payment shall be made by delivering
to the Acquiror a percentage of each type of property received determined
by dividing the amount of the Alternate Transaction Payment (expressed on
a per share basis) by the Alternate Transaction Price.
(ii) "Alternate Transaction Price" shall mean, with respect to any
Stockholder Shares, the price per share paid by any Acquiring Person after
the date hereof for such Stockholder Shares which shall include, if
applicable, the fair market value of securities or other property other than
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cash exchanged for Stockholder Shares or received for the Company's assets,
calculated as a per share price, as determined by the investment banking
firm retained by the Company to evaluate such proposal.
(iii) "Stockholder Shares" shall mean the Shares of Company capital stock
(including without limitation the Company Shares) Beneficially Owned by such
Stockholder as of the date hereof.
(iv) For purposes of determining whether an Alternate Transaction exists,
an Acquiring Person shall be deemed to have acquired "Beneficial Ownership"
of any Stockholder Shares (x) which such person or any of its Affiliates or
Associates (as defined in Section 13(c) hereof) Beneficially Owns, directly
or indirectly; (y) which such person or any of its Affiliates or Associates
has, directly or indirectly (A) the right to acquire (whether such right is
exercisable immediately or subject only to 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 pursuant to any agreement, arrangement or
understanding; or (z) 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, voting or disposing of any Company Shares (other than
the Company Shares owned by other persons that are parties to the Amended
and Restated Stockholder Agreement, dated as of July 30, 1991, among the
Stockholder, the Company and certain other stockholders (the "Stockholder
Agreement").
(b) ADJUSTMENT UPON CERTAIN CHANGES IN CAPITALIZATION. In the event of any
change in the Company Shares by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities that constitute
Stockholder Shares hereunder, and the Base Price therefor, shall be adjusted
appropriately.
2. VOTING RIGHTS.
(a) VOTING AGREEMENT. The Stockholder agrees to vote all Stockholder
Shares on matters as to which the Stockholder is entitled to vote at a meeting
of the Stockholders of the Company, or by written consent without a meeting with
respect to all Stockholder Shares as follows: (i) in favor of approval and
adoption of the Merger Agreement and all related matters; (ii) against any
action or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement; and (iii) against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby) that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger.
(b) GRANT OF PROXY. The Stockholder hereby appoints Acquiror, with full
power of substitution (Acquiror and its substitutes being referred to herein as
the "Proxy"), as attorneys and proxies to vote all Stockholder Shares on matters
as to which Stockholder is entitled to vote at a meeting of the stockholders of
the Company or to which they are entitled to express consent or dissent to
corporate action in writing without a meeting, in the Proxy's absolute, sole and
binding discretion on the matters specified in Section 2(a) above. The
Stockholder agrees that the Proxy may, in such Stockholder's name and stead, (i)
attend any annual or special meeting of the stockholders of the Company and vote
all Stockholder Shares at any such annual or special meeting as to the matters
specified in Section 2(a) above, and (ii) execute with respect to all
Stockholder Shares any written consent to, or dissent from, corporate action
respecting any matter specified in Section 2(a) above. The Stockholder agrees to
refrain from (A) voting at any annual or special meeting of the stockholders of
the Company, (B) executing any written consent in lieu of a meeting of the
stockholders of the Company, (C) exercising any rights of dissent with respect
to the Stockholder Shares, and (D) granting any proxy or authorization to any
person with respect to the voting of the Stockholder Shares, except pursuant to
this Agreement, or taking any action contrary to or in any manner inconsistent
with the terms of this Agreement. The Stockholder agrees that this grant of
proxy is irrevocable and coupled with an
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interest and agrees that the person designated as Proxy pursuant hereto may at
any time name any other person as its substituted Proxy to act pursuant hereto,
either as to a specific matter or as to all matters. The Stockholder hereby
revokes any proxy previously granted by it with respect to its Stockholder
Shares as to the matters specified in Section 2(a) above. In discharging its
powers under this Agreement, the Proxy may rely upon advice of counsel to
Acquiror, and any vote made or action taken by the Proxy in reliance upon such
advice of counsel shall be deemed to have been made in good faith by the Proxy.
3. DIVIDENDS. The Stockholder agrees that if a record date for any
dividend or distribution to be paid (whether in cash or property, including
without limitation securities) on the Stockholder Shares occurs during the term
hereof (other than the cash dividend of $.10 per share permitted by Section 7.12
of the Merger Agreement), Acquiror and the Stockholder shall enter into an
escrow arrangement pursuant to which any payment of any such dividend or
distribution shall be held in escrow. Upon consummation of any Alternate
Transaction, such dividend or distribution made on such Stockholder Shares shall
be delivered to Acquiror together with the Alternate Transaction Payment.
4. TERMINATION.
(a) This Agreement shall terminate upon the earlier to occur of (i) the
Outside Date, PROVIDED, that, if the Merger Agreement is terminated by the
Company in accordance with Section 9.3(b), (c) or (d) thereof, this Agreement
shall terminate on the effective date of such termination of the Merger
Agreement; (ii) the Effective Time of the Merger; and (iii) immediately
following the making of an Alternate Transaction Payment for all of the
Stockholder Shares; PROVIDED, that, in the case of any termination pursuant to
clause (i), this Agreement shall continue with respect to all Stockholder Shares
with respect to which an agreement is entered into prior to such termination
until payment of the Alternate Transaction Payment for such shares is made or
such agreement is terminated.
(b) Upon termination, this Agreement shall have no further force or effect,
except for Section 9 which shall continue to apply to any case, action or
proceeding relating to the enforcement of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. The Stockholder hereby
represents and warrants to Acquiror as follows:
(a) DUE AUTHORIZATION. The Stockholder has the legal capacity and all
necessary corporate, partnership and trust power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Stockholder Beneficially Owns all of the Stockholder Shares listed on the
signature page hereof and specified as so owned with no restrictions on the
voting rights or rights of disposition pertaining thereto, except as set forth
in the Stockholder Agreement, which constitute all Company Shares Beneficially
Owned by such Stockholder. Assuming this Agreement has been duly and validly
authorized, executed and delivered by Acquiror, this Agreement constitutes a
valid and binding agreement of the Stockholder, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by the
principles governing the availability of equitable remedies.
(b) NO CONFLICTS. Neither the execution and delivery of this Agreement nor
the consummation by the Stockholder of the transactions contemplated hereby will
conflict with or constitute a violation of or default under any contract,
commitment, agreement, arrangement or restriction of any kind to which the
Stockholder is a party or by which the Stockholder is bound.
6. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror hereby represents
and warrants to the Stockholder as follows:
(a) DUE AUTHORIZATION. Acquiror has the requisite corporate power and
authority to enter into and perform this Agreement. This Agreement has been duly
authorized by all necessary corporate action on the part of Acquiror and has
been duly executed by a duly authorized officer of Acquiror.
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Assuming this Agreement has been duly and validly executed and delivered by the
Stockholder, this Agreement constitutes a valid and binding agreement of
Acquiror, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
7. NO TRANSFER.
(a) The Stockholder hereby agrees, without the prior written consent of
Acquiror, except pursuant to the terms hereof, not to (i) sell, transfer,
assign, pledge or otherwise dispose of or hypothecate any of its Stockholder
Shares; (ii) grant any proxies, deposit any Stockholder Shares into a voting
trust or enter into a voting agreement with respect to any Stockholder Shares as
to any matter specified in Section 2(a); or (iii) take any action that would
make any representation or warranty of the Stockholder contained herein untrue
or incorrect in any material respect or have the effect of preventing or
disabling the Stockholder from performing its obligations under this Agreement.
Any permitted transferee of Stockholder Shares must become a party to this
Agreement and any purported transfer of Stockholder Shares to a person or entity
that has not become a party hereto shall be null and void.
(b) Until the earlier of the Outside Date and the termination of the Merger
Agreement in accordance with its terms, the Stockholder will not, and will cause
its officers, directors, employees and agents not to, directly or indirectly,
(i) take any action to solicit, initiate or encourage any Acquisition Proposal
(as defined in the Merger Agreement), or (ii) engage in negotiations with, or
disclose any nonpublic information relating to the Company or its subsidiaries,
or afford access to their respective properties, books or records to, any person
that may be considering making, or has made, an Acquisition Proposal (but
nothing in this Section 7(b) shall prohibit any such person, solely in their
capacity as a director of the Company, from participating in deliberations at a
meeting of the board of directors of the Company or voting with respect to any
Acquisition Proposal, provided, that no representatives of any person making
such Acquisition Proposal are present).
8. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; (b) shall
not be assigned by operation of law or otherwise without the prior written
consent of the other parties hereto, except that Acquiror may assign, in its
sole discretion, all or any of its rights, interests and obligations hereunder
to any direct or indirect wholly owned subsidiary of Acquiror; (c) shall not be
amended, altered or modified in any manner whatsoever, except by a written
instrument executed by the parties hereto; and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to the provisions thereof relating to
conflicts of law).
9. REMEDIES. The parties acknowledge that it would be impossible to fix
money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The parties hereto agree that any party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
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10. LEGENDS ON CERTIFICATES. Until such time as this Agreement shall
terminate pursuant to Section 4 hereof, all certificates representing
Stockholder Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT, DATED AS OF OCTOBER 10,
1994, BY AND BETWEEN NATIONAL MEDICAL ENTERPRISES, INC. AND THE STOCKHOLDER.
ANY TRANSFEREE OF THESE SHARES TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT,
COPIES OF WHICH ARE ON FILE AT THE OFFICES OF AMERICAN MEDICAL HOLDINGS,
INC., 14001 DALLAS PARKWAY, SUITE 200, DALLAS, TEXAS 76380.
11. PARTIES IN INTEREST. Subject to the provisions of Section 8(b) hereof,
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
13. DEFINITIONS. Unless the context otherwise requires, the following
terms shall have the following respective meanings:
(a) "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the Rules
and Regulations to the Exchange Act, and "Beneficially Owned" and "Beneficially
Owns" shall have correlative meanings; PROVIDED, HOWEVER, that for purposes of
this Agreement a person shall be deemed to be the Beneficial Owner of Company
Shares that may be acquired pursuant to the exercise of an option or other right
regardless of when such option is exercisable.
(b) "person" means a corporation, association, partnership, joint venture,
organization, business, individual, trust, estate or any other entity or group
(within the meaning of Section 13(d)(3) of the Exchange Act).
(c) The terms "Affiliates" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act, as in
effect on the date hereof (the term "registrant" in said Rule 12b-2 meaning in
this case the Company).
14. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to Acquiror to:
National Medical Enterprises, Inc.
2700 Colorado Boulevard
Santa Monica, California 90404
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson, Jr.
(b) If to the Stockholder, to the address set forth on the signature page,
hereto.
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15. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
16. SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
17. FURTHER ASSURANCES. The Stockholder further agrees to execute all
additional writings, consents and authorizations as may be reasonably requested
by Acquiror to evidence the agreements herein or the powers granted to the Proxy
hereby or to enable the Proxy to exercise those powers.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By
-----------------------------------
Name:
Title:
STOCKHOLDER:
By
-----------------------------------
Name:
Title:
No. of Shares Beneficially Owned:
--------------------------------------
Address for Notices:
[ ]
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of October , 1994, by and among National Medical Enterprises, Inc., a
Nevada corporation (together with its permitted successors and assigns, the
"Company"), and the persons whose signatures appear on the execution pages of
this Agreement (the "Stockholders").
This Agreement is made pursuant to the Agreement and Plan of Merger by and
among the Company, AMH Acquisition Co. and American Medical Holdings, Inc. dated
as of October 10, 1994 (the "Merger Agreement"), pursuant to which the
Stockholders will receive shares of Common Stock (as defined below) of the
Company.
The parties hereto, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be bound hereby, agree
as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
ADVICE: See Section 4 hereof.
AFFILIATE means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
BUSINESS DAY means any day that is not a Saturday, a Sunday or a legal
holiday on which banking institutions in the State of New York are not required
to be open.
COMMON STOCK means the Common Stock, par value $.075 per share, of the
Company, or any other shares of capital stock of the Company into which such
stock shall be reclassified or changed (by operation of law or otherwise). If
the Common Stock has been so reclassified or changed, or if the Company pays a
dividend or makes a distribution on its Common Stock in shares of capital stock,
or subdivides (or combines) its outstanding shares of Common Stock into a
greater (or smaller) number of shares of Common Stock, a share of Common Stock
shall be deemed to be such number of shares of capital stock and amount of other
securities to which a holder of a share of Common Stock outstanding immediately
prior to such reclassification, exchange, dividend, distribution, subdivision or
combination would be entitled.
DELAY PERIOD: See Section 2(b) hereof.
DISTRIBUTEE: See Section 6.4 hereof.
EFFECTIVENESS PERIOD: See Section 2(b) hereof.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
PERSON means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PROSPECTUS means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable
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Shares covered by such Registration Statement and all other amendments and
supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
REGISTRABLE SHARES means the shares of Common Stock issued to the
Stockholders pursuant to the Merger Agreement or thereafter distributed by the
Stockholder to a Distributee, until in the case of any such share (i) it has
been effectively registered under Section 5 of the Securities Act and disposed
of pursuant to an effective registration statement under the Securities Act,
(ii) it has been transferred other than pursuant to Rule "4(1 1/2)" (or any
similar private transfer exemption) under the Securities Act or (iii) it may be
transferred by a holder without registration pursuant to Rule 144 under the
Securities Act or any successor rule without regard to the volume limitation
contained in such rule.
REGISTRATION STATEMENT means any registration statement of the Company that
covers any of the Registrable Shares pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
SEC means the Securities and Exchange Commission.
SECURITIES ACT means the Securities Act of 1933, as amended.
SHELF REGISTRATION: See Section 2(a) hereof.
STOCKHOLDERS: See the introductory clauses hereof.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING means a registration in
which securities of the Company are sold to or through one or more underwriters
for reoffering or sale to the public.
2. SHELF REGISTRATION.
(a) The Company shall file with, and shall cause to be declared effective
by, the SEC prior to the Effective Time (as defined in the Merger Agreement), a
Registration Statement under the Securities Act relating to the Registrable
Shares, which Registration Statement shall provide for the sale by the holders
thereof of the Registrable Shares from time to time on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act (a "Shelf Registration").
(b) The Company agrees to use its best efforts to keep the Registration
Statement filed pursuant to this Section 2 continuously effective and usable for
the resale of Registrable Shares for a period ending on the earlier of (i) two
years from the Effective Time (as defined in the Merger Agreement) and (ii) the
first date on which all the Registrable Shares covered by such Shelf
Registration have been sold pursuant to such Registration Statement. The
foregoing notwithstanding, the Company shall have the right in its sole
discretion, based on any valid business purpose (including without limitation to
avoid the disclosure of any corporate development that the Company is not
otherwise obligated to disclose or to coordinate such distribution with other
shareholders that have registration rights with respect to any securities of the
Company or with other distributions of the Company (whether for the account of
the Company or otherwise)), to suspend the use of the Registration Statement for
a reasonable length of time (a "Delay Period") and from time to time; PROVIDED,
that (i) the aggregate number of days in all Delay Periods occurring in any
period of twelve consecutive months shall not exceed 90 and (ii) the Company
shall not have the right to commence any Delay Period prior to the 90th day
after the Effective Time. The Company shall provide written notice to each
holder of Registrable Shares covered by each Shelf Registration of the beginning
and end of each Delay Period and such holders shall cease all disposition
efforts with respect to Registrable Shares held by them immediately upon receipt
of notice of the beginning of any Delay Period. The two year time period for
which the Company is required to maintain the effectiveness of the Registration
Statement shall be extended by the aggregate number of days of all Delay Periods
and such two year period or the extension thereof required by the preceding
sentence is hereafter referred to as the "Effectiveness Period."
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(c) The Company may, in its sole discretion, include other securities in
such Shelf Registration (whether for the account of the Company or otherwise,
including without limitation any securities of the Company held by security
holders, if any, who have piggyback registration rights with respect thereto) or
otherwise combine the offering of the Registrable Shares with any offering of
other securities of the Company (whether for the account of the Company or
otherwise).
3. HOLD-BACK AGREEMENT.
Each holder of Registrable Shares agrees, if such holder is requested by an
underwriter in an underwritten offering for the Company (whether for the account
of the Company or otherwise), not to effect any public sale or distribution of
any of the Company's equity securities, including a sale pursuant to Rule 144
(except as part of such underwritten registration), during the 10-day period
prior to, and during the 80-day period beginning on, the closing date of such
underwritten offering; PROVIDED, that neither the Company nor any underwriter
may request a holder not to effect any such sales or distributions prior to the
90th day after the Effective Time.
4. REGISTRATION PROCEDURES.
In connection with the registration obligations of the Company pursuant to
and in accordance with Section 2 hereof (and subject to the Company's rights
under Section 2), the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Shares in accordance with
the intended method or methods of disposition thereof (other than pursuant to
any underwritten registration or underwritten offering), and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC such amendments (including post-effective
amendments) to the Registration Statement, and such supplements to the
Prospectus, as may be required by the rules, regulations or instructions
applicable to the Securities Act or the rules and regulations thereunder during
the applicable period in accordance with the intended methods of disposition by
the sellers thereof (other than pursuant to any underwritten registration or
underwritten offering) and cause the Prospectus as so supplemented to be filed
pursuant to Rule 424 under the Securities Act;
(b) notify the selling holders of Registrable Shares promptly and (if
requested by any such person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related Prospectus
or for additional information regarding such holder, (iii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, and (v) of the happening of any event that requires the making
of any changes in such Registration Statement, Prospectus or documents so that
they will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(c) use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the lifting
of any suspension of the qualification or exemption from qualification of any of
the Registrable Shares for sale in any jurisdiction in the United States;
(d) if requested by the selling holders, furnish to counsel for the selling
holders of Registrable Shares, without charge, one conformed copy of each
Registration Statement as declared effective by the SEC and of each
post-effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and such number of copies of the preliminary
prospectus, each amended preliminary
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prospectus, each final Prospectus and each post-effective amendment or
supplement thereto, as the selling holders may reasonably request in order to
facilitate the disposition of the Registrable Shares covered by each
Registration Statement in conformity with the requirements of the Securities
Act;
(e) prior to any public offering of Registrable Shares register or qualify
such Registrable Shares for offer and sale under the securities or Blue Sky laws
of such jurisdictions in the United States as any selling holder shall
reasonably request in writing; and do any and all other reasonable acts or
things necessary or advisable to enable such holders to consummate the
disposition in such jurisdictions of such Registrable Shares covered by the
Registration Statement; PROVIDED, HOWEVER, that the Company shall in no event be
required to qualify generally to do business as a foreign corporation or as a
dealer in any jurisdiction where it is not at the time so qualified or to
execute or file a general consent to service of process in any such jurisdiction
where it has not theretofore done so or to take any action that would subject it
to general service of process or taxation in any such jurisdiction where it is
not then subject;
(f) except during any Delay Period, upon the occurrence of any event
contemplated by paragraph 4(b)(ii) or 4(b)(v) above, prepare a supplement or
post-effective amendment to each Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Shares being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(g) cause all Registrable Shares covered by the Registration Statement to be
listed on each securities exchange, if any, on which similar securities issued
by the Company are then listed.
The Company may require each seller of Registrable Shares as to which any
registration is being effected to furnish such information regarding the
distribution of such Registrable Shares and as to such seller as it may from
time to time reasonably request. If any such information with respect to any
seller is not furnished prior to the filing of the Registration Statement, the
Company may exclude such seller's Registrable Shares from such Registration
Statement.
Each holder of Registrable Shares (including, without limitation, any
Distributee) agrees by acquisition of such Registrable Shares that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 4(b)(ii), 4(b)(iii), 4(b)(iv) or 4(b)(v) hereof or upon
notice of the commencement of any Delay Period, such holder shall forthwith
discontinue disposition of such Registrable Shares covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(f) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus and,
if requested by the Company, such holder shall deliver to the Company (at the
expense of the Company) all copies, other than permanent file copies then in
such holder's possession, of the Prospectus covering such Registrable Shares at
the time of receipt of such request.
Each holder of Registrable Shares further agrees not to utilize any material
other than the applicable current Prospectus in connection with the offering of
Registrable Shares pursuant to the Shelf Registration.
5. REGISTRATION EXPENSES.
Whether or not any Registration Statement becomes effective, the Company
shall pay all costs, fees and expenses incident to the Company's performance of
or compliance with this Agreement including, without limitation, (i) all
registration and filing fees, (ii) fees and expenses of compliance with
securities or Blue Sky laws, (iii) printing expenses (including, without
limitation, expenses of
A-43
<PAGE>
printing of prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Shares included in any Registration
Statement), (iv) fees and disbursements of counsel for the Company, (v) fees and
disbursements of all independent certified public accountants of the Company and
all other Persons retained by the Company in connection with the Registration
Statement and (vi) the fees and expenses (not to exceed $50,000) for one counsel
on behalf of all of the holders of Registrable Shares. Notwithstanding the
foregoing, the fees and expenses of counsel to, or any other Persons retained
by, any holder of Registrable Shares, and any discounts, commissions,
underwriting or advisory fees, brokers' fees or fees of similar securities
industry professional (including any "qualified independent underwriter"
retained for the purpose of Section 3 of Schedule E of the By-laws of the
National Association of Securities Dealers, Inc.) relating to the distribution
of the Registrable Shares, will be payable by such holder and the Company will
have no obligation to pay any such amounts.
6. MISCELLANEOUS.
6.1 TERMINATION. This Agreement and the obligations of the Company
hereunder shall terminate on the earliest of (i) the first date on which no
Registrable Shares remain outstanding, and (ii) the close of business on the
last day of the Effectiveness Period.
6.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders
representing a majority of the Registrable Shares. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter which relates exclusively to the rights of holders of Registrable
Shares whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect the rights of a holder whose
securities are not being sold pursuant to such Registration Statement may be
given by holders of a majority of the Registrable Shares being sold by such
holders; PROVIDED, HOWEVER, that the provision of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
6.3 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed given:
when delivered personally; one Business Day after being deposited with a
next-day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back if telexed and when receipt is
acknowledged, if telecopied, in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; PROVIDED that notices of a change of address shall be effective only
upon receipt thereof):
(i) if to a holder, at the most current address given by such holder to
the Company in accordance with the provisions of this Section 6.3, which
address initially is with respect to each holder, the address set forth on
the signature pages hereto; and
(ii) if to the Company, initially at 2700 Colorado Boulevard, Santa
Monica, California 90404, Attention: Scott Brown, Esq., with a copy to
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los Angeles,
California 90071, Attention: Thomas C. Janson, Jr.
6.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties; PROVIDED
that the holders may not assign their rights hereunder except to an Affiliate of
such holder or a Distributee (as defined below) and no person (other than any
such Affiliate or Distributee) who acquires Registrable Shares from a holder
shall have any rights hereunder. For purposes of this Agreement, the term
"Distributee" shall mean any person that is a stockholder or partner of a
Stockholder, or any person that is a stockholder or partner of a Distributee, to
which Registrable Shares are transferred or distributed by such Stockholder or
Distributee. This Agreement shall survive any transfer of Registrable Shares to
a Distributee and shall inure to the benefit of such Distributee.
A-44
<PAGE>
6.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
6.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
6.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
TO THE PROVISIONS THEREOF GOVERNING CONFLICT OF LAWS PRINCIPLES.
6.8 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
6.9 ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the Registrable
Shares issued pursuant to the Merger Agreement. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
6.10 CALCULATION OF TIME PERIODS. Except as otherwise indicated, all
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; PROVIDED, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
NATIONAL MEDICAL ENTERPRISES, INC.
By ___________________________________
Name:
Title:
STOCKHOLDER:
______________________________________
Name:
Address for Notice:
Number of Shares:
A-45
<PAGE>
EXHIBIT C
FORM OF LEGAL OPINION OF
SKADDEN, ARPS, SLATE, MEAGHER & FLOM,
COUNSEL FOR PARENT
1. Parent and each of the Parent Subsidiaries that is a "significant
subsidiary" within the meaning of Rule 1-01 of Regulation S-X under the Exchange
Act is a corporation validly existing and in good standing under the laws of its
respective jurisdiction of incorporation.
2. The shares of Parent common stock to be issued in the Merger will, upon
the issuance thereof in accordance with the terms of the Merger Agreement, be
validly issued, fully paid and nonassessable and free of preemptive rights.
3. Each of the Parent and Sub has the corporate power and corporate
authority to enter into the Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Merger Agreement by each
of Parent and Sub and the consummation of the transactions contemplated thereby
have been duly authorized by the requisite corporate action on the part of each
of Parent and Sub. The Merger Agreement has been executed and delivered by each
of Parent and Sub and (assuming it has been duly authorized, executed and
delivered by the Company) is a valid and binding obligation of each of Parent
and Sub, enforceable against Parent and Sub in accordance with its terms, except
(i) to the extent that enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws not or hereafter in
effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity) and (ii) we express no opinion with respect to the
enforceability of Section 9.5 of the Merger Agreement.
4. The execution, delivery and performance of the Merger Agreement by each
of Parent and Sub will not result in a breach or violation of any provision of
the charter or by-laws of either Parent or Sub.
5. The Registration Statement as of the effective date thereof and as of
the date hereof appeared on its face to be appropriately responsive in all
material respects to the applicable requirements of the Securities Act and the
rules and regulations thereunder, except that, in each case, we express no
opinion or belief as to the financial statements, schedules and other financial
and statistical data included or incorporated, or deemed to be incorporated, by
reference therein or excluded therefrom, any information to the extent it was
furnished by or relates to the Company or the exhibits to the Registration
Statement, and we do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement.
In addition, we have participated in conferences with officers and other
representatives of Parent, representatives of the independent public accountants
of Parent, officers and other representatives of the Company, counsel for the
Company and representatives of the independent public accountants of the
Company, at which the contents of the Registration Statement, including the
Prospectus included therein, and related matters were discussed and, although we
are not passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus and have made no independent check or verification
thereof, on the basis of the foregoing, no facts have come to our attention that
have led us to believe that, insofar as it relates to Parent, the Registration
Statement, at the time it became effective, contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that,
insofar as it relates to Parent, the Prospectus, as of its date and the date
hereof, contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading,
A-46
<PAGE>
except that we express no opinion or belief with respect to (a) the financial
statements, schedules and other financial and statistical data incorporated, or
deemed to be incorporated, by reference in the Registration Statement or the
Prospectus, (b) statements in or omissions from any documents or the information
incorporated, or deemed to be incorporated, by reference in the Registration
Statement or the Prospectus or (c) information contained or incorporated by
reference in the Registration Statement or the Prospectus to the extent such
information was furnished by or relates to the Company.
A-47
<PAGE>
EXHIBIT D
FORM OF LEGAL OPINION OF
NEAL, GERBER & EISENBERG
COUNSEL FOR THE COMPANY
1. The Company and each of the Company Subsidiaries that is a "significant
subsidiary" within the meaning of Rule 1-01 of Regulation S-X under the Exchange
Act is a corporation validly existing and in good standing under the laws of its
respective jurisdiction of incorporation.
2. The Company has the corporate power and corporate authority to enter
into the Merger Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Merger Agreement by the Company and
the consummation of the transactions contemplated thereby have been duly
authorized by all requisite corporate action on the part of the Company. The
Merger Agreement has been executed and delivered by the Company and (assuming it
has been duly authorized, executed and delivered by Parent and Sub) is a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except (i) to the extent that enforcement thereof may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws not or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity), and (ii) we express no opinion
with respect to the enforceability of Section 9.5 of the Merger Agreement.
3. The execution, delivery and performance of the Merger Agreement by the
Company will not result in a breach or violation of any provision of the charter
or by-laws of the Company.
4. The Information Statement of the Company as of the date it was mailed to
stockholders of the Company and as of the date hereof appeared on its face to be
appropriately responsive in all material respects to the applicable requirements
of the Exchange Act and the rules and regulations thereunder, except that, in
each case, we express no opinion or belief as to the financial statements,
schedules and other financial and statistical data included or incorporated, or
deemed to be incorporated, by reference therein or excluded therefrom or any
information to the extent it was furnished by or relates to the Parent, and we
do not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Information Statement.
In addition, we have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company, officers and other representatives of the Parent,
counsel for the Parent and representatives of the independent public accountants
of the Parent, at which the contents of the Information Statement and related
matters were discussed and, although we are not passing upon, and do not assume
any responsibility for, the accuracy, completeness or fairness of the statements
contained in the Information Statement and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that, insofar as it relates to the
Company, the Information Statement, as of its date and the date hereof,
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that we express no opinion or belief with respect to (a) the
financial statements, schedules and other financial and statistical data
included or incorporated, or deemed to be incorporated, by reference in the
Information Statement, (b) statements in or omissions from any documents or
information incorporated, or deemed to be incorporated, by reference in the
Information Statement or (c) information included or incorporated, or deemed to
be incorporated, by reference in the Information Statement to the extent such
information was furnished by or relates to the Parent.
A-48
<PAGE>
COMPOSITE COPY
AMENDMENT NO. 1 (the "Amendment") dated as of
April 25, 1994 to the Credit and Guaranty Agreement
dated as of August 18, 1993 (the "Agreement"), among
AMERICAN MEDICAL INTERNATIONAL, INC., a Delaware
corporation (the "Borrower"), AMERICAN MEDICAL
HOLDINGS, INC., a Delaware corporation ("Holdings"),
THE LENDERS REFERRED TO THEREIN, (the "Lenders"),
CHEMICAL BANK, a New York banking corporation, as
agent for the Lenders (the "Agent"), THE BANK OF
NOVA SCOTIA, as Co-Agent and THE LONG TERM CREDIT
BANK OF JAPAN, LTD., LOS ANGELES AGENCY, as Co-Agent.
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are used
herein as defined in the Agreement.
The Lenders have made available to the Borrower a revolving credit
facility in the amount of $600,000,000. Holdings and the Borrower have
requested that the Agreement be amended to modify certain provisions thereof as
hereinafter set forth. In consideration of the mutual agreements contained
herein and other good and valuable consideration, the parties hereto hereby
agree as follows:
SECTION 1. AMENDMENT TO THE AGREEMENT. Subject to the provisions of
Section 2 hereof, the Agreement is hereby amended as follows:
(A) The definition of "Pledged Borrower Subsidiary" appearing in
Article 1 of the Agreement is hereby amended by inserting the words ", Section
5.13(c) or Section 5.13(d)" after the words "pursuant to Section 5.13(a)(i)"
appearing therein.
(B) The definition of "Pledged Securities" appearing in Article 1 of
the Agreement is hereby amended by deleting the word "and" immediately after the
word "Finco" appearing therein, by inserting a comma in lieu thereof and by
inserting the following words at the end of the existing text:
", Trademark Subsidiary and each Subsidiary of the
Borrower whose Capital Stock is hereafter required
<PAGE>
to be pledged to the Agent (for the benefit of the Lenders)
pursuant to Section 5.13(c) hereof."
(C) The following definitions are hereby inserted in Article 1 of
the Agreement in the correct alphabetical sequence:
"'NATIONAL PARK SUBSIDIARY' shall mean the direct, wholly owned
Subsidiary of the Borrower which shall be formed for the purpose of
conducting the operating business of AMI National Park Medical Center.
'INTERMEDIATE NOTE SUBSIDIARY' shall mean any direct, wholly owned
Subsidiary of the Borrower which shall be formed for the purpose of
conducting the business contemplated by Section 6.03(d) hereof.
'INTERMEDIATE TRADEMARK SUBSIDIARY' shall mean any direct, wholly
owned Subsidiary of the Borrower which shall be formed for the purpose
of conducting the business contemplated by Section 6.03(e) hereof.
'NOTE SUBSIDIARY' shall mean the direct or indirect, wholly owned
Subsidiary of the Borrower which shall hereafter be formed and to
which the Borrower will be contributing certain notes currently held
by the Borrower as contemplated by Section 6.04(q) hereof.
'TRADEMARK SUBSIDIARY' shall mean the direct or indirect, wholly owned
Subsidiary of the Borrower which shall hereafter be formed and to
which the Borrower will be contributing certain trademarks currently
held by the Borrower as contemplated by Section 6.04(r) hereof."
(D) Section 5.13 of the Agreement is hereby amended by adding the
following additional paragraphs (c), (d) and (e):
"(c) If any Subsidiary of the Borrower acquires assets (whether
resulting from a transfer by the Borrower or one of its Subsidiaries or
otherwise, and whether resulting from one transaction or over time) with a
fair market value of $10,000,000 or more, and a security interest in the
Capital Stock of that direct Subsidiary of the
-2-
<PAGE>
Borrower which is either such Subsidiary which has acquired assets valued
at $10,000,000 or more (the "Subject Subsidiary") or the direct or indirect
corporate parent thereof, has not been granted to the Agent (on behalf of
the Lenders) or the Collateral Trustee (for the equal and ratable benefit
of the Lenders and the holders of the Public Debt Obligations (such term
being used in this Section 5.13(c) as defined in the Collateral Trust
Agreement)), as appropriate, then the Borrower (i) shall promptly notify
the Agent in writing of the acquisition of such assets by the Subject
Subsidiary and (ii) if requested by the Agent, shall promptly grant to the
Agent for the benefit of the Lenders (or, to the Collateral Trustee for the
equal and ratable benefit of the Lenders and the holders of the Public Debt
Obligations), a security interest in the Capital Stock of that direct
Subsidiary of the Borrower (to the extent such Capital Stock is not already
so pledged) which is either such Subject Subsidiary or the direct or
indirect corporate parent thereof.
(d) Promptly upon the creation (if ever) of each of Intermediate
Note Subsidiary and Note Subsidiary, the Borrower shall notify the Agent in
writing thereof and shall grant to the Collateral Trustee for the equal and
ratable benefit of the Lenders and the holders of the Public Debt
Obligations (as such term is defined in the Collateral Trust Agreement), a
security interest in all of the Capital Stock of Intermediate Note
Subsidiary and any of the Capital Stock of Note Subsidiary which is owned
directly by the Borrower.
(e) Promptly upon the creation (if ever) of each of Intermediate
Trademark Subsidiary and Trademark Subsidiary, the Borrower shall notify
the Agent in writing thereof and shall execute and deliver an amendment
(in form and substance satisfactory to the Agent) to the Borrower Pledge
and Security Agreement in order to provide the Agent for the benefit of
the Lenders, with a security interest in all of the Capital Stock of
Intermediate Trademark Subsidiary and any of the Capital Stock of
Trademark Subsidiary which is owned directly by the Borrower."
-3-
<PAGE>
(E) Section 6.03 of the Agreement is hereby amended by adding the
following additional paragraphs (d) and (e):
"(d) With respect to Intermediate Note Subsidiary, (i) conduct any
business other than the ownership of Capital Stock of Note Subsidiary
nor (ii) hold any asset other than such Capital Stock.
(e) With respect to Intermediate Trademark Subsidiary, (i) conduct
any business other than the ownership of Capital Stock of Trademark
Subsidiary nor (ii) hold any asset other than such Capital Stock."
(F) Section 6.04(f) of the Agreement is hereby amended by adding the
following parenthetical phrase after the words "pursuant to this Section 6.04(f)
during the term of this Agreement" appearing in clause (i) of Section 6.04(f):
"(other than the Acquisition by Amisub (SFH), Inc., a Tennessee
corporation, of substantially all of the assets (and the assumption of the
liabilities) of Saint Francis Hospital, Inc., a Tennessee not-for-profit
corporation, for a purchase price of $96,700,000 (subject, however, to a
working capital adjustment), PROVIDED that the Net Cash Proceeds received
by the Borrower from the sale or other disposition of the equity securities
of EPIC Holdings, Inc., equals or exceeds $40,000,000)".
(G) Section 6.04 of the Agreement is hereby amended by deleting the
word "and" appearing at the end of paragraph (n) thereof and adding the
following additional paragraphs (p), (q), (r) and (s):
"(p) the Borrower may make a transfer to one of its wholly owned
Subsidiaries and any wholly owned Subsidiary of the Borrower may make a
transfer to the Borrower or another wholly owned Subsidiary of the
Borrower, PROVIDED, HOWEVER, that if any such transfer to a wholly owned
Subsidiary involves asset(s) with a fair market value of $10,000,000 or
more, then at least five (5) Business Days prior to such transfer,
the Borrower shall provide written notice of the proposed transfer to the
Agent and, if applicable, shall comply with any requests made by the Agent
pursuant to Section 5.13(c) hereof;
-4-
<PAGE>
(q) the contribution by the Borrower (whether directly or through
Intermediate Note Subsidiary) to Note Subsidiary of certain notes currently
held by the Borrower representing intercompany Indebtedness owed by
Subsidiaries of the Borrower (other than Finco) to the Borrower, in
exchange for shares of the Capital Stock of Note Subsidiary;
(r) the contribution by the Borrower (whether directly or through
Intermediate Trademark Subsidiary) to Trademark Subsidiary of certain
trademarks currently held by the Borrower in exchange for shares of the
Capital Stock of Trademark Subsidiary, and the licensing of such trademarks
by Trademark Subsidiary to the Borrower and/or Subsidiaries of the Borrower
in the ordinary course of business of the Borrower and its Subsidiaries;
and
(s) the contribution by the Borrower to National Park Subsidiary of
all or substantially all of the assets (including Patient Receivables)
which are associated with or employed in the operation of AMI National
Park Medical Center, in exchange for shares of the Capital Stock of
National Park Subsidiary."
(H) Section 6.05(k) of the Agreement is hereby amended in its
entirety to read as follows:
"(k) Investments in Joint Venture Subsidiaries and Joint Ventures,
which Joint Venture Subsidiaries or Joint Ventures were in existence
on the date hereof, PROVIDED any such Investment shall be made in the
ordinary course of business consistent with past practices;"
(I) Section 6.05 of the Agreement is hereby amended by deleting the
word "and" appearing at the end of paragraph (p) thereof and adding the
following additional paragraphs (r) and (s) immediately after paragraph (q)
appearing therein:
"(r) Investments in direct and indirect wholly owned Subsidiaries of
the Borrower (other than Joint Venture Subsidiaries); and
-5-
<PAGE>
(s) Investments which are permitted by Sections 6.04(p), 6.04(q),
6.04(r) and 6.04(s) hereof."
(J) Section 6.11 of the Agreement is hereby amended by deleting the
word "and" immediately preceding clause (ii) of such section and inserting a
comma in lieu thereof and by adding the following clause (iii) to the end of
the existing text:
"and (iii) in connection with the contribution by the Borrower to National
Park Subsidiary of all or substantially all of the assets which are
associated with or employed in the operation of AMI National Park Medical
Center, in exchange for shares of the Capital Stock of National Park
Subsidiary."
(K) Section 6.20 of the Agreement is hereby amended by adding the
following parenthetical phrase after the first place the word "Acquisition"
appears in the first proviso of such section:
"(other than the Acquisition by Amisub (SFH), Inc., a Tennessee
corporation, of substantially all of the assets (and the assumption of the
liabilities) of Saint Francis Hospital, Inc., a Tennessee not-for-profit
corporation, for a purchase price of $96,700,000 (subject, however, to a
working capital adjustment), PROVIDED that the Net Cash Proceeds received
by the Borrower from the sale or other disposition of the equity securities
of EPIC Holdings, Inc., equals or exceeds $40,000,000)"
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment is subject to
the satisfaction in full of the following conditions precedent:
(A) the Agent shall have received executed counterparts of this
Amendment, which, when taken together, bear the signatures of the Borrower,
Holdings and those Lenders required by Section 10.09 of the Agreement; and
(B) all legal matters in connection with this Amendment shall be
reasonably satisfactory to Lord Day & Lord, Barrett Smith, counsel for the
Agent.
-6-
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of Holdings and the
Borrower represent and warrant to the Lenders that:
(A) with respect to Amisub (SFH), Inc., its legal name is Amisub
(SFH), Inc., the jurisdiction of its incorporation is the State of Tennessee
and its authorized capitalization is 1,000 shares of common stock, of which
1,000 shares are issued and outstanding and are owned by the Borrower;
(B) the representations and warranties contained in the Agreement
and in the other Fundamental Documents are true and correct on and as of the
date hereof as if such representations and warranties had been made on and as
of the date hereof (except to the extent such representations and warranties
expressly relate to an earlier date); and
(C) no Default or Event of Default has occurred or is continuing
under the Agreement.
SECTION 4. FULL FORCE AND EFFECT. Except as expressly set forth
herein, this Amendment does not constitute a waiver or modification of any
provision of the Agreement or a waiver of any Default or Event of Default under
the Agreement, in either case whether or not known to the Agent. Except as
expressly amended hereby, the Agreement shall continue in full force and effect
in accordance with the provisions thereof on the date hereof. As used in the
Agreement, the terms "Credit Agreement", "this Agreement", "herein",
"hereafter", "hereto", "hereof", and words of similar import, shall, unless
the context otherwise requires, mean the Agreement as amended by this
Amendment. References to the terms "Agreement" or "Credit Agreement" appearing
in the Exhibits or Schedules to the Agreement, shall, unless the context
otherwise requires, mean the Agreement as amended by this Amendment.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. COUNTERPARTS. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
SECTION 7. EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the
preparation, execution and delivery of
-7-
<PAGE>
this Amendment and any other documentation contemplated hereby, including, but
not limited to, the reasonable fees and disbursements of Lord Day & Lord,
Barrett Smith, counsel for the Agent.
SECTION 8. HEADINGS. The headings of this,Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By /s/ MICHAEL N. MURDOCK
---------------------------------
Name: Michael N. Murdock
Title: Vice President
AMERICAN MEDICAL HOLDINGS, INC.
By /s/ MICHAEL N. MURDOCK
---------------------------------
Name: Michael N. Murdock
Title: Vice President
CHEMICAL BANK, INDIVIDUAllY AND
AS AGENT
By
---------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS CO-AGENT
By
---------------------------------
Name:
Title:
-8-
<PAGE>
this Amendment and any other documentation contemplated hereby, including, but
not limited to, the reasonable fees and disbursements of Lord Day & Lord,
Barrett Smith, counsel for the Agent.
SECTION 8. HEADINGS. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By
---------------------------------
Name:
Title:
AMERICAN MEDICAL HOLDINGS,, INC.
By
---------------------------------
Name:
Title:
CHEMICAL BANK, INDIVIDUALLY AND
AS AGENT
By /s/ COLLEEN M. ROUX
---------------------------------
Name: Colleen M. Roux
Title: Vice President
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS CO-AGENT
By
---------------------------------
Name:
Title:
-8-
<PAGE>
this Amendment and any other documentation contemplated hereby, including, but
not limited to, the reasonable fees and disbursements of Lord Day & Lord,
Barrett Smith, counsel for the Agent.
SECTION 8. HEADINGS. The headings of this-Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By
---------------------------------
Name:
Title:
AMERICAN MEDICAL HOLDINGS, INC.
By
---------------------------------
Name:
Title:
CHEMICAL BANK, INDIVIDUALLY AND
AS AGENT
By
---------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS CO-AGENT
By /s/ MARY K. MUNOZ
---------------------------------
Name: Mary K. Munoz
Title: Representative
-8-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By /s/ Y. KAMISAWA
---------------------------------
Name: Yutaka Kamisawa
Title: Deputy General Manager
ARAB BANK PLC
By
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF HAWAII
By
---------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
-9-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
---------------------------------
Name:
Title:
ARAB BANK PLC
By /s/ PETER BOYADJI
---------------------------------
Name: Peter Boyadji
Title: V. P.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF HAWAII
By
---------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
-9-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
---------------------------------
Name:
Title:
ARAB BANK PLC
By
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ BRAD W. DeSPAIN
---------------------------------
Name: Brad W. DeSpain
Title: Vice President
BANK OF HAWAII
By
---------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
-9-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
---------------------------------
Name:
Title:
ARAB BANK PLC
By
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF HAWAII
By /s/ JOSEPH T. DONALSON
---------------------------------
Name: Joseph T. Donalson
Title: Vice President
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
-9-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
---------------------------------
Name:
Title:
ARAB BANK PLC
By
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF HAWAII
By
---------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By /s/ ROGER M. BURNS
---------------------------------
Name: Roger M. Burns
Title: Vice President
-9-
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By /s/ KENNETH C. COULTER
------------------------------------
Name: Kenneth C. Coulter
Title: Assistant Vice President
By /s/ MARK A. HARRINGTON
------------------------------------
Name: Mark A. Harrington
Title: Vice President &
Regional Manager
BANQUE PARIBAS
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
CITICORP USA, INC.
By
-----------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
- 10 -
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
BANQUE PARIBAS
By /s/ JEFFREY J. YUSAL
-----------------------------------
Name: Jeffrey J. Yusal
Title:
By /s/ ERIC GREEN
-----------------------------------
Name: Eric Green
Title: VP
CITICORP USA, INC.
By
-----------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
- 10 -
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
BANQUE PARIBAS
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
CITICORP USA, INC.
By /s/ BARBARA A. COHEN
-----------------------------------
Name: Barbara A. Cohen
Title: Vice President
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
- 10 -
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
BANQUE PARIBAS
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
CITICORP USA, INC.
By
-----------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ ADAM BROUGH
-----------------------------------
Name: Adam Brough
Title: Assistant Vice President
By /s/ ERIC MALLARONI
-----------------------------------
Name: Eric Mallaroni
Title: Senior Vice President
- 10 -
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By /s/ NORAH McCANN
-----------------------------------
Name: Norah McCann
Title: Senior Vice President
By /s/ WOLFGANG BOLLMANN
-----------------------------------
Name: Wolfgang Bollmann
Title: Senior Vice President
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
-----------------------------------
Name:
Title:
- 11 -
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By /s/ TERENCE L. DARBY
-----------------------------------
Name: Terence L. Darby
Title: Vice President
By /s/ LEO WOLF
-----------------------------------
Name: Leo Wolf
Title: Senior Vice President &
General Manager
FIRST INTERSTATE BANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
-----------------------------------
Name:
Title:
- 11 -
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By /s/ SCOTT B WALKER
-----------------------------------
Name: Scott B Walker
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
-----------------------------------
Name:
Title:
- 11 -
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By /s/ JOHN W. RANSON
-----------------------------------
Name: John W. Ranson
Title: VP
- 11 -
<PAGE>
GIROCREDIT BANK, NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
MITSUI LEASING (U.S.A.) INC.
By /s/ SEIJI SANO
-----------------------------------
Name: Seiji Sano
Title: President
NATIONAL CITY BANK
By
-----------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
THE MITSUBISHI BANK, LTD
By
-----------------------------------
Name:
Title:
- 12 -
<PAGE>
GIROCREDIT BANK, NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
MITSUI LEASING (U.S.A.) INC.
By
-----------------------------------
Name:
Title:
NATIONAL CITY BANK
By /s/ CHRISTOPHER M. KARR
-----------------------------------
Name: Christopher M. Karr
Title: Assistant Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
THE MITSUBISHI BANK, LTD
By
-----------------------------------
Name:
Title:
- 12 -
<PAGE>
GIROCREDIT BANK, NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
MITSUI LEASING (U.S.A.) INC.
By
-----------------------------------
Name:
Title:
NATIONAL CITY BANK
By
-----------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By /s/ JUNRI ODA
-----------------------------------
Name: Junri Oda
Title: Senior Vice President and
Senior Manager
THE MITSUBISHI BANK, LTD
By
-----------------------------------
Name:
Title:
- 12 -
<PAGE>
GIROCREDIT BANK, NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
MITSUI LEASING (U.S.A.) INC.
By
-----------------------------------
Name:
Title:
NATIONAL CITY BANK
By
-----------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
THE MITSUBISHI BANK, LTD
By /s/ HIROAKI FUCHIDA
-----------------------------------
Name: Hiroaki Fuchida
Title: Vice President, Manager
- 12 -
<PAGE>
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By /s/ W WAKEFIELD SMITH
-----------------------------------
Name: W Wakefield Smith
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By
-----------------------------------
Name:
Title:
- 13 -
<PAGE>
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By
-----------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By /s/ JOHN KAHN
-----------------------------------
Name: John Kahn
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By
-----------------------------------
Name:
Title:
- 13 -
<PAGE>
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By
-----------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By /s/ ANITA VOGEL
-----------------------------------
Name: Anita Vogel
Title: Vice President
By /s/ IAN REECE
-----------------------------------
Name: Ian Reece
Title: Vice President & Manager
SHAWMUT BANK CONNECTICUT, N.A.
By
-----------------------------------
Name:
Title:
- 13 -
<PAGE>
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By
-----------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By
-----------------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By /s/ MANFRED O. EIGENBROD
-----------------------------------
Name: Manfred O. Eigenbrod
Title: Vice President
- 13 -
<PAGE>
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By /s/ SURAJ P. BHATIA
-----------------------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
Manager, Corporate Finance II Dept.
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By
-----------------------------------
Name:
Title:
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
- 14 -
<PAGE>
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By /s/ TOMOHIRO NOZAKI
-----------------------------------
Name: Tomohiro Nozaki
Title: Senior Vice President and
Joint General Manager
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By
-----------------------------------
Name:
Title:
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
- 14 -
<PAGE>
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By /s/ T. NAKAMURA
-----------------------------------
Name: T. Nakamura
Title: Joint General Manager
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY
By
-----------------------------------
Name:
Title:
- 14 -
<PAGE>
EXHIBIT 4.11
AMENDMENT NO. 2 (the "Amendment")
dated as of June 20, 1994 to the Credit
and Guaranty Agreement dated as of
August 18, 1993 (the "Agreement"), among
AMERICAN MEDICAL INTERNATIONAL, INC., a
Delaware corporation (the "Borrower"),
AMERICAN MEDICAL HOLDINGS, INC., a
Delaware corporation ("Holdings"), THE
LENDERS REFERRED TO THEREIN, (the
"Lenders"), CHEMICAL BANK, a New York
banking corporation, as agent for the
Lenders (the "Agent"), THE BANK OF NOVA
SCOTIA, as Co-Agent and THE LONG TERM
CREDIT BANK OF JAPAN, LTD., LOS ANGELES
AGENCY, as Co-Agent.
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this
Amendment are used herein as defined in the Agreement.
The Lenders have made available to the Borrower a
revolving credit facility in the amount of $600,000,000.
The Borrower, Holdings, the Lenders and the Agent
have agreed (i) to reconstitute the group of syndicate banks
which are party to the Agreement by (A) adding each of the
banks listed on Annex A hereto (the "Additional Lenders") as
a party to the Agreement if it is not already a party and (B)
deleting each of the banks listed on Annex B hereto (the
"Withdrawing Lenders") as a party thereto, (ii) to change the
Commitments of the Lenders, and (iii) to effect the purchase
by the Purchasing Lenders of a portion of the outstanding
Loans and rights with regard to outstanding Letters of
Credit, all on the terms and subject to the conditions
hereinafter set forth.
In consideration of the mutual agreements contained
herein and other good and valuable consideration, the parties
hereto hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. Solely for
purposes of this Amendment, the following terms shall have
the meanings indicated:
"PURCHASING LENDERS" shall mean the Additional
Lenders together with each other Lender whose "Commitment" as
shown on Schedule 1 (Revised June 20, 1994) which is attached
<PAGE>
hereto is greater than the amount of its Commitment as in
effect immediately prior to the effectiveness of this
Amendment.
"SELLING LENDERS" shall mean the Withdrawing
Lenders together with each other Lender whose "Commitment" as
shown on Schedule 1 (Revised June 20, 1994) which is,attached
hereto is less than the amount of its Commitment as in effect
immediately prior to the effectiveness of this Amendment.
SECTION 2. AMENDMENT TO THE AGREEMENT. Subject to
the provisions of Section 4 hereof, the Agreement is hereby
amended effective as of the Effective Date (such term being
used herein as defined in Section 4 hereof) as follows:
(A) each of the Additional Lenders is hereby added
as a party to the Agreement and as a "Lender" thereunder;
(B) each of the Withdrawing Lenders is hereby
deleted as a party to the Agreement and as a "Lender"
thereunder; and
(C) Schedule 1 to the Agreement (the Table of
Commitments) is hereby amended in its entirety by replacing
it with Schedule 1 (Revised June 20, 1994) which is annexed
hereto.
SECTION 3. Purchase of a Portion of the
Commitments, Loans and Rights With Regard to Letters of
CREDIT.
(A) Effective on the Effective Date, each of the
Selling Lenders hereby irrevocably sells and assigns to the
Purchasing Lenders without recourse, and each Purchasing
Lender hereby irrevocably purchases and assumes from each
Selling Lender without recourse to such Selling Lender, that
portion of each Selling Lender's Commitment under the
Agreement, such that after giving effect to such sale and
assignment and purchase and assumption, each Withdrawing
Lender's Commitment will be reduced to zero and each other
Lender (including each Additional Lender) will have the
Commitment set forth opposite its name in the Table of
Commitments which appears in Schedule 1 (Revised
June 20, 1994) which is attached hereto.
(B) Effective on the Effective Date, each of the
Selling Lenders hereby irrevocably sells and assigns to the
Purchasing Lenders without recourse, and each Purchasing
Lender hereby irrevocably purchases and assumes from each
Selling Lender to whom outstanding Alternate Base Rate Loans
-2-
<PAGE>
are owed and who have participated in the outstanding Letters
of Credit, without recourse to such Selling Lender, that
portion of their outstanding Alternate Base Rate Loans and
their rights to outstanding Letters of Credit, such that
after giving effect to such sale and assignment and purchase
and assumption, each Lender (including each Purchasing
Lender) will hold a share of all then outstanding Alternate
Base Rate Loans and all rights to then outstanding Letters of
Credit which share is in accordance with such Lender's
Percentage after giving effect to this Amendment. Such
purchase shall be made by each Purchasing Lender for a
purchase price equal to the difference between (i) the
aggregate principal amount of outstanding Alternate Base Rate
Loans that are owed to such Purchasing Lender on the
Effective Date, after giving effect to the foregoing
provisions of this Section 3(B), MINUS (ii) the aggregate
principal amount of outstanding Alternate Base Loans that
were owed to such Purchasing Lender immediately prior to the
Effective Date, before giving effect to the foregoing
provisions of this Section 3(B).
(C) The Borrower hereby agrees to prepay all
outstanding Eurodollar Loans together with all accrued but
unpaid interest thereon to but excluding the Effective Date
and any other amounts required by Section 2.10 of the
Agreement to be paid by the Borrower to a Lender by reason of
the transactions contemplated hereby; PROVIDED, HOWEVER, that
an amount not in excess of the aggregate amount of such
Eurodollar Loans which have been prepaid, may be immediately
re-borrowed on the Effective Date as either Alternate Base
Rate Loans or Eurodollar Loans and with such Interest Period
or Interest Periods as the Borrower shall request in writing.
Any Loans made by the Lenders (including the Purchasing
Lenders), pursuant to this Section 3(C), shall be made by
each Lender (including each Purchasing Lender) in accordance
with such Lender's Percentage on the Effective Date after
giving effect to this Amendment.
(D) None of the Lenders (i) makes any
representation or warranty or assumes any responsibility with
respect to any statements, warranties or representations made
in or in connection with the Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency
or value of any of the Fundamental Documents or any other
instrument or document furnished pursuant thereto, other than
that it is the legal and beneficial owner of the interests
being sold and assigned by it hereunder and that such
interests are free and clear of any adverse claim; and
(ii) makes any representation or warranty or assumes any
responsibility with respect to the financial condition of the
-3-
<PAGE>
Credit Parties or the performance or observance by any Credit
Party of any of its obligations under any of the Fundamental
Documents or any other instrument or document furnished
pursuant thereto.
(E) Each Purchasing Lender hereby (i) represents
and warrants that it is legally authorized to enter into this
Amendment, (ii) confirms that it has received a copy of the
Agreement, together with copies of the most recent financial
statements delivered pursuant to Sections 5.01(a) and 5.01(b)
of the Agreement and such other documents and information as
it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (iii) agrees that it
will, independently and without reliance upon the Agent or
any Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the
Agreement; (iv) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such
powers under the Fundamental Documents as are delegated to
the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (v) agrees that it will be
bound by the provisions of the Agreement and will perform in
accordance with its terms all the obligations which by the
terms of the Agreement are required to be performed by it as
a Lender; (vi) if such Purchasing Lender is organized under
the laws of a jurisdiction outside the United States,
confirms that it has delivered to the Agent the forms
prescribed by the Internal Revenue Service of the United
States certifying as to such Purchasing Lender's exemption
from United States withholding taxes with respect to all
payments to be made to such Purchasing Lender under the
Agreement, or such other documents as are necessary to
indicate that all such payments are subject to such tax at a
rate reduced by any applicable tax treaty and (vii) confirms
that it has completed and returned to the Agent its
administrative questionnaire.
(F) From and after the effectiveness of this Amendment,
(i) each Purchasing Lender shall be a party to the Agreement and,
to the extent provided in this Amendment, the rights and obligations
of a Lender thereunder and under the other Fundamental Documents
and shall be bound by the provisions thereof and (ii) each of the
Withdrawing Lenders shall cease to be a party to the Agreement, shall
be released from its obligations thereunder and, except to the extent
expressly set forth in the following sentence, shall automatically
release the Borrower and Holdings from any further obligations to
such Withdrawing Lender under or in connection with the Agreement.
It is expressly understood
-4-
<PAGE>
and agreed that (a) none of the Selling Lenders is assigning
to any Purchasing Lender, and each Selling Lender shall
retain, (1) all of such Selling Lender's rights under
Sections 2.03(f) and 2.11 of the Agreement with respect to
any cost, reduction or payment incurred or made on or prior
to the Effective Date, including, without limitation, the
rights to indemnification and to reimbursement for taxes,
costs and expenses and (2) any and all amounts paid to such
Selling Lender on or prior to the Effective Date and (b) both
the Selling Lenders and the Purchasing Lenders shall be.
entitled to the benefits of Sections 10.04 and 10.05 of the
Agreement.
(G) On or before the Effective Date, the Borrower,
at its own expense, shall execute and deliver to the Agent,
for the account of each Purchasing Lender, a promissory note
identical to the Note held by each Lender, but payable to
each Purchasing Lender and in the amount of its Commitment
after giving effect to this Amendment (each a "New Note"). Each
Purchasing Lender hereby acknowledges and agrees that
payments of principal and interest made on or prior to the
Effective Date by the Borrower in respect of the Alternate
Base Rate Loans purchased by each Purchasing Lender pursuant
to this Amendment and evidenced by such Purchasing Lender's
New Note have satisfied the obligation of the Borrower to
make such payments in respect.of such Loans under such New
Note prior to the Effective Date. In addition, on or before
the Effective Date, the Borrower, at its own expense, shall
execute and deliver to the Agent, for the account of each of
the Lenders (other than the Purchasing Lenders and any Lender
whose Commitment will not change upon the effectiveness of
this Amendment) that will have a commitment under the
Agreement after giving effect to this Amendment, a promissory
note identical to the Note currently held by such Lender and
previously executed by the Borrower in connection with
Agreement, but in the amount of such Lender's Commitment
after giving effect to this Amendment (each a "Replacement
Note"). Each of the Replacement Notes and the New Notes
shall for all purposes be a "Note" under the Agreement. On
the Effective Date, the Notes of the Lenders that will be
receiving Replacement Notes shall be deemed cancelled and
each such Lender shall promptly deliver its Note to the Agent
for redelivery to the Borrower, in each case with an
appropriate notation as to the cancellation of such Note. For
purposes of the foregoing, each such Lender hereby
authorizes the Agent to make notations on its behalf on such
Lender's Note as to the cancellation thereof.
(H) On the Effective Date, each Purchasing Lender
shall pay to the Agent (for the benefit of the Selling
-5-
<PAGE>
Lenders) an amount equal to the purchase price (as set forth
in Section 3(B) hereof) of the outstanding Alternate Base
Rate Loans and rights to outstanding Letters of Credit being
purchased and assumed by it pursuant to this Amendment, by
wire transfer of immediately available funds. Promptly
following its receipt thereof, the Agent will distribute such
amounts to the Selling Lenders pro rata in accordance with
the outstanding Alternate Base Rate Loans and rights to
outstanding Letters of Credit sold by each of them.
(I) On the Effective Date, the Borrower hereby
agrees to pay to the Agent (for the benefit of the Lenders)
(i) the interest on the outstanding Alternate Base Rate Loans
accrued and unpaid to but excluding the Effective Date,
(ii) the aggregate amount required to be paid or prepaid by
it pursuant to Section 3(C) hereof, (iii) the accrued and
unpaid amount, to but excluding the Effective Date, of the
commission payable pursuant to Section 2.03(e)(ii) of the
Agreement with respect to outstanding Letters of Credit and
(iv) all accrued and unpaid Commitment Fees to but excluding
the Effective Date. Promptly following its receipt thereof,
the Agent will distribute the foregoing amounts as follows:
(a) the amounts described in clause (i), (iii) and (iv) shall
be distributed to the Lenders pro rata in accordance with the
outstanding Alternate Base Rate Loans and rights to
outstanding Letters of Credit held by each of them
immediately prior to the effectiveness of this Amendment; (b)
the aggregate amount of outstanding Eurodollar Loans and the
accrued and unpaid interest thereon shall be distributed to
the Lenders pro rata in accordance with the outstanding
Eurodollar Loans held by each of them immediately prior to
the effectiveness of this Amendment; and (c) any amount
required by Section 2.10 of the Agreement to be paid by the
Borrower to a Lender in connection with the transactions
contemplated hereby, shall be distributed to such Lender for
its own account.
SECTION 4. CONDITIONS TO EFFECTIVENESS. The
effectiveness of this Amendment and the obligations of the
Purchasing Lenders and Lenders hereunder are subject to the
satisfaction in full on or prior to June 30, 1994 of the
following conditions precedent (the first date on which all
such conditions have been satisfied being herein referred to
as the "Effective Date"):
(A) the Agent shall have received executed
counterparts of this Amendment, which, when taken together,
bear the signatures of the Agent, the Borrower, Holdings and
all of the Lenders (including all Withdrawing Lenders and all
Additional Lenders);
-6-
<PAGE>
(B) the Agent shall have received the original New
Notes and Replacement Notes contemplated by Section 3(G)
hereof, each duly executed by the Borrower;
(C) the Agent shall have received executed
counterparts of Amendment No. 3 to the Agreement, which when
taken together, bear the signatures of the Agent, the
Borrower, Holdings and such of the Lenders as are sufficient,
and all other actions shall have been taken, such that,
Amendment No. 3 to the Agreement will become effective
immediately following the effectiveness of this Amendment;
(D) the Agent shall have received all amounts
required by the terms of this Amendment to be paid by any
party hereto; and
(E) all legal matters in connection with this
Amendment shall be reasonably satisfactory to Lord Day &
Lord, Barrett Smith, counsel for the Agent.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each
of Holdings and the Borrower represents and warrants to the
Lenders that:
(A) the representations and warranties contained
in the Agreement and in the other Fundamental Documents are
true and correct on and as of the date hereof as if such
representations and warranties had been made on and as of the
date hereof (except to the extent such representations and
warranties expressly relate to an earlier date); and
(B) no Default or Event of Default has occurred or
is continuing under the Agreement.
SECTION 6. FULL FORCE AND EFFECT.
(A) Except as expressly set forth herein, this
Amendment does not constitute a waiver or modification of any
provision of the Agreement or a waiver of any Default or
Event of Default under the Agreement, in either case whether
or not known to the Agent. Except as expressly amended
hereby, the Agreement shall continue in full force and effect
in accordance with the provisions thereof on the date hereof.
As used in the Agreement, the terms "Credit Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and
words of similar import, shall, unless the context otherwise
requires, mean the Agreement as amended by this Amendment.
References to the terms "Agreement" or "Credit Agreement"
appearing in the Exhibits or Schedules to the Agreement,
-7-
<PAGE>
shall, unless the context otherwise requires, mean the
Agreement as amended by this Amendment.
(B) References to the term "Schedule 1" appearing
in the Agreement or in the Exhibits or Schedules to the
Agreement, shall, unless the context otherwise requires, mean
Schedule 1 (Revised June 20, 1994) which is attached to this
Amendment.
(C) References to the terms "Note" or "Notes"
appearing in the Agreement or in the Exhibits or Schedules to
the Agreement, shall, unless the context otherwise requires,
include the New Notes and the Replacement Notes.
SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
SECTION 8. COUNTERPARTS. This Amendment may be
executed in two or more counterparts, each of which shall
constitute an original, but all of which when taken together
shall constitute but one instrument.
SECTION 9. EXPENSES. The Borrower agrees to pay
all reasonable out-of-pocket expenses incurred by the Agent
in connection with the preparation, execution and delivery of
this Amendment and any other documentation contemplated
hereby, including, but not limited to, the reasonable fees
and disbursements of Lord Day & Lord, Barrett Smith, counsel
for the Agent.
SECTION 10. HEADINGS. The headings of this Amend-
ment are for the purposes of reference only and shall not
affect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their duly authorized
officers, all as of the date and year first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By
---------------------------------
Name:
Title:
-8-
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC.
By
----------------------------------
Name:
Title:
CHEMICAL BANK, INDIVIDUALLY AND
AS AGENT
By
----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS CO-AGENT
By
---------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
----------------------------------
Name:
Title:
ARAB BANK PLC
By
----------------------------------
Name:
Title:
-9-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
----------------------------------
Name:
Title:
BANK OF HAWAII
By
----------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
----------------------------------
Name:
Title:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
BANQUE PARIBAS
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
-10-
<PAGE>
CITICORP USA, INC.
By
----------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
-11-
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
By
----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
----------------------------------
Name:
Title:
GIROCREDIT BANK, NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By
----------------------------------
Name:
Title:
THE MITSUBISHI BANK, LTD
By
----------------------------------
Name:
Title:
-12-
<PAGE>
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
----------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By
----------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By
----------------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By
----------------------------------
Name:
Title:
-13-
<PAGE>
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By
----------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By
----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By
----------------------------------
Name:
Title:
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY
By
----------------------------------
Name:
Title:
WITHDRAWING LENDERS:
MITSUI LEASING (U.S.A.) INC.
By
----------------------------------
Name:
Title:
-14-
<PAGE>
NATIONAL CITY BANK
By
----------------------------------
Name:
Title:
ADDITIONAL LENDERS:
THE BANK OF TOKYO, LTD., DALLAS AGENCY
By
----------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By
----------------------------------
Name:
Title:
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
PNC BANK, N.A.
By
----------------------------------
Name:
Title:
-15-
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By
----------------------------------
Name:
Title:
-16-
<PAGE>
ANNEX A
LIST OF ADDITIONAL LENDERS
The Bank of Tokyo, Ltd., Dallas Agency
Credit Lyonnais Cayman Island Branch
Deutsche Bank AG New York and/or Cayman Islands Branches
PNC Bank, N.A.
Toronto Dominion (Texas), Inc.
<PAGE>
ANNEX B
LIST OF WITHDRAWING LENDERS
Mitsui Leasing (U.S.A.) Inc.
National City Bank
<PAGE>
Schedule 1
(Revised June 20, 1994)
TABLE OF COMMITMENTS
<TABLE>
LENDER COMMITMENT
- ------ ----------
<S> <C>
Chemical Bank $37,000,000.00
The Bank of Nova Scotia 37,000,000.00
The Long Term Credit Bank of Japan, 37,000,000.00
Ltd., Los Angeles Agency
Bank of America National Trust 29,000,000.00
and Savings Association
Citicorp USA, Inc. 29,000,000.00
NationsBank of Texas, N.A. 29,000,000.00
The Dai-Ichi Kangyo Bank, Ltd., 29,000,000.00
Los Angeles Agency
The Industrial Bank of Japan, 29,000,000.00
Limited, New York Branch
Shawmut Bank Connecticut, N.A. 23,000,000.00
The Fuji Bank, Limited, Houston Agency 23,000,000.00
The Sakura Bank, Limited 23,000,000.00
Los Angeles Agency
Banque Paribas l8,OOO,OOO.OO
Dresdner Bank AG, New York Branch 18,000,000.00
and Grand Cayman Branch
First Union National Bank 18,000,000.00
of North Carolina
National Westminster Bank USA 18,000,000.00
Cooperatieve Centrale l8,OOO,OOO.OO
Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland",
New York Branch
First Interstate Bank of 18,000,000.00
Texas, N.A.
The Mitsubishi Bank, LTD 18,000,000.00
The Tokai Bank, Ltd. 18,000,000.00
Los Angeles Agency
Compagnie Financiere de Cic 14,000,000.00
et de L'Union Europeene
The Sumitomo Trust & Banking Co., Ltd., 14,000,000.00
New York Branch
Credit Lyonnais Cayman Island Branch 11,000,000.00
Toronto Dominion (Texas), Inc. 11,000,000.00
Arab Bank PLC 9,000,000.00
Bank of Hawaii 9,000,000.00
Bank of Ireland, Grand Cayman Branch 9,000,000.00
The Bank of Tokyo, Ltd., Dallas Agency 9,000,000.00
Banque Francais du Commerce Exterieur 9,000,000.00
DG Bank Deutsche Genossenschaftsbank 9,000,000.00
Deutsche Bank AG New York and/or
Cayman Islands Branches 9,000,000.00
GiroCredit Bank, New York Branch 9,000,000.00
PNC Bank, N.A. 9,000,000.00
--------------
TOTAL $600,OOO,OOO.00
</TABLE>
<PAGE>
AMENDMENT NO. 3 (the "Amendment")
dated as of June 20, 1994 to the Credit
and Guaranty Agreement dated as of
August 18, 1993, as amended (the
"Agreement"), among AMERICAN MEDICAL
INTERNATIONAL, INC., a Delaware
corporation (the "Borrower"), AMERICAN
MEDICAL HOLDINGS, INC., a Delaware
corporation ("Holdings"), THE LENDERS
REFERRED TO THEREIN, (the "Lenders"),
CHEMICAL BANK, a New York banking
corporation, as agent for the Lenders
(the "Agent"), THE BANK OF NOVA SCOTIA,
as Co-Agent and THE LONG TERM CREDIT BANK
OF JAPAN, LTD., LOS ANGELES AGENCY, as
Co-Agent.
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are used
herein as defined in the Agreement.
The Lenders have made available to the Borrower a revolving credit
facility in the amount of $600,000,000. Holdings and the Borrower have
requested that the Agreement be amended to modify certain provisions thereof
as hereinafter set forth. In consideration of the mutual agreements contained
herein and other good and valuable consideration, the parties hereto hereby
agree as follows:
SECTION 1. AMENDMENT TO THE AGREEMENT. Subject to the provisions of
Section 2 hereof, the Agreement is hereby amended as follows:
(A) Article 1 of the Agreement is hereby amended to add the following
additional definitions in the appropriate alphabetical location:
"'BASIS POINT' shall mean 1/100th of 1%.
'MOODY'S' shall mean Moody's Investors Service Inc.
'S&P' shall mean Standard & Poor's Ratings Group, a division of
McGraw-Hill.
'UTILIZED PERCENTAGE' shall mean, for any period for which it is to
be determined, the
<PAGE>
quotient (expressed as a decimal and rounded to the nearer 0.1%) obtained
by dividing (a) the sum of outstanding Loans plus L/C Exposure by (b) the
Total Commitment on the date hereof."
(B) The definition of "Commitment Termination Date, appearing in Article
1 of the Agreement is hereby amended by deleting the date "September 1, 1998"
appearing therein and inserting the date "September 1, 1999" in lieu thereof.
(C) The definition of "Interest Margin" appearing in Article 1 of the
Agreement is hereby amended in its entirety to read as follows:
"'INTEREST MARGIN' shall mean with respect to any Alternate Base Rate
Loan or any Eurodollar Loan, the Interest Margin in effect from time
to time as determined pursuant to Section 2.16(a) hereof."
(D) Section 2.03(e)(i)(A) of the Agreement is hereby amended by deleting
the words "1/2 of 1% per annum in excess of" from clause (1) appearing in such
Section and inserting the phrase "the applicable Interest Margin for Alternate
Base Rate Loans, plus" in lieu thereof.
(E) The second sentence of Section 2.04 of the Agreement is hereby
amended by deleting the date "September 1, 1998" appearing therein and
inserting the date "September 1, 1999" in lieu thereof.
(F) Section 2.05(c) of the Agreement is hereby amended in its entirety to
read as follows:
"(c) Not used."
(G) Section 2.06 of the Agreement is hereby amended by deleting the
phrase "of 1/2 of 1% per annum" appearing in the first sentence of such Section
and inserting "at the rate per annum from time to time in effect in accordance
with Section 2.16(a) hereof" in lieu thereof.
(H) Section 2.07(b) of the Agreement is hereby amended in its entirety to
read as follows:
"(b) The Total Commitment shall be automatically and permanently
reduced as of each of the dates set forth in column (a) below, by the
-2-
<PAGE>
amount set forth opposite such date in column (b) below:
<TABLE>
<CAPTION>
(a) (b)
REDUCTION OF THE
DATE TOTAL COMMITMENT
---- -----------------
<S> <C>
December 1, 1996 $31,250,000
March 1, 1997 $31,250,000
June 1, 1997 $31,250,000
September 1, 1997 $31,250,000
December 1, 1997 $43,750,000
March 1, 1998 $43,750,000
June 1, 1998 $43,750,000
September 1, 1998 $43,750,000
September 1, 1999 $300,000,000"
</TABLE>
(I) Article 2 of the Agreement is hereby amended to add the following new
Section 2.16 immediately following the existing Section 2.15:
"Section 2.16. CERTAIN PRICING ADJUSTMENTS"
(a) The applicable Interest Margin and Commitment Fee
(expressed in Basis Points) in effect from time to time shall be
determined in accordance with the following table based upon the
lowest Pricing Level for which the Borrower qualifies based upon the
criteria set forth below:
<TABLE>
<CAPTION>
INTEREST INTEREST
MARGIN FOR MARGIN FOR
PRICING EURODOLLAR ALTERNATE BASE COMMITMENT
LEVEL LOANS RATE LOANS FEE
- ------- ---------- -------------- ----------
<S> <C> <C> <C>
LEVEL I 50.0 0.0 22.50
LEVEL II 62.5 0.0 25.00
LEVEL III 75.0 0.0 25.00
LEVEL IV 87.5 0.0 31.25
LEVEL V 112.5 12.5 37.50
</TABLE>
'Level I' shall apply only if the Borrower's senior secured long-term
debt is rated at least BBB- by S&P and at least Baa3 by Moody's.
-3-
<PAGE>
'Level II' shall apply if the Borrower's senior secured long-term
debt is rated either (i) at least BB+ by S&P and at least Ba1 by
Moody's or (ii) at least BBB-/Baa3 by one of either S&P or Moody's
and at least BB/Ba2 by the other rating agency.
'Level III' shall apply if (i) for the most recent Rolling Period for
which the Borrower has delivered the certificate contemplated by
Section 5.01(c) hereof, the ratio of Consolidated EBITDA to
Consolidated Interest Expense is equal to or greater than 3.00:1 and
(ii) the ratio of Total Debt outstanding on the last day of such
Rolling Period to the then current Consolidated Capital Base is equal
to or less than 0.62:1.
'Level IV' shall apply if (i) for the most recent Rolling Period for
which the Borrower has delivered the certificate contemplated by
Section 5.01(c) hereof, the ratio of Consolidated EBITDA to Consolidated
Interest Expense is equal to or greater than 2.75:1 and (ii) the ratio of
Total Debt outstanding on the last day of such Rolling Period to the then
current Consolidated Capital Base is equal to or less than O.65:1.
'Level VI' shall apply if either (i) a Default or Event of Default
shall have occurred and be continuing or (ii) the Borrower does not
otherwise qualify for any lower Pricing Level.
Any change in the applicable Interest Margin and Commitment Fee
determined in accordance with the foregoing table shall become effective
(i) if based on a change in debt rating, on the date of announcement or
publication by the Borrower or the applicable rating agency of such rating
change or, in the absence of such announcement or publication, on the
effective date of such rating change, or an the date of any request by the
Borrower to either of such rating agencies not to rate its debt or on
the date either of such rating agencies announces it shall no longer rate
the Borrower's debt, or (ii) if for any other reason, on the fifth
Business Day after the Borrower delivers (or should have delivered) the
certificate contemplated by Section 5.01(c) which evidences that such
changed Interest Margin and Commitment Fee should apply.
-4-
<PAGE>
Notwithstanding the foregoing, the Borrower shall not be entitled to
any Pricing Level lower than Level IV prior to the receipt by the Lenders
of the certificate contemplated by Section 5.01(c) hereof with respect to
the fiscal 1994 year end.
(b) For each day, if any, that the Utilized Percentage is 75% or
more, the Borrower will pay in arrears to the Agent for the account of
each Lender a utilization fee of 1/8 of 1% per annum (computed on the
basis of the actual number of days elapsed over a year of 365/366 days, as
the case may be, during the preceding period or quarter), on the entire
aggregate principal amount of such Lender's Loans outstanding plus its
share of L/C Exposure. Such utilization fee shall be payable on the last
Business Day of each March, June, September and December in each year and
on the Commitment Termination Date."
(J) Sections 6.01(g), 6.01(h), 6.01(k) and 6.01(l) are hereby amended by
deleting the date "September 1, 1998" appearing in each such Section and
inserting the date "September 1, 1999" in lieu thereof.
(K) Section 6.04(f) of the Agreement is hereby amended in its entirety
to read as follows:
"(f) Acquisitions, PROVIDED that:
(i) the aggregate consideration given (whether in one transaction or
a series of transactions) for all Acquisitions made pursuant to this
Section 6.04(f) (A) during any year shall not exceed the sum of
$200,000,000 PLUS, the amount permitted to be expended for Capital
Expenditures during such year pursuant to Section 6.20, but not used for
such permitted Capital Expenditures, and (B) during the term of this
Agreement shall not exceed the sum of $500,000,000 plus, any amount
permitted to be expended for Capital Expenditures during any year pursuant
to Section 6.20, but not used for such permitted Capital Expenditures,
PROVIDED, HOWEVER, that in connection with an Acquisition made by a non
wholly owned Subsidiary, the consideration given for such Acquisition
shall be included in any determination of the aggregate consideration
given for Acquisitions pursuant to this clause (i) only to the
extent that the amount of such consideration exceeds the
-5-
<PAGE>
aggregate amount of Investments in such non wholly owned Subsidiary, which
Investments were made in cash or with Cash Equivalents and were
Acquisitions made pursuant to this Section 6.04(f),
(ii) after any such Acquisition, the unused Total Commitment
hereunder shall equal or exceed $75,000,000 (without altering or
otherwise changing the Borrower's historical business practices in
managing its working capital accounts),
(iii) on a Pro Forma Basis, no Default or Event of Default shall
occur or then be continuing, and
(iv) at least five (5) Business Days prior to the consummation of
any such Acquisition involving total consideration of $15,000,000 or more,
the Agent shall have received a certificate of an Authorized Officer of
the Borrower outlining the terms of the proposed transaction and
confirming the Borrower's compliance with this Section; and
PROVIDED, FURTHER, that for purposes of this Section 6.04(f), the amount
of any Indebtedness described in, and permitted by, Section 6.01(n) hereof
involved in any Acquisition permitted by this Section shall be considered
as part of the total consideration given for such Acquisition; and
PROVIDED, FURTHER, that the Acquisition by Amisub (SFH), Inc., a Tennessee
corporation, of substantially all of the assets (and the assumption of
certain liabilities) of Saint Francis Hospital, Inc., a Tennessee
not-for-profit corporation, for a purchase price of $96,700,000 (subject,
however, to a working capital adjustment), shall be excluded from any
determination of the aggregate consideration given for Acquisitions
pursuant to clause (i) above."
(L) Section 6.05(m) of the Agreement is hereby amended to add the
following phrase at the end of the existing text: "of the types contemplated
by clauses (i), (ii) and (iii) of the definition of Restricted Payments".
(M) Section 6.07(d) of the Agreement is hereby amended in its entirety
to read as follows:
"(d) Restricted Payments of the types contemplated by clauses (i),
(ii), (iii) and (iv) of the definition of Restricted Payment, in an
aggregate amount
-6-
<PAGE>
in any year (without any double counting), which when added to the
aggregate amount of Investments in Unrestricted Subsidiaries made by
Holdings, the Borrower and/or any of its Subsidiaries in such year
(without any double counting), is not in excess of 50% of Consolidated Net
Income for the immediately preceding fiscal year; PROVIDED, HOWEVER, that
the aggregate amount of Restricted Payments of the types contemplated
by clauses (i), (ii) and (iii) of the definition of Restricted Payments,
in any year, shall not exceed 25% of Consolidated Net Income for the
immediately preceding fiscal year; and PROVIDED, that after any Restricted
Payment is made pursuant to this Section 6.07(d), on a Pro Forma Basis, no
Default or Event of Default will have occurred or be continuing and the
unused Total Commitment hereunder shall equal or exceed $100,000,000
(without altering or otherwise changing the Borrower's business practices
in managing working capital accounts); and PROVIDED, FURTHER, that to the
extent the amount of Restricted Payments permitted by this Section 6.07(d)
for any year (without regard to any permitted carry-over from a prior year
pursuant to this proviso) is in excess of the actual amount of Restricted
Payments made pursuant to this Section 6.07(d) in such year (such excess
in any year being referred to in this Section 6.07(d) as an "Unused
Restricted Payment"), an amount equal to the Unused Restricted Payment in
any year may be used by the Borrower during any succeeding fiscal year, to
redeem, repurchase, retire, defease or make any similar payment with
respect to, the Borrower's 15% Junior Subordinated Discount Debentures Due
2005 issued pursuant to the Indenture dated as of August 1, 1991 between
the Borrower and United States Trust Company of New York, as trustee."
(N) The first proviso appearing in Section 6.20(a) of the Agreement is
hereby amended in its entirety to read as follows:
"PROVIDED, HOWEVER, if Acquisitions have been made pursuant to
Section 6.04(f) hereof, in any year, the aggregate fair market value
of which equals or exceeds $200,000,000, then the amount set forth
above for such fiscal year shall be reduced by the amount by which the
aggregate amount expended in such year for such Acquisitions exceeds
$200,000,000;"
-7-
<PAGE>
(0) Section 6.20(a) of the Agreement is hereby amended by adding the
following sentence at the end of the existing text:
"It is hereby agreed that the Acquisition by Amisub (SFH), Inc., a
Tennessee corporation, of substantially all of the assets (and the
assumption of certain liabilities) of Saint Francis Hospital, Inc., a
Tennessee not-for-profit corporation, for a purchase price of $96,700,000
(subject, however, to a working capital adjustment) shall be excluded
from any determination being made under the first proviso of this Section
6.20(a) for the fiscal year ending August 31, 1994."
(P) The table appearing in Section 6.21 of the Agreement is hereby
amended by adding the year "1999" at the end of column entitled "For Quarters
in the Fiscal Year Ended" and adding the ratio "4.00:1" at the end of the
column entitled "Interest Coverage Ratio".
(Q) The table appearing in Section 6.22 of the Agreement is hereby
amended by adding the year "1999" at the end of the column entitled "Fiscal
Year Ended" and adding the ratio "0.64:1" at the end of the column entitled
"Debt Ratio".
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment is subject to the
satisfaction in full of the following conditions precedent:
(A) the Agent shall have received executed counterparts of this Amendment,
which, when taken together, bear the signatures of the Borrower, Holdings and
all of the Lenders;
(B) the Agent shall have received an amendment to the Finco Receivables
Agreement, duly executed on behalf of Finco and the Finco Sellers, in form and
substance satisfactory to the Agent; which amendment will extend the term of
the Finco Receivables Agreement to match that of the Agreement;
(C) the Agent shall have received for its own account or for the benefit
of the Lenders, as applicable, the amendment fees and all other fees and
amounts that are due and payable pursuant to the terms and provisions of that
certain letter agreement dated May 25, 1994 between the Borrower and Chemical
Securities Inc., the Agreement or otherwise in connection with this Amendment;
and
-8-
<PAGE>
(D) all legal matters in connection with this Amendment shall be
reasonably satisfactory to Lord Day & Lord, Barrett Smith, counsel for the
Agent.
Section 3. APPROVAL BY THE LENDERS. Each of the Lenders hereby approves
the amendment to the Finco Receivables Agreement which amendment is
contemplated by Section 2(B) hereof and a copy of which is attached hereto as
Annex A, and hereby agrees that the Agent is authorized to consent to such
amendment.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Each of Holdings and the
Borrower represent and warrant to the Lenders that:
(A) the representations and warranties contained in the Agreement and in
the other Fundamental Documents are true and correct on and as of the date
hereof as if such representations and warranties had been made on and as of the
date hereof (except to the extent such representations and warranties expressly
relate to an earlier date); and
(B) no Default or Event of Default has occurred or is continuing under
the Agreement.
SECTION 5. FULL FORCE AND EFFECT. Except as expressly set forth herein,
this Amendment does not constitute a waiver or modification of any provision of
the Agreement or a waiver of any Default or Event of Default under the
Agreement, in either case whether or not known to the Agent. Except as
expressly amended hereby, the Agreement shall continue in full force and effect
in accordance with the provisions thereof on the date hereof. As used in the
Agreement, the terms "Credit Agreement", "this Agreement", "herein",
"hereafter", "hereto", "hereof", and words of similar import, shall, unless the
context otherwise requires, mean the Agreement as amended by this Amendment.
References to the terms "Agreement" or "Credit Agreement" appearing in
the Exhibits or Schedules to the Agreement, shall, unless the context otherwise
requires, mean the Agreement as amended by this Amendment.
SECTION 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall
-9-
<PAGE>
constitute an original, but all of which when taken together
shall constitute but one instrument.
SECTION 8. EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment and any other
documentation contemplated hereby, including, but not limited to, the
reasonable fees and disbursements of Lord Day & Lord, Barrett Smith, counsel
for the Agent.
SECTION 9. HEADINGS. The headings of this Amendment are for the purposes
of reference only and shall not affect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date and year
first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By
---------------------------------
Name:
Title:
AMERICAN MEDICAL HOLDINGS, INC.
By
---------------------------------
Name:
Title:
CHEMICAL BANK, INDIVIDUALLY AND
AS AGENT
By
---------------------------------
Name:
Title:
-10-
<PAGE>
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS CO-AGENT
By
---------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
INDIVIDUALLY AND AS CO-AGENT
By
---------------------------------
Name:
Title:
ARAB BANK PLC
By
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------
Name:
Title:
BANK OF HAWAII
By
---------------------------------
Name:
Title:
BANK OF IRELAND, GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
-11-
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
BANQUE PARIBAS
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
CITICORP USA, INC.
By
---------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
-12-
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By
---------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
---------------------------------
Name:
Title:
-13-
<PAGE>
GIROCREDIT BANK, NEW YORK BRANCH
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By
---------------------------------
Name:
Title:
THE MITSUBISHI BANK, LTD
By
---------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED
LOS ANGELES AGENCY
By
---------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK USA
By
---------------------------------
Name:
Title:
-14-
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By
---------------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By
---------------------------------
Name:
Title:
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By
---------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By
---------------------------------
Name:
Title:
-15-
<PAGE>
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By
---------------------------------
Name:
Title:
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY
By
---------------------------------
Name:
Title:
THE BANK OF TOKYO, LTD., DALLAS AGENCY
By
---------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By
---------------------------------
Name:
Title:
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
-16-
<PAGE>
PNC BANK, N. A.
By
---------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By
---------------------------------
Name:
Title:
-17-
<PAGE>
EXHIBIT 10.26
August 19, 1994
Mr. Terry H. Linn
3130 Shillington Place
Charlotte, NC 28210
RE: Letter of Understanding
----------------------------
Dear Terry:
The purpose of this letter is to set forth the understanding of American
Medical Holdings, Inc. ("AMH") and Terry H. Linn ("Linn") regarding AMH's
employment of Linn as Vice President Development of AMH. This letter supersedes
and replaces the Letter of Understanding dated 4/5/93.
1. DUTIES. Commencing no later than June 1, 1993, Linn shall become the
Vice President Development (level 4 officer) of AMH, and shall play a leadership
role with subsidiaries of AMH to the extent directed by the AMH Chairman and
CEO, and shall perform such duties as are commensurate with a Vice President
Development of similarly situated companies. It should be noted, however, that
in the initial years, pursuant to discussions between Linn and the Chairman of
the company, the activities shall be heavily weighted toward acquisitions.
2. ANNUAL SALARY AND BONUS. Commencing June 1, 1993 or sooner depending
on Linn's availability, Linn's annual base salary shall be $275,000 which may in
the discretion of AMH's Chairman and CEO, be increased from time to time. In
addition, for the year ending August 30, 1994, and subsequent years, Linn shall
participate in the Incentive Compensation Program for senior executives as a
Level 4 Executive.
3. OPTIONS. Upon approval of the AMH Compensation Committee and
execution of the appropriate option agreement by Linn, Linn shall be entitled to
options to purchase 50,000 common shares of AMH common stock pursuant to the
Non-Qualified Performance Stock Option Plan for Key Employees of American
Medical Holdings, Inc. and Subsidiaries, and 50,000 common shares of AMH common
stock pursuant to the Non-Qualified Employee Stock Option Plan of AMH and
Subsidiaries. Such options shall vest at 20% per year on the same terms as the
options granted to other AMH executives participating in these programs. The
exercise price for such options shall be the average closing price for the
common shares of AMH during the 20 trading days immediately following Linn's
first day of employment with the company.
<PAGE>
Terry H. Linn
Letter of Understanding
Page 2
4. PARTICIPATION IN OTHER PLANS. Subject to Paragraphs 2 and 3 hereof,
Linn shall have the right to participate in all other employee plans and
benefits currently existing or hereafter granted by AMH to its employees.
Subject to Paragraph 3 hereof all waiting periods will be waived to the full
extent possible unless such waiver would require AMH to waive waiting periods of
other employees. Linn shall be eligible to participate in all employee
compensation and benefit plans customarily available to vice presidents.
5. SEVERANCE. In the event of the termination of Linn's employment as
Vice President Development of AMH for any reason other than "cause" (as defined
below), Linn shall be entitled to receive one year's compensation payable in
biweekly installments (excluding incentive payment) determined on the basis of
his annual salary for AMH's fiscal year then most recently commenced. In the
event such termination is a result of Linn's death or mental incapacity, the
severance payment shall be made to Linn's estate or personal representative.
The obligation of AMH under this Paragraph 8 shall be the only obligation of AMH
and its subsidiaries for the payment of compensation (except as otherwise
provided under applicable law) to Linn in the event of the termination of his
employment.
For purposes of this Letter of Understanding, Linn shall be deemed to be
terminated for cause if his employment is terminated due to (i) the commission
by Linn of an act of fraud or embezzlement (including the unauthorized
disclosure of confidential or proprietary information of AMH or its
subsidiaries), (ii) a conviction of Linn (including a NOLO CONTENDERE plea)
involving in the good faith judgment of the Board of Directors of AMH, fraud,
dishonesty or moral turpitude, (iii) willful misconduct as an employee of AMH or
a subsidiary or (iv) the willful failure of Linn to render services to AMH or a
subsidiary in accordance with his employment.
Following termination of employment, either voluntarily or involuntarily,
Linn will cooperate fully with AMH, upon request, in relation to AMH's defense,
prosecution or other involvement in any continuing or future claims, lawsuits,
charges, and internal or external investigations which arise out of events or
business matters which occurred during Linn's prior employment by AMH. Such
continuing duty of cooperation shall include making himself available to AMH,
upon reasonable notice, for depositions, interviews, and appearances as a
witness, and furnishing information to AMH and its legal counsel upon request.
Linn's compliance with the provisions of this paragraph beyond one year from his
last day of employment at AMH will not be unreasonably burdensome on him. AMH
will reimburse actual documented reasonable out-of-pocket expenses necessarily
incurred such as travel, lodging, meals. Severance payments, if otherwise
payable to Linn, shall terminate in the event of a failure of cooperation.
<PAGE>
Terry H. Linn
Letter of Understanding
Page 3
6. NON-COMPETITION/NON-INTERFERENCE. During (a) the period of Linn's
employment, (b) the period, if any, for which Linn receives severance payments
from AMH or for which Linn claims entitlement to receive severance payments, AND
(c) the additional period of twelve (12) months after the last date of (a) and
(b), Linn will not compete, directly or indirectly, with AMH within a twenty-
five (25) mile radius of any facility acquired by AMH during Linn's employment
unless 18 months have elapsed since that acquisition. "Compete" means and
includes rendering services, accepting employment, consultation, or any other
business relationship with any company, association, affiliation, consortium, or
other for-profit or not-for-profit organization that provides or offers health
care services or contracts or agreements for health care services similar to
those provided or offered by AMH. Linn also agrees that during the periods
stated in (a), (b), and (c) above, Linn will not (i) directly or indirectly
solicit or encourage in any manner the resignation or re-affiliation of any
employee, physician, contractor, or professional health care provider or
provider organization that is employed by, affiliated or associated with AMH;
(ii) directly or indirectly solicit or divert customers, patients, or business
of AMH; or (iii) attempt to influence, directly or indirectly, any person or
entity to cease, reduce, alter or rearrange any business relationship with AMH.
Furthermore, Linn agrees to protect AMH's confidential information. All
provisions of this paragraph 9 shall apply irrespective of the type or reason
for termination of employment.
7. INDEMNIFICATION. Linn shall be indemnified by AMH with respect to his
service as Vice President Development of AMH to the full extent permitted under
applicable law.
8. RELOCATION. AMH will provide relocation benefits to Linn consistent
with Appendix A attached hereto and incorporated by reference to this Letter of
Understanding.
9. REPRESENTATION. Linn represents and warrants to AMH that he is not
bound by any contract, agreement, judgment or court order restricting his
ability to serve and perform as Vice President Development of AMH.
<PAGE>
Terry H. Linn
Letter of Understanding
Page 4
If the foregoing sets forth your understanding, please execute in the space
provided at the bottom of this page.
AMERICAN MEDICAL HOLDINGS, INC.
By: /s/ Robert W. O'Leary
-------------------------------
Robert W. O'Leary
/s/ Terry H. Linn
- -----------------------------------
Terry H. Linn
<PAGE>
Terry H. Linn
Letter of Understanding
Page 5
APPENDIX A
RELOCATION BENEFITS
The following enumerates the benefits to be provided in connection with the
relocation of the Linn family from Charlotte, North Carolina to the metropolitan
Dallas area.
1. All reasonable moving costs for household goods.
2. Transportation for family members.
3. House hunting trips as necessary.
4. Reasonable temporary housing for Mr. Linn for up to one year in the Dallas
area.
5. Move-in and fix-up allowance of $35,000 to be paid to Mrs. Linn.
6. Real estate commissions on the sale of the Charlotte property.
7. All standard non-equity closing costs in both Charlotte and Dallas.
<PAGE>
[LOGO] EXHIBIT 10.27
October 30, 1992
Mr. Lawrence N. Kugelman
10872 Furlong Drive
Santa Ana, CA 92705
RE: LETTER OF UNDERSTANDING
Dear Larry:
The purpose of this letter is to set forth the understanding of American
Medical Holdings, Inc. ("AMH") and Lawrence N. Kugelman ("Kugelman") regarding
AMH's employment of Kugelman as Executive Vice President of AMH.
1. DUTIES. Commencing January 4,1993, Kugelman shall become the Executive
Vice President (level 3 officer) of AMH, and shall have responsibility for the
western operations of AMH. In addition, he shall play a leadership role with
subsidiaries of AMH with respect to managed care and the evolution of the
Company's reactions to national health care policy to the extent directed by
the AMH Chairman and President and shall perform such other duties as are
commensurate with an Executive Vice President of similarly situated companies.
2. ANNUAL SALARY AND BONUS. Commencing January 4,1993, Kugelman's annual
base salary shall be $300,000 which may in the discretion of AMH's President
and COO, be increased from time to time. In addition for the year ending
January 4,1994, Kugelman shall be guaranteed a bonus of $200,000. This amount
will be offset against the amounts otherwise due Kugelman under AMH's Incentive
Compensation Program for leveled employees as Kugelman's fiscal 1993 and 1994
bonuses based on the number of months in his first full year of employment
falling in each of those fiscal periods. If Kugelman's performance is at a
level above the guaranteed amount, he will be credited with the higher
amount. Subsequent bonuses shall be at the discretion of AMH.
3. OPTIONS. Upon approval of the AMH Compensation Committee and execution
of the appropriate option agreement by Kugelman, Kugelman shall be entitled
to options to purchase (a) 100,000 common shares of AMH common stock pursuant
to the Non-Qualified Performance Stock Option Plan for Key Employees of
American Medical Holdings, Inc. and Subsidiaries, and (b) 100,000 common shares
of AMH common stock pursuant to the Non-Qualified Employee Stock Option Plan
of AMH and Subsidiaries. Such options shall vest at 20% per year on the same
terms as the options granted to other AMH executives participating in these
programs. The exercise price for such options shall be the price at which the
common shares of AMH were offered in the Public Offering of August 15, 1991.
<PAGE>
Page 2
4. SEVERANCE. In the event of the termination of Kugelman's employment as
Executive Vice President of AMH for any reason other than "cause" (as defined
below), Kugelman shall be entitled to receive a one-time lump sum payment in
an amount equal to 12 months base compensation (excluding bonus) determined on
the basis of his annual salary for AMH's fiscal year then most recently
commenced. In the event such termination is a result of Kugelman's death or
mental incapacity, the severance payment shall be made to Kugelman's estate or
personal representative. The obligation of AMH under this Paragraph 4 shall
be the only obligation of AMH and its subsidiaries for the payment of
compensation (except as otherwise provided under applicable law) to Kugelman
in the event of the termination of his employment.
For purposes of this Letter of Understanding, Kugelman shall be deemed to
be terminated for cause if his employment is terminated due to (i) the
commission by Kugelman of an act of fraud or embezzlement (including the
unauthorized disclosure of confidential or proprietary information of AMH or
its subsidiaries), (ii) a conviction of Kugelman (including a NOLO CONTENDERE
plea) involving in the good faith judgment of the Board of Directors of AMH,
fraud, dishonesty or moral turpitude, (iii) willful misconduct as an employee
of AMH or a subsidiary or (iv) the willful failure of Kugelman to render
services to AMH or a subsidiary in accordance with his employment.
5. INDEMNIFICATION. Kugelman shall be indemnified by AMH with respect to
his service as Executive Vice President of AMH to the full extent permitted
under applicable law.
6. PARTICIPATION IN OTHER PLANS. Subject to Paragraphs 2 and 3 hereof,
Kugelman shall have the right to participate in all other employee plans and
benefits currently existing or hereafter granted by AMH to its employees.
Subject to Paragraph 3 hereof all waiting periods will be waived to the full
extent possible unless such waiver would require AMH to waive waiting
periods of other employees. Kugelman shall be eligible to participate in all
employee compensation and benefit plans customarily available to executive vice
presidents.
7. REPRESENTATION. Kugelman represents and warrants to AMH that he is not
bound by any contract, agreement, judgment or court order restricting his
ability to serve and perform as Executive Vice President of AMH.
If the foregoing sets forth your understanding, please execute in the
space provided at the bottom of this page and return one of the originals.
AMERICAN MEDICAL HOLDINGS, INC.
By: John T. Casey
_______________________________
John T. Casey
___________________________
Lawrence N. Kugelman
<PAGE>
EXHIBIT 10.28
[LOGO]
CONFIDENTIAL
June 1, 1990
Mr. W. Randolph Smith
American Medical International, Inc.
433 North Camden Drive
Beverly Hills, California 90210
Dear Randy:
Attached is your new employment agreement which is effective
June 1, 1990. Although your existing Employment Agreement
dated September 1, 1988, does not expire until September 1,
1990, it will be replaced by this agreement.
The terms of your Dallas move bonus were set forth in a separate
agreement dated February 20, 1990. The terms of that agreement
remain in place and are unaffected by your new employment agreement.
Please sign both copies of the enclosed letter where indicated,
and return a fully executed copy to Kirk Miller in the Legal
Department.
It goes without saying that I look forward to working with you in Dallas.
Very truly yours,
James F. Lyons
JFL:lls
<PAGE>
[LOGO]
CONFIDENTIAL
June 1, 1990
Mr. W. Randolph Smith
American Medical International, Inc.
433 North Camden Drive
Beverly Hills, California 90210
Re: Terms of Employment
Dear Randy:
I am very pleased that you are continuing as part of the
management team. The purpose of this letter is to memorialize
the terms of your employment with American Medical International,
Inc. ("AMI").
1. COMPENSATION AND BENEFITS.
(a) BASE COMPENSATION. Your base compensation will be
Two Hundred Thousand Dollars ($200,000.00) per year.
This amount will be reviewed annually at the close of
each fiscal year and may be increased, but once
increased will not be decreased. You will also receive a
car allowance and all employee fringe benefits that may
be offered from time to time to employees at your level,
including paid vacation.
(b) ANNUAL BONUS. You will be eligible to receive an
annual bonus based upon criteria determined by the
Board of Directors prior to the beginning of each fiscal
year. If the criteria are satisfied, the bonus will be
paid within ninety (90) days following the end of the
fiscal year.
2. TERMINATION AND RESIGNATION.
(a) TERMINATION. AMI may terminate your employment for any reason
deemed sufficient by AMI. Upon termination, except under
circumstances described
<PAGE>
Page No. 2 [LOGO]
below, you will be entitled to receive termination
benefits consisting of base compensation, car allowance
and fringe benefits for one (1) year following the date
of termination. You may elect to receive your base
compensation and car allowance in a lump sum, but in
that case you will not be eligible to receive fringe
benefits following the date the lump sum payment is
made. In the case of termination, your stock options
shall be treated as provided in the AMI Stock Option Plan.
(b) RESIGNATION. You may resign from AMI at any time,
but it is not intended that you will receive severance
pay if you do. However, should you resign because
of a material breach by AMI of any of its obligations
as described in this letter; or (ii) of a substantial
adverse alteration in the nature of your employment
responsibilities; or (iii) you are required to change the
city in which your employment is based after August 1,
1990, then you will be entitled to the termination
benefits described above.
(c) DEATH OR DISABILITY. In the event of your death, your
estate shall be entitled to receive the base compensation
in effect on the date of your death for one (1) year.
Should you become disabled, you may, subject to AMI's
reasonable approval, terminate for disability and receive
the termination benefits described above.
(d) MISCONDUCT. AMI is not obligated to pay termination
benefits in the event you should be terminated for
misconduct. Misconduct means an act or acts of
dishonesty that are intended to result in personal
enrichment to you at the expense of AMI, and not
merely poor performance.
3. TERM. This letter shall be effective June 1, 1990, and shall continue to
govern the terms of your employment with AMI until termination or
resignation of your employment. It may be amended only by an express
written agreement between you and AMI.
The terms described in this letter represent the complete
agreement between you and AMI regarding your terms of
employment and supersede any prior employment agreement.
I am very pleased that you have decided to continue your
employment with AMI. This letter reflects the confidence Harry
<PAGE>
Page No. 3 [LOGO]
Gray and I have in your past performance and our expectation
for future achievement.
Very truly yours,
James F. Lyons
JFL:lls
Accepted and Agreed:
By: /s/ W. RANDOLPH SMITH
-------------------------------
W. Randolph Smith
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
American Medical International, Inc. ("AMI"), and Thomas J. Sabatino, Jr.,
Esq. ("Executive") enter into this Employment Agreement effective as of
November 1, 1992.
1. DUTIES -- Executive is employed by AMI as the Associate General Counsel
of American Medical International, Inc. located in Dallas, Texas. Executive
will diligently and conscientiously devote his full and exclusive business
time, attention, and best efforts in discharging his duties and
responsibilities as Executive subject to governance of the Senior Executive
management of AMI. Executive will scrupulously comply with all provisions of
the AMI Code of Ethics and Conflicts of Interest Policy.
2. COMPENSATION AND BENEFITS -- In consideration for his services and the
other undertakings and obligations agreed to herein, Executive will be
compensated as follows:
(a) BASE SALARY: Executive will receive a base salary of One Hundred
Seventy-Five Thousand Dollars ($175,000) per year, payable as it is earned on
a bi-weekly basis.
(b) ANNUAL BONUS: Executive will be eligible to receive an annual bonus
based upon criteria determined by AMI's Board of Directors prior to the
beginning of each fiscal year, to be paid, if otherwise payable, only for
employment during the entirety of the fiscal year; there shall be no pro rata
vesting or credit for partial years (other than the first year of employment,
which bonus shall be prorated), unless provided for in the incentive
compensation plan document. AMI's Board of Directors and management shall be
the sole judge of whether the criteria are satisfied. The targeted bonus for
Executive shall initially be 30%, with payout of any or all of the target
subject to Executive's performance as measured by AMI Senior Management.
(c) BENEFITS: Executive is eligible to receive all standard employment
benefits and participate in all standard benefits plans that inure to AMI
employees in a similar capacity, including health, disability, time off with
pay, and retirement, subject to the express plan documents, or where no plan
document exists, to the written policies adopted by AMI. Executive will
receive a car allowance of $900.00 per month.
(d) STOCK OPTIONS: Upon execution of the appropriate option agreements by
Executive, he/she shall be entitled to options to purchase 10,000 shares of
AMI's common stock in accordance with and governed by the Non-Qualified
Performance Stock Option Plan. Such options shall vest at 20% per year based
on performance requirements and conditions provided by the above-referenced
plan.
3. RELOCATION -- All relocation amounts paid by AMI are subject to the AMI
Relocation Guidelines, and Executive agrees that
<PAGE>
if he voluntarily terminates his employment within twenty-four (24) months of
the effective date of this Agreement, Executive will reimburse AMI on a
pro-rata basis (for example, 50% in the case of a voluntary termination at the
end of one year).
4. ACKNOWLEGEMENT OF PROTECTABLE INTERESTS -- Executive acknowledges and
agrees that his employment involves building and maintaining business
relationships and good will on behalf of AMI with customers, patients,
physicians and other professional contractors, employees and staff, and
various providers and users of health care services; that he is entrusted with
proprietary, strategic and other confidential information which is of special
value to AMI; and that the foregoing matters are significant interests which
AMI is entitled to protect.
5. CONFIDENTIAL INFORMATION -- Executive agrees that all confidential
information that comes or has come into his possession by reason of this
employment is the property of AMI and shall not be used except in the course
of employment by AMI and and for AMI's exclusive benefit. Further, Executive
shall not, during his employment or thereafter, disclose or acknowledge the
content of any confidential information to any person who is not an employee
of AMI authorized to possess such confidential information. "Confidential
information" means all proprietary and other information relating to the
business and operations of AMI which has not been specifically designated for
release to the public by an authorized representative of AMI at the level of
Chief Operating officer or above. Confidential information includes, by way of
illustration and without limitation, trade secrets, future business plans,
marketing plans and strategies, pricing information, financial data, customer,
patient and supplier information, regulatory approval strategies, new service
line and contract products, and other information that was developed,
assembled, gathered by, or originated with AMI for its own private use. Upon
termination of employment, all documents, writings, electronic storage
devices, and other tangible things containing any confidential information
shall be delivered to AMI without making or retaining copies, excerpts, or
notes of such information.
6. NON-COMPETITIVE/NON-INTERFERENCE-- During (a) the period of his
employment, (b) the period, if any, for which he receives severance payments
from AMI or for which he claims entitlement to receive severance payments, AND
(c) the additional period of twelve (12) months after the last date of (a) and
(b), Executive will not compete, directly or indirectly, with AMI within a
fifty (50) mile radius of the AMI facility for which he last performed
services or within a fifty (50) mile radius of any other AMI facility for which
he performed services as an Executive during the last two (2) years of his
employment unless such facility is California or Florida in which instance
Executive will agree the radius under (c) shall be
2
<PAGE>
fifteen (15) miles of any other AMI facility in such state. "Compete" means
and includes rendering services, accepting employment, consultation, or any
other business relationship with any company, association, affiliation,
consortium, or other for-profit or not-for-profit organization that provides
or offers health care services or contracts or agreements for health care
services similar to those provided or offered by AMI. Executive also agrees
that during the periods stated in (a), (b), and (c) above, he will not (i)
directly or indirectly solicit or encourage in any manner the resignation or
re-affiliation of any employee, physician, contractor, or professional health
care provider or provider organization that is employed by, affiliated or
associated with any facility for which Executive rendered services as an
Executive during his employment by AMI; (ii) directly or indirectly solicit
or divert customers, patients, or business of any such AMI facility; or (iii)
attempt to influence, directly or indirectly, any person or entity to cease,
reduce, alter or rearrange any business relationship with any such AMI
facility. All provisions of this paragraph 6 shall apply irrespective of the
type or reason for termination of employment.
7. ENFORCEMENT/SEVERABILITY/REFORMATION -- (a) The parties agree that a
breach or threatened breach of any protective or restrictive provisions
contained in paragraph 5 and 6 above will cause immediate irreparable harm to
AMI for which legal remedies alone are inadequate to compensate. Therefore,
Executive agrees that these provisions shall be enforceable by equitable
process of injunction in addition to, but without limitation of, any monetary
damages, sanctions or other legal remedies available, plus recovery by AMI of
its reasonable attorney's fees and expense incurred in enforcing these
provisions.
(b) In the event that any provision of this Amendment is declared invalid
or unenforceable, as written, the remaining provisions shall not be abridged or
affected. Further, in the event that any specific restrictive or protective
provisions contained in paragraphs 5 and 6 above cannot be given full effect,
as written, Executive and AMI empower a court or arbitrator hereunder of
competent jurisdiction, to modify, reduce or otherwise reform such
provisions(s) in such fashion as to carry out the parties' intent to grant AMI
the maximum allowable protection consistent with the applicable law and facts.
8. TERMINATION AND SEVERANCE -- (a) AMI and Executive each may terminate
this employment at any time for any reason deemed sufficient in the sole
discretion of either of them in which event all compensation shall cease. Upon
involuntary termination of Executive's employment by AMI without cause, AMI
will pay Executive severance pay at Executive's base salary level in effect at
the time of his termination, exclusive of bonuses, incentive
3
<PAGE>
compensation, employment benfits, stock options, or any other benefits except
those required to be made available by applicable federal or state law
notwithstanding this Agreement. Severance will be paid in the manner of salary
continuation on a bi-weekly basis, but without benefits or accruals based on
salary, and shall cease upon Executive's obtaining of substantially equivalent
employment but in no event later than one (1) year after the date of
termination of employment. No severance is due in the event of a voluntary
termination by Executive. Executive acknowledges that this agreement by AMI
to pay certain severance hereunder, except in the case of a voluntary quit or
involuntary termination for cause, alone constitutes a sufficient agreement
and consideration for his post-termination obligations, and that in the event
those obligations are not honored by Executive or enforced by a court or
arbitration, no severance payments will be made and any such payments already
made may be recovered.
(b) Following termination of employment, either voluntarily or
involuntarily, Executive will cooperate fully with AMI, upon request, in
relation to AMI's defense, prosecution or other involvement in any continuing
or future claims, lawsuits, charges, and internal or external investigations
which arise out of events or business matters which occurred during
Executive's prior employment by AMI. Such continuing duty of cooperation shall
include making himself available to AMI, upon reasonable notice, for
depositions, interviews, and appearances as a witness, and furnishing
information to AMI and its legal counsel upon request. AMI will reimburse
actual documented reasonable out-of-pocket expenses necessarily incurred such
as travel, lodging, meals. Severance payments, if otherwise payable to
Executive, shall terminate in the event of a failure of cooperation.
9. ARBITRATION OF ALL DISPUTES -- Executive and AMI agree that any dispute,
controversy or claim arising from the employment relationship, including but
not limited to any claim based on the employment agreement and any claim
arising under any federal, state, or other governmental unit's statutes,
regulations or codes (including specifically, without limitation, the Age
Discrimination in Employment Act and other anti-discrimination laws), shall be
submitted to final and binding arbitration in accordance with the Federal
Arbitration Act (FAA), Title 9 of the U.S. Code, or if the FAA is deemed
inapplicable, then, and only then, in accordance with the arbitration laws of
the state in which Executive last performed services for AMI. The parties
agree that such arbitration shall be governed by the employment arbitration
procedures and rules for non-union employees administered by the Houston,
Texas office of AAA, except as specifically otherwise provided or modified by
Exhibit A to this Agreement which is made a part hereof. A judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The parties further
4
<PAGE>
agree that this provision for final and binding arbitration shall not preclude
AMI from obtaining preliminary or other injunctive relief in court to enforce
the provisions of paragraphs 4 through 6 above, without regard to whether any
such claim has been or can be referred to arbitration.
10. ENTIRE AGREEMENT/MODIFICATION -- The parties agree that this Employment
Agreement constitutes the complete and entire agreement between the parties,
and that no previous agreement, either oral or written, shall have any
effect. All previous agreements, either oral or written, are expressly
superseded, canceled and revoked by this Employment Agreement. The parties
further agree that the terms, conditions, and provisions of this Employment
Agreement may not be modified by any subsequent agreement, unless the
modifying agreement: (i) is in writing; (ii) expressly refers to this
Employment Agreement; (iii) is signed and executed by the President of AMI as
representative of AMI; and (iv) is signed by Executive.
Executed this 25th day of November, 1992 at Dallas, Texas.
Thomas J. Sabatino, Jr.
----------------------------------------
THOMAS J. SABATINO, JR.
AMERICAN MEDICAL INTERNATIONAL, INC.
BY: O. Edwin French
------------------------------------
O. EDWIN FRENCH
Senior Vice President
5
<PAGE>
EXHIBIT A TO AMENDMENT TO EMPLOYMENT AGREEMENT
ADDITIONAL AGREED ARBITRATION PROVISIONS
1. Arbitration may be initiated by joint submission in writing or by a
written demand by either party filed with the Houston, Texas office of AAA
containing a brief description of the dispute or controversy and a statement
of issues to be submitted to the arbitrator. Any party asserting a claim for
relief shall be obligated to state such claim in its demand for arbitration or
response thereto.
2. The party asserting a claim for relief is responsible for payment in
advance of any administrative fee required by AAA, except that in the event
both parties assert claims for relief, each shall be responsible for one-half
of such administrative fee.
3. A demand for arbitration shall request the Houston, Texas of AAA to
furnish a list of five (5) arbitrators who, in the judgment of such AAA
office, are qualified and experienced to hear and determine the
executive-level employment dispute. None of the arbitrators shall have served
in any labor-management arbitration under the auspices of AAA or the Federal
Mediation and Conciliation Service (FMCS). In the event claims are asserted
under statutes or laws, the arbitrators shall also be attorneys licensed to
practice law in at least one state of the United States.
4. The arbitrator selection procedure shall be as follows: the parties or
their counsel shall confer, and Executive shall first remove two names from
the list; AMI shall then remove two names; and the name remaining shall be the
arbitrator.
5. The hearing shall be conducted within ninety (90) days of the
appointment of the arbitrator at a time and place within one hundred (100)
miles of the location at which Executive last performed services for AMI, to
be designated by the AAA office administering the case, unless the parties
otherwise agree.
6. Any discovery or exchange of information shall be within the
arbitrator's discretion but shall not delay the hearing. Allowance of a
stenographic record of the hearing shall be in the discretion of the
arbitrator.
7. The arbitrator shall render his award within thirty days of the closing
of the hearing by the arbitrator.
8. All expenses of the arbitration, including the arbitrator's fees, shall
be borne by the parties equally. However, each party shall always bear the
expense of its own counsel, experts, witnesses, and preparation and
presentation of proofs, irrespective of the outcome.
<PAGE>
EXHIBIT 10.30
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into as of this 10th day of October,
1994, by and between American Medical International, Inc., a Delaware
corporation ("AMI"), and Thomas J. Sabatino, Jr., Esq. ("Sabatino") and amends
that certain Employment Agreement made and entered into as of November 1, 1992
by and between Sabatino and AMI (the "Employment Agreement").
W I T N E S S E T H:
WHEREAS, AMI and Sabatino desire to amend the Employment Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. The Employment Agreement shall remain in full force and effect except
to the extent specifically amended hereby. Terms defined in the Employment
Agreement shall have like meanings when used herein, unless the context
otherwise requires.
2. Paragraph 2(d) of the Employment Agreement is hereby amended in its
entirety as follows:
"(d) OPTIONS. All options granted to Executive by AMI shall vest at
20% per year based on performance requirements and conditions provided by
the Option Plan. Notwithstanding anything to the contrary set forth in the
foregoing Executive's option agreements or the Option Plan, in the event of
the occurrence of any "Change of Control" (as defined in Paragraph 3
hereof), Executive shall vest in and be entitled to acquire 100% of the
shares of Common Stock subject to any options theretofore granted to him
but which have not been
<PAGE>
fully exercised, and all such options shall become fully exercisable prior
to (but conditional upon the occurrence of) any Change of Control.
Furthermore, upon the occurrence of a Change of Control, Executive shall be
entitled to receive as full consideration for, and in cancellation of, any
such options, an amount not less than the excess, if any, of (i) the per
share consideration payable pursuant to the terms of such Change of Control
in respect of the Common Stock over (ii) the exercise price per share for
all shares of Common Stock subject to such option, times the number of
shares of Common Stock then remaining, subject to such option."
3. A new Paragraph 3 is hereby added to the Employment Agreement as
follows:
"3. CHANGE OF CONTROL. Immediately upon the occurrence of any
"Change of Control" (as defined below), Executive shall be entitled to and
shall fully vest in 100% of any and all amounts payable to him pursuant to
AMI's Executive Incentive Compensation Plan (formerly known as the Short-
Term Cash Incentive Plan) for services rendered by Executive through the
date and for the fiscal year in which such Change of Control occurs, which
amounts shall be calculated (with interest) as if any and all individual
and AMI performance goals applicable to any such payments (whether to be
made currently or on a deferred basis) had been achieved immediately prior
to such "Change of Control." AMI shall be obligated to pay and hereby
agrees to pay Executive any and all amounts due him pursuant hereto within
7 calendar days after the occurrence of any Change of Control. For
purposes of this Employment Agreement, a "Change of Control" shall be
deemed to have occurred if GKH Investments, L. P. shall sell, transfer,
assign or otherwise dispose of its direct ownership in all or a substantial
percentage of the equity securities of American Medical Holdings, Inc. held
thereby as of August 22, 1991 or shall fail to either designate a majority
of nominees or maintain a majority of directors to serve on American
Medical Holdings, Inc.'s Board of Directors."
4. RENUMBERING. Paragraphs 3 through 10 of the Employment Agreement are
hereby renumbered as Paragraphs 4 through 11 of the Employment Agreement.
5. Paragraph 9 of the Employment Agreement is hereby amended in its
entirety as follows:
-2-
<PAGE>
"9. SEVERANCE.
(a) In the event of the involuntary termination of Executive's
employment as General Counsel of AMI without "cause" (as defined in
subparagraph (c) below), Executive shall be entitled to receive a payment
in an amount equal to 12 months base compensation (excluding bonuses,
incentive compensation, employment benefits, stock options or any other
benefits except those required to be made available by applicable state or
federal law, notwithstanding this Agreement) determined on the basis of his
annual salary for AMI's fiscal year then most recently commenced (the
"Severance Payment"). The Severance Payment shall be made in biweekly
installments, and shall cease upon Executive's obtaining substantially
equivalent employment, but in no event later than one (1) year after the
date of termination of employment. No Severance Payment is due under this
subparagraph 9(a) in the event of a voluntary termination of employment by
Executive. Executive acknowledges that this Agreement by AMI to pay
certain severance hereunder ,except in the case of a voluntary quit or
involuntary termination for cause, alone constitutes a sufficient agreement
and consideration for his post-termination obligations, and that in the
event those obligations are not honored by Executive or enforced by a court
or arbitration, no severance payments will be made and any such payment
already made may be recovered. The obligations of AMI under this
subparagraph 9(a) shall be the only obligations of AMI and its subsidiaries
for the payment of compensation (except as otherwise provided under
applicable law) to Executive in the event of the termination of his
employment as described in this subparagraph 9(a).
(b) In the event Executive voluntarily terminates his employment with
AMI within 120 days after the occurrence of a Change of Control or in the
event of his "Involuntary Termination" (as defined in subparagraph 9(d)
hereof) within 12 months after the occurrence of a Change of Control,
Executive shall be entitled to receive and AMI shall be obligated to pay to
Executive, his estate or personal representative, the Severance Payment (in
addition to any and all amounts due him pursuant to paragraphs 2 and 3
hereof and any and all amounts due him under applicable law). Any and all
payments to be made to Executive pursuant to this subparagraph 9(b) shall
be made in a lump sum within 14 calendar days after the effective date of
Executive's voluntary termination or his Involuntary Termination. The
obligations of AMI referenced in this subparagraph 9(b) shall be the only
obligations of AMI and its subsidiaries for the payment of compensation to
Executive in the event of the termination of his employment as described in
this subparagraph 9(b).
-3-
<PAGE>
(c) For purposes of this Employment Agreement, Executive shall be
deemed to be terminated for cause if his employment is terminated due to
(i) the commission by Executive of an act of fraud or embezzlement
(including the unauthorized disclosure of confidential or proprietary
information of AMI or its subsidiaries), (ii) a conviction of Executive
(including a nolo contendere plea) involving in the good faith judgment of
the Board of Directors of AMI, fraud, dishonesty or moral turpitude, (iii)
willful misconduct of an employee of AMI or a subsidiary or (iv) the
willful failure of Executive to render services to AMI or a subsidiary in
accordance with his employment.
(d) For purposes of this Employment Agreement, an "Involuntary
Termination" of Executive's employment with AMI shall be deemed to have
occurred if: (i) Executive's employment with AMI or its successor is
terminated for any reason other than "cause"; (ii) Executive's total
compensation, including benefits, is substantially reduced other than in
connection with an across-the-board reduction similarly affecting all
executives of AMI; (iii) the title, functions, duties, authority or
responsibilities of Executive's present position are materially reduced or
diminished; (iv) Executive is reassigned to another geographic location
more than 50 miles from his current place of employment; or (v) AMI is
liquidated, dissolved, consolidated or merged, or all or substantially all
of its assets are transferred, assigned or sold, unless a successor assumes
all of AMI's obligations under this Employment Agreement."
(e) Following termination of employment, either voluntarily or
involuntarily, Executive will cooperate fully with AMI, upon request, in
relation to AMI's defense, prosecution or other involvement in any
continuing or future claims, lawsuits, charges, and internal or external
investigations which arise out of events or business matters which occurred
during Executive's prior employment by AMI. Such continuing duty of
cooperation shall include making himself available to AMI, upon reasonable
notice, for depositions, interviews, and appearances as a witness, and
furnishing information to AMI and its legal counsel upon request. AMI will
reimburse actual documented reasonable out-of-pocket expenses necessarily
incurred such as travel, lodging and meals. Severance payments, if
otherwise payable to Executive, shall terminate in the event of a failure
of cooperation."
6. REFERENCES. For purposes of the Employment Agreement, all references
to AMI shall be deemed to include American Medical Holdings, Inc. and its
subsidiaries.
-4-
<PAGE>
7. INTEGRATION. The Employment Agreement constitutes the entire
agreement of the parties hereto with respect to Executive's employment, and no
modification, amendment or waiver of any of the provisions of the Employment
Agreement shall be effective unless in writing and signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ Alan J. Chamison
-----------------------------------------
Its: EVP & CFO
-----------------------------------
Accepted and Agreed this 10th
day of October, 1994.
By: /s/ Thomas J. Sabatino, Jr.
-------------------------------
Thomas J. Sabatino, Jr.
-5-
<PAGE>
EXHIBIT 10.31
[LOGO]
CONFIDENTIAL
June 1, 1990
Mr. Michael Murdock
American Medical International, Inc.
433 North Camden Drive
Beverly Hills, California 90210
Re: Terms of Employment
Dear Mike:
I am very pleased that you are continuing as part of the
management team. The purpose of this letter is to memorialize
the terms of your employment with American Medical International,
Inc. ("AMI").
1. COMPENSATION AND BENEFITS.
(a) BASE COMPENSATION. Your base compensation will be
One Hundred Fifty Thousand Dollars ($150,000.00) per
year. This amount will be reviewed annually at the
close of each fiscal year and may be increased, but
once increased will not be decreased. You will also
receive a car allowance and all employee fringe benefits
that may be offered from time to time to employees at
your level, including paid vacation.
(b) ANNUAL BONUS. You will be eligible to receive an
annual bonus based upon criteria determined by the
Board of Directors prior to the beginning of each fiscal
year. If the criteria are satisfied, the bonus will be
paid within ninety (90) days following the end of the
fiscal year.
2. TERMINATION AND RESIGNATION.
(a) TERMINATION. AMI may terminate your employment for
any reason deemed sufficient by AMI. Upon
termination, except under circumstances described
<PAGE>
Page No. 2
[LOGO]
below, you will be entitled to receive termination
benefits consisting of base compensation, car allowance
and fringe benefits for one (1) year following the date
of termination. You may elect to receive your base
compensation and car allowance in a lump sum, but in
that case you will not be eligible to receive fringe
benefits following the date the lump sum payment is
made. In the case of termination, your stock options
shall be treated as provided in the AMI Stock Option
Plan.
(b) RESIGNATION. You may resign from AMI at any time,
but it is not intended that you will receive severance
pay if you do. However, should you resign because
(i) of a material breach by AMI of any of its obligations
as described in this letter; or (ii) of a substantial
adverse alteration in the nature of your employment
responsibilities; or (iii) you are required to change the
city in which your employment is based after August 1,
1990, then you will be entitled to the termination
benefits described above.
(c) DEATH OR DISABILITY. In the event of your death, your
estate shall be entitled to receive the base compensation
in effect on the date of your death for one (1) year.
Should you become disabled, you may, subject to AMI's
reasonable approval, terminate for disability and receive
the termination benefits described above.
(d) MISCONDUCT. AMI is not obligated to pay termination
benefits in the event you should be terminated for
misconduct. Misconduct means an act or acts of
dishonesty that are intended to result in personal
enrichment to you at the expense of AMI, and not
merely poor performance.
3. TERM. This letter shall be effective June 1, 1990, and shall
continue to govern the terms of your employment with AMI
until termination or resignation of your employment. It may
be amended only by an express written agreement between
you and AMI.
The terms described in this letter represent the complete
agreement between you and AMI regarding your terms of
employment and supersede any prior employment agreement.
I am very pleased that you have decided to continue your
employment with AMI. This letter reflects the confidence Harry
<PAGE>
Page No. 3
[LOGO]
Gray and I have in your past performance and our expectation
for future achievement.
Very truly yours,
James F. Lyons
JFL:lls
Accepted and Agreed:
By: Michael Murdock
-----------------------
Michael Murdock
<PAGE>
EXHIBIT 10.32
SEVERANCE AGREEMENT
THIS AMENDMENT is made and entered into as of this 10th day of October,
1994, by and between American Medical International, Inc., a Delaware
corporation ("AMI"), and Bary G. Bailey ("Executive").
W I T N E S S E T H:
WHEREAS, in recognition of the substantial contribution that Executive has
made to the Company, the Company desires to provide for certain severance and
other bonus payments in the event of his termination of employment upon or as a
result of a change of control of the Company.
WHEREAS, AMI and Executive desire to enter into this Severance Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. EXECUTIVE INCENTIVE COMPENSATION PLAN. Immediately upon the
occurrence of any "Change of Control" (as defined in paragraph 3 below),
Executive shall be entitled to and shall fully vest in 100% of any and all
amounts payable to him pursuant to AMI's Executive Incentive Compensation Plan
(formerly known as the Short-Term Cash Incentive Plan) for services rendered by
Executive through the date and for the fiscal year in which such Change of
Control occurs, which amounts shall be calculated (with interest) as if any and
all individual and AMI performance goals applicable
<PAGE>
to any such payments (whether to be made currently or on a deferred basis) had
been achieved immediately prior to such "Change of Control." AMI shall be
obligated to pay and hereby agrees to pay Executive any and all amounts due him
pursuant hereto within 7 calendar days after the occurrence of any Change of
Control.
2. SEVERANCE.
(a) In the event Executive voluntarily terminates his employment with
AMI within 120 days after the occurrence of a Change of Control or in the
event of his "Involuntary Termination" (as defined in paragraph 2(b)
hereof) within 12 months after the occurrence of a Change of Control,
Executive shall be entitled to receive and AMI shall be obligated to pay to
Executive, his estate or personal representative, a payment in an amount
equal to 12 months base compensation (excluding bonuses, incentive
compensation, employment benefits, stock options or any other benefits
except those required to be made available by applicable state or federal
law, notwithstanding this Agreement) determined on the basis of his annual
salary for AMI's fiscal year then most recently commenced (the "Severance
Payment"). Any and all payments to be made to Executive pursuant to this
paragraph 2(a) shall be made in a lump sum within 14 calendar days after
the effective date of Executive's voluntary termination or his Involuntary
Termination. The obligations of AMI referenced in this paragraph 2(a)
shall be the only obligations of AMI and its subsidiaries for the payment
of compensation to Executive in
-2-
<PAGE>
the event of the termination of his employment as described in this
paragraph 2(a).
(b) For purposes of this Employment Agreement, an "Involuntary
Termination" of Executive's employment with AMI shall be deemed to have
occurred if: (i) Executive's employment with AMI or its successor is
terminated for any reason other than "cause"; (ii) Executive's total
compensation, including benefits, is substantially reduced other than in
connection with an across-the-board reduction similarly affecting all
executives of AMI; (iii) the title, functions, duties, authority or
responsibilities of Executive's present position are materially reduced or
diminished; (iv) Executive is reassigned to another geographic location
more than 50 miles from his current place of employment; or (v) AMI is
liquidated, dissolved, consolidated or merged, or all or substantially all
of its assets are transferred, assigned or sold.
3. CHANGE OF CONTROL. For purposes of this Employment Agreement, a
"Change of Control" shall be deemed to have occurred if GKH Investments, L.P.
shall sell, transfer, assign or otherwise dispose of its direct ownership in all
or a substantial percentage of the equity securities of American Medical
Holdings, Inc. held thereby as of August 22, 1991 or shall fail to either
designate a majority of nominees or maintain a majority of directors to serve on
American Medical Holdings, Inc.'s Board of Directors.
-3-
<PAGE>
4. REFERENCES. For purposes of this Severance Agreement, all references
to AMI shall be deemed to include American Medical Holdings, Inc. and its
subsidiaries.
5. NO CONTRACT OF EMPLOYMENT. Except as otherwise provided for by the
terms of this Agreement, this Agreement shall not constitute a contract of
employment between the Company and the Executive.
6. GOVERNING LAW. The terms of this Severance Agreement shall be subject
to and governed by the laws of the State of Texas, without regard to any
conflict of laws provision.
7. AMENDMENT. This Severance Agreement may not be amended except by the
written consent of both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ Alan J. Chamison
-----------------------------------------
Its: EVP & CFO
-----------------------------------
EXECUTIVE
By: /s/ Bary G. Bailey
-----------------------------------------
Bary G. Bailey
-4-
<PAGE>
EXHIBIT 10.33
[LOGO]
CONFIDENTIAL
June 1, 1990
Mr. Bary Bailey
American Medical International, Inc.
433 North Camden Drive
Beverly Hills, California 90210
Re: Terms of Employment
Dear Bary:
I am very pleased that you are continuing as part of the management team.
The purpose of this letter is to memorialize the terms of your employment
with American Medical International, Inc. ("AMI").
1. COMPENSATION AND BENEFITS.
(a) BASE COMPENSATION. Your base compensation will be One Hundred Thirty
Thousand Dollars ($130,000.00) per year. This amount will be reviewed
annually at the close of each fiscal year and may be increased, but
once increased will not be decreased. You will also receive a car
allowance and all employee fringe benefits that may be offered from
time to time to employees at your level, including paid vacation.
(b) ANNUAL BONUS. You will be eligible to receive an
annual bonus based upon criteria determined by the
Board of Directors prior to the beginning of each fiscal
year. If the criteria are satisfied, the bonus will be
paid within ninety (90) days following the end of the fiscal year.
2. TERMINATION AND RESIGNATION.
(a) TERMINATION. AMI may terminate your employment for any reason
deemed sufficient by AMI. Upon termination, except under
circumstances described
<PAGE>
Page No. 2 [LOGO]
below, you will be entitled to receive termination
benefits consisting of base compensation, car allowance
and fringe benefits for one (1) year following the date
of termination. You may elect to receive your base
compensation and car allowance in a lump sum, but in
that case you will not be eligible to receive fringe
benefits following the date the lump sum payment is
made. In the case of termination, your stock options
shall be treated as provided in the AMI Stock Option Plan.
(b) RESIGNATION. You may resign from AMI at any time,
but it is not intended that you will receive severance
pay if you do. However, should you resign because
of a material breach by AMI of any of its obligations
as described in this letter; or (ii) of a substantial
adverse alteration in the nature of your employment
responsibilities; or (iii) you are required to change the
city in which your employment is based after August 1,
1990, then you will be entitled to the termination
benefits described above.
(c) DEATH OR DISABILITY. In the event of your death, your
estate shall be entitled to receive the base compensation
in effect on the date of your death for one (1) year.
Should you become disabled, you may, subject to AMI's
reasonable approval, terminate for disability and receive
the termination benefits described above.
(d) MISCONDUCT. AMI is not obligated to pay termination
benefits in the event you should be terminated for
misconduct. Misconduct means an act or acts of
dishonesty that are intended to result in personal
enrichment to you at the expense of AMI, and not
merely poor performance.
3. TERM. This letter shall be effective June 1, 1990, and shall
continue to govern the terms of your employment with AMI
until termination or resignation of your employment. It may
be amended only by an express written agreement between you and AMI.
The terms described in this letter represent the complete
agreement between you and AMI regarding your terms of
employment and supersede any prior employment agreement.
I am very pleased that you have decided to continue your
employment with AMI. This letter reflects the confidence Harry
<PAGE>
Page No. 3 [LOGO]
Gray and I have in your past performance and our expectation for future
achievement.
Very truly yours,
James F. Lyons
JFL:lls
Accepted and Agreed:
By: /s/ BARY BAILEY
----------------------------
Bary Bailey
<PAGE>
EXHIBIT 10.34
SEVERANCE AGREEMENT
THIS AMENDMENT is made and entered into as of this 10th day of October,
1994, by and between American Medical International, Inc., a Delaware
corporation ("AMI"), and Michael N. Murdock ("Executive").
W I T N E S S E T H:
WHEREAS, in recognition of the substantial contribution that Executive has
made to the Company, the Company desires to provide for certain severance and
other bonus payments in the event of his termination of employment upon or as a
result of a change of control of the Company.
WHEREAS, AMI and Executive desire to enter into this Severance Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. EXECUTIVE INCENTIVE COMPENSATION PLAN. Immediately upon the
occurrence of any "Change of Control" (as defined in paragraph 3 below),
Executive shall be entitled to and shall fully vest in 100% of any and all
amounts payable to him pursuant to AMI's Executive Incentive Compensation Plan
(formerly known as the Short-Term Cash Incentive Plan) for services rendered by
Executive through the date and for the fiscal year in which such Change of
Control occurs, which amounts shall be calculated (with interest) as if any and
all individual and AMI performance goals applicable
<PAGE>
to any such payments (whether to be made currently or on a deferred basis) had
been achieved immediately prior to such "Change of Control." AMI shall be
obligated to pay and hereby agrees to pay Executive any and all amounts due him
pursuant hereto within 7 calendar days after the occurrence of any Change of
Control.
2. SEVERANCE.
(a) In the event Executive voluntarily terminates his employment with
AMI within 120 days after the occurrence of a Change of Control or in the
event of his "Involuntary Termination" (as defined in paragraph 2(b)
hereof) within 12 months after the occurrence of a Change of Control,
Executive shall be entitled to receive and AMI shall be obligated to pay to
Executive, his estate or personal representative, a payment in an amount
equal to 12 months base compensation (excluding bonuses, incentive
compensation, employment benefits, stock options or any other benefits
except those required to be made available by applicable state or federal
law, notwithstanding this Agreement) determined on the basis of his annual
salary for AMI's fiscal year then most recently commenced (the "Severance
Payment"). Any and all payments to be made to Executive pursuant to this
paragraph 2(a) shall be made in a lump sum within 14 calendar days after
the effective date of Executive's voluntary termination or his Involuntary
Termination. The obligations of AMI referenced in this paragraph 2(a)
shall be the only obligations of AMI and its subsidiaries for the payment
of compensation to Executive in
-2-
<PAGE>
the event of the termination of his employment as described in this
paragraph 2(a).
(b) For purposes of this Employment Agreement, an "Involuntary
Termination" of Executive's employment with AMI shall be deemed to have
occurred if: (i) Executive's employment with AMI or its successor is
terminated for any reason other than "cause"; (ii) Executive's total
compensation, including benefits, is substantially reduced other than in
connection with an across-the-board reduction similarly affecting all
executives of AMI; (iii) the title, functions, duties, authority or
responsibilities of Executive's present position are materially reduced or
diminished; (iv) Executive is reassigned to another geographic location
more than 50 miles from his current place of employment; or (v) AMI is
liquidated, dissolved, consolidated or merged, or all or substantially all
of its assets are transferred, assigned or sold.
3. CHANGE OF CONTROL. For purposes of this Employment Agreement, a
"Change of Control" shall be deemed to have occurred if GKH Investments, L.P.
shall sell, transfer, assign or otherwise dispose of its direct ownership in all
or a substantial percentage of the equity securities of American Medical
Holdings, Inc. held thereby as of August 22, 1991 or shall fail to either
designate a majority of nominees or maintain a majority of directors to serve on
American Medical Holdings, Inc.'s Board of Directors.
-3-
<PAGE>
4. REFERENCES. For purposes of this Severance Agreement, all references
to AMI shall be deemed to include American Medical Holdings, Inc. and its
subsidiaries.
5. NO CONTRACT OF EMPLOYMENT. Except as otherwise provided for by the
terms of this Agreement, this Agreement shall not constitute a contract of
employment between the Company and the Executive.
6. GOVERNING LAW. The terms of this Severance Agreement shall be subject
to and governed by the laws of the State of Texas, without regard to any
conflict of laws provision.
7. AMENDMENT. This Severance Agreement may not be amended except by the
written consent of both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ Alan J. Chamison
-----------------------------------------
Its: EVP & CFO
-----------------------------------
EXECUTIVE
By: /s/ Michael N. Murdock
-----------------------------------------
Michael N. Murdock
-4-
<PAGE>
EXHIBIT 10.35
LOAN AGREEMENT
LOAN AGREEMENT made as of this 14th day of July, 1993, between AMERICAN
MEDICAL HOLDINGS, INC. ("Holdings") and JOHN T. CASEY ("Employee").
A. Holdings has agreed to lend Employee Three Hundred Seventy Five
Thousand and No/100 Dollars ($375,000)(the "Loan Amount") on the terms and
conditions set forth in this Loan Agreement, as an inducement for Employee to
become an employee of Holdings.
B. Employee has agreed to become an employee of Holdings and to use a
portion of the Loan Amount to purchase Holdings' Common Stock.
THEREFORE, the parties agree as follows:
1. LOAN AMOUNT. Holdings shall loan to Employee the Loan Amount, without
interest, for the term and on the conditions set forth below.
2. STOCK PURCHASE. Employee shall utilize $200,000 of the Loan Amount
for the purchase of Holdings' Common Stock.
3. REPAYMENT. The loan shall be due within 10 days after the termination
of Employee's employment as President/Chief Operating Officer for any reason;
PROVIDED, HOWEVER, that the loan shall be forgiven in increments of $10,417 per
month on the last day of each month commencing August 31, 1993 if Employee is
still the President/Chief Operating Officer of Holdings at those dates and shall
be forgiven in its entirety in the event Employee's employment as
President/Chief Operating Officer of Holdings is terminated as a result of his
death or disability.
4. PROMISSORY NOTE. Employee agrees to execute that certain Promissory
Note dated July 14, 1993 in the amount of $375,000, a copy of which is attached
(the "Note")
5. DEED OF TRUST. Employee agrees to execute and deliver to Holdings a
Deed of Trust, a copy of which is attached, against his Dallas, Texas residence
which Deed of Trust shall secure $100,000 of the Loan Amount.
6. ASSIGNMENT. The obligations of Employee hereunder and in the Note are
personal and may not be assigned or delegated or transferred in any manner
whatsoever.
<PAGE>
7. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas.
8. HEADINGS. The section headings contained herein are for purposes of
reference and convenience only and shall not be deemed to constitute a portion
of the Loan Agreement or to affect the meaning or interpretation of this Loan
Agreement in any way.
9. NOTICES. Notices or items required or permitted to be given under
this Loan Agreement shall be delivered or given to the respective parties by
personal delivery to the person intended to receive it or by mailing it by
registered or certified mail, return receipt requested, at the addresses for the
parties set forth below:
IF TO EMPLOYEE:
John T. Casey
4808 Bobbitt Drive
Dallas, Texas 75229
IF TO HOLDINGS:
American Medical Holdings, Inc.
8201 Preston Road
Suite 300
Dallas, Texas 75225
Attention: General Counsel
10. AMENDMENTS. This Loan Agreement may be amended or modified only by a
written instrument executed by Employee and Holdings.
IN WITNESS WHEREOF, the parties have executed this Agreement this _____ day
of July, 1993.
EMPLOYEE
BY: /s/ JOHN T. CASEY
-------------------------------------
JOHN T. CASEY
AMERICAN MEDICAL HOLDINGS
BY: /s/ ROBERT W. O'LEARY
-------------------------------------
LOAN AGREEMENT - PAGE 2
<PAGE>
PROMISSORY NOTE
$375,000.00 July 14, 1993
FOR VALUE RECEIVED, the undersigned, JOHN T. CASEY (hereinafter referred to
as "Borrower"), promises to pay to the order of AMERICAN MEDICAL HOLDINGS, INC.
(hereinafter referred to as "Holdings"), at its office at 8201 Preston Road,
Suite 300, Dallas, Texas 75225 (or at such other address as Holdings may
designate in writing), in lawful money of the United States of America, the
principal sum of Three Hundred Seventy Five Thousand Dollars ($375,000.00). Such
payment obligation shall be without interest.
The loan shall be due within ten (10) days after the termination of
Borrower's employment as President/Chief Operating Officer of Holdings for any
reason; PROVIDED, HOWEVER, that the loan shall be forgiven in increments of
$10,417.00 per month on the last day of each month commencing August 31, 1993 if
Borrower is still the President/Chief Operating Officer of Holdings on those
dates and shall be forgiven in its entirety in the event Borrower's employment
as President/Chief Operating Officer of Holdings is terminated as a result of
his death or disability.
One Hundred Thousand Dollars ($100,000.00) of this Note shall be secured
by a Deed of Trust, a copy of which is attached hereto.
BORROWER
BY: /s/ JOHN T. CASEY
----------------------------------
JOHN T. CASEY
<PAGE>
EXHIBIT 10.36
AMERICAN MEDICAL INTERNATIONAL, INC.
DIRECTORS' RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article I Title, Purpose and Definitions. . . . . . . . . . . . . . . 1
1.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Article II Participation . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Eligibility Requirements. . . . . . . . . . . . . . . . . . 4
Article III Payment of Benefits . . . . . . . . . . . . . . . . . . . . 4
3.1 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article IV Retirement Benefits . . . . . . . . . . . . . . . . . . . . 5
4.1 Retirement Benefits . . . . . . . . . . . . . . . . . . . . 5
4.2 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Performance of Services after Retirement. . . . . . . . . . 6
Article V Committee . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Members . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Information . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Manner of Administering . . . . . . . . . . . . . . . . . . 7
Article VI Amendments and Termination. . . . . . . . . . . . . . . . . 7
6.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Amendment Limitation. . . . . . . . . . . . . . . . . . . . 7
6.3 Termination of Plan . . . . . . . . . . . . . . . . . . . . 8
Article VII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Nonassignability. . . . . . . . . . . . . . . . . . . . . . 8
7.2 Limitation on Participants Rights . . . . . . . . . . . . . 9
7.3 Participants Bound. . . . . . . . . . . . . . . . . . . . . 9
7.4 Receipt and Release . . . . . . . . . . . . . . . . . . . . 9
7.5 California Law Governs. . . . . . . . . . . . . . . . . . . 9
7.6 Headings and Subheadings. . . . . . . . . . . . . . . . . . 10
7.7 Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.8 Successor and Assigns . . . . . . . . . . . . . . . . . . . 10
7.9 No Offset of Benefits . . . . . . . . . . . . . . . . . . . 10
<PAGE>
AMERICAN MEDICAL INTERNATIONAL, INC.
DIRECTORS' RETIREMENT PLAN
On August 15, 1980, the Board of Directors of American Medical
International, Inc. ("AMI") adopted a retirement plan for the independent
directors of AMI. This document sets forth the terms of that plan and is
effective as of the date set forth above.
ARTICLE I
TITLE, PURPOSE AND DEFINITIONS
1.1 - TITLE.
This Plan shall be known as the "American Medical International, Inc.
Directors' Retirement Plan."
1.2 - PURPOSE.
The purpose of this Plan is to provide retirement benefits to the
independent Directors of American Medical International, Inc. in order to
provide the kind of benefits necessary to attract and retain directors of
outstanding merit and ability to oversee the conduct of AMI's business.
<PAGE>
1.3 - DEFINITIONS.
Whenever the following terms are used in this Plan with the first
letter capitalized, they shall have the meanings specified below.
"Annual Retainer" shall mean the base annual retainer paid by the
Company to active Independent Directors, as adjusted from time to time.
"Board of Directors" means the Board of Directors of the Company.
"Committee" means the Management Continuity and Compensation Committee
of the Board of Directors.
"Company" means American Medical International, Inc. or any successor
corporation resulting from a merger, consolidation, or transfer of assets
substantially as a whole.
"Director" means a member of the Board of Directors of the Company.
"Employee-Director" means a member of the Board of Directors who is
also an employee of the Company.
2
<PAGE>
"Independent Director" means each member of the Board of Directors who
is not an employee of the Company.
"Participant" means any Independent Director who is or becomes
eligible for participation in this Plan by serving the minimum number of years
required to receive benefits.
"Plan" means the American Medical International, Inc. Directors'
Retirement Plan as set forth herein and as amended from time to time.
"Plan Year" means the twelve-month period beginning on September 1
each year and ending on the following August 31.
"Years of Service" means each 12 consecutive month period, commencing
on the date an individual becomes a Director and on each anniversary thereof and
continuing until the individual ceases to be a director. If a former Director is
reelected or reappointed as a Director, service during both periods of service
as a Director shall be aggregated. Any period of disability of up to 180 days or
any partial year of service of not less than 180 days shall be included as a
full year in determining Years of Service.
Any word, phrase or term used herein and not defined shall have the
meaning commonly recognized for such words, phrases or terms when used in
retirement benefit plans.
3
<PAGE>
ARTICLE II
PARTICIPATION
2.1 - ELIGIBILITY REQUIREMENTS.
Each Independent Director shall become a Participant upon completing
five Years of Service. Each Employee Director shall become a Participant upon
completing 10 years of service. In the event an Employee Director becomes an
Independent Director, he must complete 10 total years of service to become a
Participant.
ARTICLE III
PAYMENT OF BENEFITS
3.1 - PAYMENT.
Benefits under this Plan shall constitute unfunded general obligations
of AMI. To the extent that any person acquires a right to receive payments from
AMI under this Plan, such right shall be no greater than that of any unsecured
general creditor of AMI.
4
<PAGE>
ARTICLE IV
RETIREMENT BENEFITS
4.1 - RETIREMENT BENEFIT.
The amount of the monthly retirement benefit payable to a Participant
will be equal to one-twelfth of the Annual Retainer in effect at the time of
each payment, but in no event less than one-twelfth of the Annual Retainer in
effect at the time the Participant (i) became a member of the Board of Directors
or (ii) ceases to be a Director, whichever is greater. Such amounts shall be
payable beginning on the first day of the month coinciding with or next
following the later of his retirement from the Board of Directors or his 65th
birthday and continuing for a period equal to the greater of 10 years or the
number of the Participant's Years of Service; provided, however, that all
payments shall cease with the payment for the month in which the Participant's
death occurs.
4.2 - DEATH.
In the event that a Participant dies prior to retirement from the
Board of Directors or prior to age 65, no benefit shall be payable under this
Plan as a result of his prior participation in the Plan.
5
<PAGE>
4.3 - PERFORMANCE OF SERVICES AFTER RETIREMENT.
A retired Independent Director receiving benefits under this Plan
shall hold himself available to render reasonable services to the Board or to
its various committees at the request of the Board.
ARTICLE V
COMMITTEE
5.1 - MEMBERS.
The Committee shall be appointed by, and shall serve at the pleasure
of, the Board of Directors. The Committee may delegate to agents such duties as
it deems appropriate and to the extent such duties have been delegated, such
agents shall be exclusively responsible for the discharge of such duties.
5.2 - INFORMATION.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
Participants' Years of Service, retirement, and death and such other pertinent
facts as the Committee may require.
6
<PAGE>
5.3 - MANNER OF ADMINISTERING.
The Committee shall interpret the provisions of this Plan and shall
administer such provisions in a uniform and nondiscriminatory manner.
ARTICLE VI
AMENDMENTS AND TERMINATION
6.1 - AMENDMENTS.
Except as provided in paragraph 6.2 hereof, the Company shall have the
right to amend this Plan from time to time by resolution of the Board of
Directors and to amend or cancel any amendments. Such amendment shall be stated
in an instrument in writing, executed by the Company in the same manner as this
Plan.
6.2 - AMENDMENT LIMITATION.
Notwithstanding any provision to the contrary contained in paragraph
6.1 above, the Plan may not be amended to (i) reduce the payment to which a
Director is entitled to receive upon retirement or (ii) increase the number of
Years of Service required before a Director becomes a Participant. The
prohibition contained in this paragraph 6.2 shall apply to Directors whether or
not they have completed the requisite number of Years of Service required to
7
<PAGE>
receive payments pursuant to the Plan at the time such amendments are made.
6.3 - TERMINATION OF PLAN.
The Company reserves the right to terminate this Plan at any time;
provided, however, no such termination shall reduce benefits in any manner to
any Participant or to any Director serving on the Board of Directors at the time
of such termination, regardless of the number of Years of Service completed by
the Director at the time of such termination.
ARTICLE VII
MISCELLANEOUS
7.1 - NONASSIGNABILITY.
None of the benefits, payments, proceeds or claims of any Participant
shall be subject to any claim of any creditor and, in particular, the same shall
not be subject to attachment or garnishment or other legal process by any
creditor, nor shall any Participant have the right to alienate, anticipate,
commute, pledge, encumber or assign any of the benefits or payments or proceeds
which he may expect to receive, contingently or otherwise, under this agreement.
8
<PAGE>
7.2 - LIMITATION ON PARTICIPANTS' RIGHTS.
Participation in this Plan shall not give any Director any right or
interest in the Plan other than as herein provided.
7.3 - PARTICIPANTS BOUND.
Any action with respect to this Plan taken by the Committee or by the
Company, or any action authorized by or taken at the direction of the Committee
or the Company, shall be conclusive upon all Participants entitled to benefits
under the Plan.
7.4 - RECEIPT AND RELEASE.
In the event a Participant or surviving spouse is adjudicated
incompetent by a court having jurisdiction to make such determination, payments
which become due, in accordance with this Plan, shall be made to the appointed
guardian or conservator of such Participant or beneficiary. Any such payments
shall be a complete discharge of the liabilities of AMI under the Plan.
7.5 - CALIFORNIA LAW GOVERNS.
This Plan shall be construed, administered, and governed in all
respects under and by the laws of the State of California. If any provision
shall be held by a court of competent jurisdiction to be
9
<PAGE>
invalid or unenforceable, the remaining provisions thereof shall continue to be
fully effective.
7.6 - HEADINGS AND SUBHEADINGS.
Headings and subheadings in this agreement are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.
7.7 - GENDER.
The masculine gender as used herein includes the feminine and neuter
genders.
7.8 - SUCCESSOR AND ASSIGNS.
This agreement shall inure to the benefit of, and be binding upon, the
Company and its successors and assigns.
7.9 - NO OFFSET OF BENEFITS.
The benefits under this Plan are payable in addition to benefits under
other Company retirement plans and shall not reduce
10
<PAGE>
any benefit under any other Company retirement plan, including without
limitation the Supplemental Executive Retirement Plan.
IN WITNESS WHEREOF, the Company has caused these presents to be
executed by its duly authorized officers and the corporate seal to be hereunto
affixed this 28th day of February, 1989.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ Richard A. Gilleland
-----------------------------------------
Richard A. Gilleland, Chairman and
Chief Executive Officer
By: /s/ James B. Jacobson
-----------------------------------------
James B. Jacobson, Chairman,
Management Compensation and
Continuity Committee
[SEAL]
11
<PAGE>
EXHIBIT 10.37
FIRST AMENDMENT TO THE
AMERICAN MEDICAL INTERNATIONAL, INC.
DIRECTORS' RETIREMENT PLAN
This First Amendment to the American Medical International, Inc. Directors'
Retirement Plan (the "Plan") is hereby executed this 10th day of October, 1994,
on behalf of American Medical International, Inc.
Pursuant to Section 6.1 of the Plan and as approved by the Compensation
Committee of the Board of Directors of AMI, the Plan is hereby amended effective
September 1, 1994 in the following manner:
1. By substituting the following for the definition of "Annual Retainer" under
Section 1.3:
""Annual Retainer" shall mean the base annual retainer payable by the
Company for services performed by Independent Directors, as adjusted from time
to time, specifically including annual retainers paid to persons or entities
other than the Independent Director, if such Independent Director is serving on
behalf or as the nominee of such person or entity."
2. By substituting the following for the definition of "Independent Director"
under Section 1.3:
""Independent Director" means each member of the Board of Directors who is
not an employee of the Company, regardless of whether such director is serving
on behalf of or as the nominee of any other person or entity."
3. By substituting the following for the definition of "Participant" under
Section 1.3:
"Participant" means any Director who is eligible to participate in
accordance with the provisions of Section 2.1."
4. By substituting the following for Section 2.1:
"Each Independent Director shall become a Participant upon election to the
Board of Directors. Each Independent Director on September 1, 1994
(specifically, J. Robert Buchanan, M.D., Robert B. Calhoun, Harry T. Gray,
Harold S. Handelsman, Sheldon S. King, Melvyn N. Klein, Dan W. Lufkin, William
E. Mayer, and Harold M. Williams) shall become a Participant on September 1,
1994
<PAGE>
regardless of his Years of Service. Each Employee Director shall become a
Participant upon completing 10 Years of Service. In the event an Employee
Director becomes an Independent Director, he must complete 10 Years of Service
to become a Participant."
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ Alan J. Chamison
---------------------------------
Its: /s/ EVP & CFO
--------------------------------
<PAGE>
EXHIBIT 10.38
AMERICAN MEDICAL INTERNATIONAL, INC.
1990 SUPPLEMENTAL BENEFIT PLAN
ARTICLE I
PURPOSE
The purpose of this Plan is to provide to selected executives a
retirement benefit which, when added to other retirement income provided by
American Medical International, Inc., and Social Security, will be competitive
with retirement benefits provided to executives of comparable companies. The
Plan is intended to constitute (1) an "excess benefit plan" within the meaning
of Section 3(36) of the Employee Retirement Income Security Act of 1974
("ERISA") and (2) a plan which is unfunded and maintained primarily for the
purpose of providing deferred compensation for a select group of management and
highly compensated employees as described in Section 201(a)(2) of ERISA.
ARTICLE II
DEFINITIONS
When words and phrases appear in this Plan, they shall have the
respective meanings set forth below, unless their context clearly indicates to
the contrary:
<PAGE>
"AMI" or the "Company" means American Medical International, Inc.
"Board of Directors" means the Board of Directors of AMI.
"Disability" means the incapacity as determined by the Management
Continuity and Compensation Committee of any Participant to render services to
AMI by reason of mental or physical disability.
"Final Average Pay" means the average annual Pay during the three (3)
consecutive years in which a Participant received the highest Pay.
"Management Continuity and Compensation Committee" means the
Management Continuity and Compensation Committee of the Board of Directors.
"Participant" or "Participants" means such executives as are selected
by the Board of Directors or the Management Continuity and Compensation
Committee to receive benefits under the terms of this Plan.
"Pay" means base compensation, exclusive of bonus, car allowance or
other fringe benefits.
2
<PAGE>
"Plan" or "SERP" means the American Medical International, Inc. 1990
Supplemental Benefit Plan, a nonqualified and unfunded pension plan providing
supplemental retirement benefits to selected executives.
"Service" means the aggregate of the years of employment from date of
hire to date of death, disability, termination or retirement, including
employment by a Participant with a predecessor of AMI or any business entity
acquired by AMI or membership as an Independent Director on the AMI Board of
Directors immediately prior to the date of hire as an employee.
"Social Security Benefit" means the annual amount of the old age
benefits available for the Participant (excluding amounts available for wives
and dependents) under Title II of the Federal Social Security Act at his Social
Security Retirement Age (as defined in Section 415(b)(8) of the Internal Revenue
Code). In cases where a Participant terminates employment for any reason prior
to attaining his Social Security Retirement Age, the Social Security benefit
shall be the benefit to which the participant would be entitled at Social
Security Retirement Age, based upon the Federal Social Security Act as in effect
on the date of his termination of employment and based on the assumption that he
will not receive any future wages that will be counted for purposes of the
Federal Social Security Act. Once such
3
<PAGE>
Social Security benefit shall have been determined, it shall not be redetermined
even though there may be changes in Social Security benefits thereafter because
of changes in the cost of living or because of changes in the Federal Social
Security Act.
"Vested Benefit" means the accrued benefit to which a Participant is
entitled based on his Pay and a minimum of ten (10) years of Service.
"Year" means the fiscal year of AMI.
ARTICLE III
PARTICIPATION
An executive shall become a Participant as of the date he is
individually selected by, and specifically named in the resolutions of, the
Management Continuity and Compensation Committee. A Participant's participation
shall cease upon his termination of employment with AMI.
ARTICLE IV
PROVISIONS FOR BENEFITS
Benefits under this Plan shall constitute unfunded general obligations
of AMI. To the extent any person
4
<PAGE>
acquires a right to receive payments from AMI under this Plan, such right shall
be no greater than that of any unsecured general creditor of AMI.
ARTICLE V
AMOUNT OF BENEFIT
Section 5.1 NORMAL RETIREMENT DATE. A Participant's Normal
Retirement Date shall be the first day of the month coinciding with or next
following his 65th birthday.
Section 5.2 NORMAL RETIREMENT BENEFITS.
(a) Upon retirement at or after his Normal Retirement Date, a
Participant who has completed at least ten (10) years of Service shall be
entitled to an annual Normal Retirement Benefit hereunder, payable for life, in
an amount determined under the following formula:
(i) 2.5% of his Final Average Pay multiplied by his years
(including fractional years) of Service up to a maximum of twenty (20);
minus
(ii) 100% of his Social Security Benefit; minus
5
<PAGE>
(iii) (A) 100% of that portion of the annual benefit payable as
a single life annuity, or, in the case of a Participant who is married at
the time of his retirement, payable as a qualified joint and 50% survivor
annuity, at the time of his retirement under the American Medical
International, Inc. Pension Plan (the "AMI Pension Plan") which is in
excess of any benefit accruing from either the Participant's contributions
or any Company contributions made as a result of the Participant's
contributions to the AMI Pension Plan, or
(B) if the Participant has elected not to participate in
the AMI Pension Plan, the amount of the annual benefit payable as a single
life annuity, or, in the case of a Participant who is married at the time
of his retirement hereunder, payable as a qualified joint and 50% survivor
annuity the Participant would have received under the AMI Pension Plan
absent such election; minus
(iv) 100% of the specific retirement benefit under any AMI
management contract, limited to the year(s) in which such contract benefits
are paid; and minus
6
<PAGE>
(v) 100% of the benefit payable, if any, under the American
Medical International, Inc. Supplemental Executive Retirement Plan.
(b) Notwithstanding anything to the contrary contained herein, any
Participant who on March 26, 1987, was an employee of AMI and had attained age
fifty (50) shall be entitled to a benefit hereunder equal to the greater of the
benefit provided in subsection (a) above or the following benefit:
(i) 40% of Final Average Pay, plus 1% of Final Average Pay
times years of Service in excess of ten (10), with a minimum of ten (10)
additional years allowable; minus
(ii) the amounts described in paragraphs (iii), (iv) and (v) of
subsection (a) above; and minus
(iii) 100% of the amount of the old age benefits available for
the Participant (excluding amounts available for wives and dependents)
under Title II of the Federal Social Security Act at his Social Security
Retirement Age (as defined in Section 415(b)(8) of the Internal Revenue
Code), based on his wage history and the Federal Social Security Act in
effect on the date he attains Social Security
7
<PAGE>
Retirement Age. Such reduction shall be made as of the first day of the
month following the date of his Social Security Retirement Age (or, in the
case of surviving spouse benefits, the date he would have reached his
Social Security Retirement Age) notwithstanding anything to the contrary
contained herein.
(c) If, after the date of retirement, the benefits received in any
year under an AMI management contract exceed the benefits which would otherwise
be payable in that year under SERP, the excess amount paid in that year shall
not be carried forward or deducted from SERP benefits payable in any year after
management contract benefits have expired. (For example, assume an executive
retires on December 31, 1979, and under a management contract is entitled to
benefits in the amount of $100,000.00 per year for three (3) years from the date
of retirement. Further, assume that the executive has been selected by the
Management Continuity and Compensation Committee to participate in this SERP,
and but for the benefits received under his management agreement, would be
entitled to SERP benefits of $50,000.00 per year. Even though the total
benefits paid under the management contract in 1980, 1981, 1982 exceed his SERP
benefits by an aggregate of $150,000.00, this amount is not subtracted from
vested SERP benefits to be received after benefits are terminated under the
management agreement. Beginning in 1983, he will
8
<PAGE>
receive the full amount of his SERP benefit, that is $50,000.00, payable in that
year.)
Section 5.3 EARLY RETIREMENT DATE. A Participant's Early
Retirement Date is the first day of any month between his 55th birthday and his
65th birthday.
Section 5.4 EARLY RETIREMENT BENEFIT.
(a) Upon retirement on an Early Retirement Date, a Participant who
has completed at least ten (10) years of Service shall be entitled to an annual
Early Retirement Benefit, payable for life, determined under the following
formula:
(i) 2.5% of his Final Average Pay multiplied by his years
(including fractional years) of Service up to a maximum of twenty (20),
reduced by the percentage shown below for each year by which the
Participant's retirement precedes his Normal Retirement Date, based on his
years of Service:
Years of Service Reduction Percentage
---------------- --------------------
10 years 6%
11 years 5%
12 years 4%
13 years 3%
14 years 2%
15 years 1%
16 years or more 0
9
<PAGE>
provided that in the case of partial years of Service, the reduction
percentage shall be prorated; minus
(ii) 100% of his Social Security Benefit; minus
(iii) (A) 100% of that portion of the annual benefit payable as
a single life annuity, or in the case of a Participant married at the time
of his retirement hereunder, payable as a qualified joint and 50% survivor
annuity, under the AMI Pension Plan which is in excess of any benefit
accruing from either the Participant's contribution or any Company
contributions made as a result of the Participant's contributions to the
AMI Pension Plan [except that if the Participant elects to defer
commencement of benefits under the AMI Pension Plan, no offset shall be
made to the benefit under this Plan until such benefits commence and the
amount of such offset shall be based on the single life annuity, or, in the
case of a Participant married at the time of his retirement under the AMI
Pension Plan, based on the qualified joint and 50% survivor annuity,
payable at the time such benefits commence]; or
(B) if the Participant has elected not to participate in
the AMI Pension Plan, the amount of the annual benefit payable as a single
life annuity,
10
<PAGE>
or, in the case of a Participant who is married at the time of his
retirement hereunder, payable as a qualified joint and 50% survivor
annuity, the Participant would have received at his Early Retirement Date
under the AMI Pension Plan absent such election; minus
(iv) 100% of the specific retirement benefit under any AMI
management contract, limited to the year(s) in which such contract benefits
are paid; and minus
(v) 100% of the benefit payable, if any, under the American
Medical International, Inc. Supplemental Executive Retirement Plan.
(b) Notwithstanding anything to the contrary contained herein, any
Participant who on March 26, 1987, was an employee of AMI and had attained age
fifty (50) shall, upon retirement on an Early Retirement Date with ten (10)
years of Service, be entitled to a benefit hereunder equal to the greater of the
benefit provided in subsection (a) above or the following benefit:
(i) 40% of Final Average Pay, plus 1% of Final Average Pay
times years of Service in excess of ten (10), with a maximum of ten (10)
additional years
11
<PAGE>
allowable, reduced by the percentage shown below for each year by which
Participant's retirement precedes his Normal Retirement Date, based on his
years of Service:
Years of Service Reduction Percentage
---------------- --------------------
10 years 6%
11 years 5%
12 years 4%
13 years 3%
14 years 2%
15 years 1%
16 years or more 0
provided that in the case of partial years of Service, the reduction
percentage shall be prorated; minus
(ii) The amounts described in paragraphs (iii), (iv) and (v) of
subsection (a) above; and
(iii) 100% of the amount of the old age benefits available for
the Participant (excluding amounts available for wives and dependents)
under Title II of the Federal Social Security Act at his Social Security
Retirement Age (as defined in Section 415(b)(8) of the Internal Revenue
Code), based on his wage history and the Federal Social Security Act in
effect on the date he attains his Social Security Retirement Age. Such
reduction shall be made as of the first day of the month following the date
of his Social
12
<PAGE>
Security Retirement Age (or, in the case of surviving spouse benefits, the
date he would have reached his Social Security Retirement Age)
notwithstanding anything to the contrary contained herein.
(c) A Participant may not elect to defer commencement of his Early
Retirement Benefit hereunder.
Section 5.5 DEATH BENEFITS.
(a) POST-RETIREMENT. If a Participant dies after benefits hereunder
have commenced and had a surviving spouse to whom he had been married at least
one (1) year prior to retirement or commencement of benefits, whichever is
applicable, such spouse shall receive 50% of the benefit payable to Participant
at time of death, reduced by 1% for each year in excess of five (5) by which the
Participant's age exceeds the spouse's age. This benefit shall be payable for
the spouse's life but shall begin no earlier than the spouse's attainment of age
fifty (50).
(b) PRE-RETIREMENT. If Participant dies before age fifty (50), no
benefit is paid, irrespective of years of Service. If Participant dies after
age fifty (50) and after completing ten (10) years of Service, and the
Participant leaves a surviving spouse to whom he had been married at least one
(1) year prior to his death, such spouse shall
13
<PAGE>
receive 50% of the Participant's accrued Normal Retirement Benefit for life
reduced by 1% for each year in excess of five (5) by which the Participant's age
exceeded the spouse's age, but with no reduction for early commencement. This
benefit shall be payable for the spouse's life but shall begin no earlier than
the spouse's attainment of age fifty (50).
Section 5.6 DISABILITY BENEFIT. If a Participant incurs a
Disability after ten (10) years of Service and fails to qualify for a disability
benefit under the AMI Executive Long-Term Disability Program, the Participant
shall receive an annual Disability Benefit, payable for life, in an amount equal
to the accrued Normal Retirement Benefit hereunder without reduction for early
commencement of payments.
Section 5.7 VESTED BENEFIT.
(a) A participant is fully vested in his benefit hereunder upon
completion of ten (10) years of Service. A vested Participant who terminates
employment with AMI for a reason other than death, disability or retirement is
eligible for a Vested Benefit, payable for life, at age 65 equal to his accrued
benefit hereunder based on his Pay and years of Service as of his termination of
employment.
14
<PAGE>
(b) Benefits for a Participant who is entitled to a Vested Benefit
under this Section 5.7 may commence on the beginning of the first month
following his 55th birthday and shall be payable in a reduced amount as provided
in Section 5.4(a).
(c) A Participant who terminates employment with AMI prior to
completing ten (10) years of Service shall not be entitled to any benefit under
this Plan.
Section 5.8 FORM OF BENEFITS. The annual benefit payable to a
Participant or his surviving spouse shall be paid in equal monthly installments
on the first day of each month commencing on his Normal Retirement Date, Early
Retirement Date, the date he incurs a Disability, or the date his surviving
spouse attains age fifty (50), whichever is applicable.
ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Management Continuity and
Compensation Committee. The duties of the Management Continuity and Compensation
Committee will be determined by the Board of Directors. The Management
Continuity and Compensation Committee shall have such powers as may be necessary
to discharge its duties hereunder.
15
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 AMENDMENT AND TERMINATION. The Board of Directors may,
by resolution, in its absolute discretion, from time to time, amend, suspend, or
terminate in whole or in part, and if terminated reinstate, any or all of the
provisions of the Plan, except that no amendment, suspension, or termination may
apply so as to decrease Vested Benefits under the Plan which accrued prior to
the effective date of such amendment, suspension or termination. Any such
amendment, suspension or termination shall become effective on such date as
shall be specified in such resolution and, except as expressly limited in this
Section 7.1, include such provisions and have such effect as the Board of
Directors, in its absolute discretion, deems desirable.
Section 7.2 NO GUARANTEE OF EMPLOYMENT. Nothing contained in this
Plan shall be construed as a contract of employment between AMI and any
employee, or as a right of any employee to be continued in the employment of
AMI, or as a limitation of the right of AMI to discharge any of its employees,
with or without cause.
Section 7.3 NON-ALIENATION OF BENEFITS. Benefits payable under
this Plan shall not be subject in any manner
16
<PAGE>
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution or levy of any kind, either voluntary or
involuntary. Any unauthorized attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, charge or otherwise dispose of any right to benefits
payable hereunder shall be void. No part of the assets of AMI shall be subject
to seizure by legal process resulting from any attempt by creditors of or
claimants against any Participant (or surviving spouse), or any person claiming
under or through the foregoing, to attach his interest under the Plan.
Section 7.4 LIABILITY. No member of the Board of Directors or the
Management Continuity and Compensation Committee shall be liable to any
Participant, surviving spouse or third party for any act or omission in
exercising responsibilities pursuant to this Plan.
Section 7.5 INCAPACITY OF RECIPIENT. In the event a Participant or
surviving spouse is adjudicated incompetent by a court having jurisdiction to
make such determination, payments which become due, in accordance with this
Plan, shall be made to the appointed guardian or conservator of such Participant
or beneficiary. Any such payments shall be a complete discharge of the
liabilities of AMI under the Plan.
17
<PAGE>
Section 7.6 CONSTRUCTION. The masculine gender, where appearing in
the Plan, shall be deemed to include the feminine gender; the singular may
include the plural; and vice versa, unless the context clearly indicates to the
contrary.
Section 7.7 GOVERNING LAW. The Plan shall be construed in
accordance with and governed by the laws of the State of California.
Executed this 24th day of September, 1991, effective as of January 1,
1990.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: /s/ James T. Lyons
---------------------------------------
James T. Lyons
By:
---------------------------------------
18
<PAGE>
EXHIBIT 10.39
AMERICAN MEDICAL INTERNATIONAL, INC.
1990 SUPPLEMENTAL BENEFIT PLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1992
ARTICLE I
PURPOSE
Effective as of January 1, 1990, American Medical International, Inc.
adopted the American Medical International, Inc. 1990 Supplemental Benefit Plan
in order to provide selected executives with a retirement benefit which, when
added to other retirement income provided by American Medical International,
Inc., and Social Security, will be competitive with retirement benefits
provided to executives of comparable companies.
Effective as of January 1, 1992, American Medical International, Inc. is
amending and restating the said American Medical International, Inc. 1990
Supplemental Benefit Plan as set forth in this document. This plan is intended
to constitute a plan which is unfunded and maintained primarily for the purpose
of providing deferred compensation for a select group of management and highly
compensated employees as described in Section 201(a)(2) of the Employee
Retirement Income Security Act of 1974, as amended.
<PAGE>
-2-
ARTICLE II
DEFINITIONS
When words and phrases appear in this Plan, they shall have the respective
meanings set forth below, unless their context clearly indicates to the
contrary:
"AMI" or the "COMPANY" means American Medical International, Inc.
"BOARD OF DIRECTORS" means the Board of Directors of AMI.
"DISABILITY" means the incapacity, as determined by the Compensation
Committee, of any Participant to render services to AMI by reason of mental or
physical disability.
"FINAL AVERAGE PAY" means the average annual Pay during the three (3)
consecutive calendar years in which a Participant received the highest Pay.
"COMPENSATION COMMITTEE" means the Compensation Committee of the Board
of Directors.
"PARTICIPANT" or "PARTICIPANTS" means such executives as are selected by
the Board of Directors or the Compensation Committee to receive benefits under
the terms of this Plan.
"PAY" means base compensation, exclusive of bonus, car allowance or other
fringe benefits, payable to a Participant by the Company. Pay for those
participants receiving a lump sum severance payment shall be credited as if base
compensation was received in equal installments over the period to time provided
for in their severance agreement.
<PAGE>
-3-
"PLAN" or "SERP" means the American Medical International, Inc. 1990
Supplemental Benefit Plan, as amended and restated effective January 1, 1992,
a nonqualified and unfunded pension plan providing supplemental retirement
benefits to selected executives, as set forth herein and as it may be
subsequently amended.
"PLAN YEAR" means the fiscal year of the Company.
"SERVICE" means all years and fractional years computed from a
Participant's original date of hire with AMI to date of death, disability,
termination or retirement, including employment by a Participant with a
predecessor of AMI or any business entity acquired by AMI or membership as an
Independent Director on the AMI Board of Directors immediately prior to the date
of hire as an employee.
"SOCIAL SECURITY BENEFIT OFFSET FOR FORMULA A" means 100% of the annual
amount of the old age benefits available for the Participant (excluding amounts
available for spouses and dependents) under Title II of the Federal Social
Security Act at his Social Security Retirement Age (as defined in Section
415(b)(8) of the Internal Revenue Code) or similar benefits from any country
other than the United States of America. In cases where a Participant terminates
employment for any reason prior to attaining his Social Security Retirement Age,
the Social Security benefit shall be the benefit to which the Participant would
be entitled at Social Security Retirement Age, based upon the Federal Social
Security Act as in effect on the date of his termination of employment and based
on the assumption that he will not receive any future wages that will be counted
for purposes of the Federal Social Security Act. Once such Social Security
benefit shall have been determined, it shall not be redetermined even though
there may be changes in Social Security benefits
<PAGE>
-4-
thereafter because of changes in the cost of living or because of changes in
the Federal Social Security Act.
"SOCIAL SECURITY BENEFIT OFFSET FOR FORMULA B" means 100% of the amount of
the old age benefits available for the Participant (excluding amounts available
for spouses and dependent) under Title II of the Federal Social Security Act at
his Social Security Retirement Age (as defined in Section 415(b)(8) of the
Internal Revenue Code), based on his wage history and the Federal Social
Security Act in effect on the date he attains Social Security Retirement Age,
or similar benefits from any country other than the United States of America.
Such reduction shall be made as of the first day of the month following the date
of his Social Security Retirement Age (or, in the case of surviving spouse
benefits, the date he would have reached his Social Security Retirement Age)
notwithstanding anything to the contrary contained herein.
"SUPERSEDED PLAN" means the provisions of the Plan as it existed prior to
the amendment and restatement as set forth herein.
"VESTED BENEFIT" means the accrued benefit to which a Participant is
entitled based on his Pay and a minimum of ten (10) years of Service.
<PAGE>
-5-
ARTICLE III
PARTICIPATION
Each person who was a participant in the Superseded Plan on December 31,
1991 shall automatically become a Participant in the Plan on January 1, 1992;
however, any such person whose employment with the Company terminated prior to
January 1, 1992 shall be entitled to only those benefits, if any, to which he
is entitled on and after January 1, 1992 under the provisions of the Superseded
Plan as in effect on his date of termination of employment and he shall not be
entitled to any additional benefits hereunder unless he is subsequently
reemployed by the Company and selected as a Participant in accordance with the
following paragraph of this Article III.
Any other executive who is in the service of the Company on or after
January 1, 1992 shall become a Participant as of the date he is individually
selected by, and specifically named in the resolutions of, the Compensation
Committee. A Participant's active participation shall cease upon his termination
of employment with AMI.
ARTICLE IV
PROVISIONS FOR BENEFITS
Benefits under this Plan shall constitute unfunded general obligations of
AMI. To the extent any person acquires a right to receive payments from AMI
under this Plan, such right shall be no greater than that of any unsecured
general creditor of AMI.
<PAGE>
-6-
ARTICLE V
AMOUNT OF BENEFIT
Section 5.1 NORMAL RETIREMENT DATE. A Participant's Normal Retirement
Date shall be the first day of the month coinciding with or next following
his 65th birthday.
Section 5.2 NORMAL RETIREMENT BENEFITS.
(a) Upon retirement at or after his Normal Retirement Date,
a Participant who has completed at least ten (10) years of Service shall be
entitled to an annual Normal Retirement Benefit hereunder, payable for life,
in an amount determined under Formula A as follows:
(i) 2.5% of his Final Average Pay multiplied by his
years (including fractional years) of Service up
to a maximum of twenty (20);
(ii) his Social Security Benefit Offset for Formula A;
minus
(iii) (A) 100% of that portion of the annual benefit
payable as a single life annuity, or, in the
case of a Participant who is married at the
time of his retirement, payable as a
qualified joint and 50% survivor annuity,
at the time of his retirement under the
American Medical International, Inc. Pension
Plan (the "AMI Pension Plan") which is in
excess of any benefit accruing from either the
Participant's contributions or any Company
contributions made as a result of the
Participant's contributions to the AMI
Pension Plan, or
<PAGE>
-7-
(B) if the Participant has elected not to
participate in the AMI Pension Plan, the
amount of the annual benefit payable as a
single life annuity, or, in the case of a
Participant who is married at the time of
his retirement hereunder, payable as a
qualified joint and 50% survivor annuity,
the Participant would have received under
the AMI Pension Plan absent such election;
minus
(iv) 100% of the specific retirement benefit under any
AMI management contract, limited to the year(s)
in which such contract benefits are paid;
minus
(v) 100% of the benefit payable, if any, under the
American Medical International, Inc. Supplemental
Executive Retirement Plan.
(b) Notwithstanding anything to the contrary contained
herein, any Participant who is eligible for a Normal Retirement Benefit and
who on March 26, 1987 was an employee of AMI and had attained age fifty
(50) shall be entitled to an annual Normal Retirement Benefit hereunder,
payable for life, in an amount equal to the greater of the amount determined
under Formula A above or the amount determined under Formula B as follows:
(i) 40% of Final Average Pay, plus 1% of Final Average
Pay times years of Service in excess of ten (10),
with a maximum of ten (10) additional years
allowable;
minus
(ii) his Social Security Benefit Offset for Formula B;
minus
(iii) the amounts described under Formula A in
paragraphs (iii), (iv) and (v) of subsection (a)
above.
<PAGE>
-8-
(c) If, after the date of retirement, the benefits received
in any year under an AMI management contract exceed the benefits which would
otherwise be payable in that year under SERP, the excess amount paid in that
year shall not be carried forward or deducted from SERP benefits payable in
any year after management contract benefits have expired. (For example, assume
an executive retires on December 31, 1993, and under a management contract is
entitled to benefits in the amount of $100,000.00 per year for three (3) years
from the date of retirement. Further, assume that the executive has been
selected by the Compensation Committee to participate in this SERP, and but
for the benefits received under his management agreement, would be entitled
to SERP benefits of $50,000.00 per year. Even though the total benefits paid
under the management contract in 1994, 1995, 1996 exceed his SERP benefits
by an aggregate of $150,000.00, this amount is not subtracted from vested SERP
benefits to be received after benefits are terminated under the management
agreement. Beginning in 1997, he will receive the full amount of his SERP
benefit, that is $50,000.00, payable in that year.)
Section 5.3 EARLY RETIREMENT DATE. A Participant's Early Retirement Date
is the first day of any month between his 55th birthday and his 65th birthday.
Section 5.4 EARLY RETIREMENT BENEFIT.
(a) Upon retirement on an Early Retirement Date, a
Participant who has completed at least ten (10) years of Service shall be
entitled to an annual Early Retirement Benefit, payable for life, determined
under Formula A, as follows:
<PAGE>
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(i) 2.5% of his Final Average Pay multiplied by his
years (including fractional years) of Service up
to a maximum of twenty (20), reduced by the
percentage shown below for each year by which the
Participant's retirement precedes his Normal
Retirement Date, based on his years of Service:
Years of Service Reduction Percentage
---------------- --------------------
10 years 6%
11 years 5%
12 years 4%
13 years 3%
14 years 2%
15 years 1%
16 years or more 0%
provided, however, in the case of partial years
of Service, the reduction percentage shall be
prorated;
minus
(ii) his Social Security Benefit Offset for Formula A;
minus
(iii) (A) 100% of that portion of the annual benefit
payable as a single life annuity, or in the
case of a Participant married at the time of
his retirement hereunder, payable as a
qualified joint and 50% survivor annuity,
under the AMI Pension Plan which is in
excess of any benefit accruing from either
the Participant's contribution or any
Company contributions made as a result of
the Participant's contributions to the AMI
Pension Plan (except that if the Participant
elects to defer commencement of benefits
under the AMI Pension Plan, no offset shall
be made to the benefit under this Plan until
such benefits commence and the amount of
such offset shall be based on the single
life annuity, or, in the case of a Participant
married at the time of his retirement under
the AMI Pension Plan, based on the qualified
joint and 50% survivor annuity, payable at
the time such benefits commence); or
<PAGE>
-10-
(B) if the Participant has elected not to
participate in the AMI Pension Plan, the
amount of the annual benefit payable as a
single life annuity, or, in the case of a
Participant who is married at the time of
his retirement hereunder, payable as a
qualified joint and 50% survivor annuity,
the Participant would have received at his
Early Retirement Date under the AMI Pension
Plan absent such election;
minus
(iv) 100% of the specific retirement benefit under any
AMI management contract, limited to the year(s)
in which such contract benefits are paid;
minus
(v) 100% of the benefit payable, if any, under the
American Medical International, Inc. Supplemental
Executive Retirement Plan.
(b) Notwithstanding anything to the contrary contained
herein, any Participant who on March 26, 1987 was an employee of AMI and had
attained age fifty (50) shall, upon retirement on an Early Retirement Date
with ten (10) years of Service, be entitled to an annual benefit hereunder,
payable for life, in an amount equal to the greater of the amount determined
under Formula A above or the amount determined under Formula B as follows:
(i) 40% of Final Average Pay, plus 1% of Final Average
Pay times years of Service in excess of ten (10),
with a maximum of ten (10) additional years
allowable, reduced by the percentage shown below
for each year by which Participant's retirement
precedes his Normal Retirement Date, based on his
years of Service:
<PAGE>
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Years of Service Reduction Percentage
---------------- --------------------
10 years 6%
11 years 5%
12 years 4%
13 years 3%
14 years 2%
15 years 1%
16 years or more 0%
provided, however, in the case of partial years of
Service, the reduction percentage shall be
prorated;
minus
(ii) his Social Security Benefit Offset for Formula B;
minus
(iii) the amounts described under Formula A in
paragraphs (iii), (iv) and (v) of subsection (a)
above.
(c) A Participant may not elect to defer commencement of his
Early Retirement Benefit hereunder.
Section 5.5 DEATH BENEFITS.
(a) POST RETIREMENT. If a Participant dies after benefits
hereunder have commenced and he had a surviving spouse to whom he had been
married at least one (1) year prior to retirement or commencement of benefits,
whichever is applicable, such spouse shall receive 50% of the benefit payable
to the Participant at time of death, reduced by 1% for each year in excess of
five (5) by which the Participant's age exceeds the spouse's age. This benefit
shall be payable for the spouse's life but begin no earlier than the spouse's
attainment of age fifty (50).
<PAGE>
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(b) PRE-RETIREMENT. If a Participant dies before age fifty
(50), no benefit is paid, irrespective of year of Service. If a Participant
dies after age fifty (50) and after completing ten (10) years of Service, and
the Participant leaves a surviving spouse whom he had been married at least one
(1) year prior to his death, such spouse shall receive 50% of the Participant's
accrued Normal Retirement Benefit for life reduced by 1% for each year in
excess of five (5) by which the Participant's age exceeded the spouse's age,
but with no reduction for early commencement. This benefit shall be payable for
the spouse's life but shall begin no earlier than the spouse's attainment of
fifty (50).
Section 5.6 DISABILITY BENEFIT. If a Participant incurs a Disability
after ten (10) years of Service and fails to qualify for a disability under the
AMI Executive Long-Term Disability Program, the Participant shall receive an
annual Disability Benefit, payable for life, in an amount equal to the accrued
Normal Retirement Benefit hereunder without reduction for early commencement of
payments.
Section 5.7 VESTED BENEFIT.
(a) A Participant is fully vested in his benefit hereunder
upon completion of ten (10) years of Service. A vested Participant who
terminates employment with AMI for a reason other than death, disability or
retirement is eligible for a Vested Benefit, payable for life, at age 65
equal to his accrued benefit hereunder based on his Pay and years of Service as
his termination of employment.
(b) Benefits for a Participant who is entitled to a Vested
Benefit under this Section 5.7 shall commence on the beginning of the first
month following his 55th birthday, and shall be payable in a reduced amount as
provided in Section 5.4(a).
<PAGE>
-13-
(c) A Participant who terminates employment with AMI prior
to completing ten (10) years of Service shall not be entitled to any benefits
under this Plan.
Section 5.8 FORM OF BENEFITS. The annual benefit payable to a Participant
or his surviving spouse shall be paid in equal monthly installments on the
first day of each month commencing on his Normal Retirement Date, Early
Retirement Date, the date he incurs a Disability, or the date his surviving
spouse attains age fifty (50), whichever is applicable.
ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Compensation Committee. The duties of
the Compensation Committee will be determined by the Board of Directors. The
Compensation Committee shall have such powers as may be necessary to discharge
its duties hereunder.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 AMENDMENT AND TERMINATION. The Board of Directors may, by
resolution, in its absolute discretion, from time to time, amend, suspend, or
terminate in whole or in part, and if terminated reinstate, any or all of the
provisions of the Plan, except that no amendment, suspension, or termination
may apply so as to decrease Vested Benefits under the Plan which accrued prior
to the effective date of
<PAGE>
-14-
such amendment, suspension or termination. Any such amendment, suspension or
termination shall become effective on such date as shall be specified in such
resolution and, except as expressly limited in this Section 7.1, include such
provisions and have such effect as the Board of Directors, in its absolute
discretion, deems desirable.
Section 7.2 NO GUARANTEE OF EMPLOYMENT. Nothing contained in this Plan
shall be construed as a contract of employment between AMI and any employee, or
as a right of any employee to be continued in the employment of AMI, or as a
limitation of the right of AMI to discharge any of its employees, with or
without cause.
Section 7.3 NON-ALIENATION OF BENEFITS. Benefits payable under this Plan
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary. Any unauthorized attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose
of any right to benefits payable hereunder shall be void. No part of the assets
of AMI shall be subject to seizure by legal process resulting from any attempt
by creditors of or claimants against any Participant (or surviving spouse), or
any person claiming under or through the foregoing, to attach his interest
under the Plan.
Section 7.4 LIABILITY. No member of the Board of Directors or the
Compensation Committee shall be liable to any Participant, surviving spouse or
third party for any act or omission in exercising responsibilities pursuant to
this Plan.
<PAGE>
-15-
Section 7.5 INCAPACITY OF RECIPIENT. In the event a Participant or
surviving spouse is adjudicated incompetent by a court having jurisdiction to
make such determination, payments which become due, in accordance with this
Plan, shall be made to the appointed guardian or conservator of such
Participant or surviving spouse. Any such payments shall be a complete
discharge of the liabilities of AMI under the Plan.
Section 7.6 CONSTRUCTION. The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine gender; the singular may include
the plural; and vice versa, unless the context clearly indicates to the
contrary.
Section 7.7 GOVERNING LAW. The Plan shall be construed in accordance with
and governed by the laws of the State of California.
Executed this 30th day of December, 1992, effective as of January 1, 1992.
AMERICAN MEDICAL INTERNATIONAL, INC.
By /s/ O.E. French
--------------------------------------
O.E. French
SWORN TO AND SUBSCRIBED BEFORE ME ON THIS THE 30th DAY OF DECEMBER, 1992.
/s/ Phyllis Ballew Winters
[SEAL]
<PAGE>
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into as of this 10th day of December,
1992, by and between American Medical Holdings, Inc., a Delaware corporation
("AMH"), and Lawrence N. Kugelman ("Kugelman") and amends that certain Letter
of Understanding made and entered into as of October 30, 1992 by and between
Kugelman and AMH (the "Letter of Understanding").
W I T N E S S E T H:
WHEREAS, AMH and Kugelman desire to amend the Letter of Understanding as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. The Letter of Understanding shall remain in full force and effect
except to the extent specifically amended hereby. The Letter of Understanding
as amended hereby is hereinafter referred to as the "Employment Agreement."
Terms defined in the Letter of Understanding shall have like meanings when
used herein, unless the context otherwise requires.
2. A new Paragraph 3 is hereby added to the Employment Agreement as
follows:
"3 CHANGE OF CONTROL. Immediately upon the occurrence of any "Change
of Control" (as defined below), Kugelman shall
<PAGE>
be entitled to and shall fully vest in 100% of any and all amounts payable
to his pursuant to AMI's Executive Incentive Compensation Plan (formerly
known as the Short-Term Cash Incentive Plan) for services rendered by
Kugelman through the date and for the fiscal year in which such Change of
Control occurs, which amounts shall be calculated (with interest) as if
any and all individual and AMH performance goals applicable to any such
payments (whether to be made currently or on a deferred basis) had been
achieved immediately prior to such "Change of Control." AMH shall be
obligated to pay and hereby agrees to pay Kugelman any and all amounts
due him pursuant hereto within 7 calendar days after the occurrence of
any Change of Control.
For purposes of this Employment Agreement, a "Change of Control" shall be
deemed to have occurred if GKH Investments, L.P. shall sell, transfer, assign
or otherwise dispose of its direct ownership in all or a substantial
percentage of the equity securities of AMH held thereby as of August 22, 1991
or shall fail to either designate a majority of nominees or maintain a majority
of directors to serve on AMH's Board of Directors."
3. RENUMBERING. Paragraphs 3 through 7 of the Letter of Understanding
are hereby renumbered as Paragraphs 4 through 8 of the Employment Agreement.
4. Paragraph 4 of the Employment Agreement is hereby amended in its
entirety as follows:
"4. OPTIONS.
(a) Upon execution of the appropriate option agreements by
Kugelman, Kugelman shall be entitled to options to purchase (a) 100,000
common shares of AMH common stock pursuant to the Non-Qualified
Performance Stock Option Plan for Key Employees of American Medical
Holdings, Inc. and Subsidiaries (the "Key Employees Plan") and (b)
100,000 shares of common stock of AMH pursuant to the Non-Qualified
Employees Stock Option Plan of American Medical Holdings, Inc. and
Subsidiaries (the "Option Plan" and together with the Key
-2-
<PAGE>
Employees Plan, the "Option Plans"). Such options shall vest at 20% per
year on the same terms as the options granted to other AMH executives.
The exercise price for such options shall be the price at which the common
shares of AMH were offered in the Public Offering of August 15, 1991.
(b) Notwithstanding anything to the contrary set forth in the
foregoing subparagraph 4(a), Kugelman's option agreements or the Option
Plans, in the event of the occurrence of any "Change of Control" (as
defined in Paragraph 3 hereof), Kugelman shall vest in and be entitled
to acquire 100% of the shares of Common Stock subject to any options
theretofore granted to him but which have not been fully exercised,
and all such options shall become fully exercisable immediately prior to
(but conditional upon the occurrence of) any Change of Control.
Furthermore, upon the occurrence of a Change of Control, Kugelman shall
be entitled to receive as full consideration for, and in cancellation of,
any such options, an amount not less than the excess, if any, of (i) the
per share consideration payable pursuant to the terms of such Change of
Control in respect of the Common Stock over (ii) the exercise price per
share for all shares of Common Stock subject to such option, times the
number of shares of Common Stock then remaining, subject to such option.
5. Paragraph 5 of the Employment Agreement is hereby amended in its
entirety as follows:
"5. SEVERANCE.
(a) In the event of the termination of Kugelman's employment as
Executive Vice President of AMH for any reason other than "cause" (as
defined in subparagraph (c) below), Kugelman shall be entitled to receive
a one time lump sum payment in an amount equal to 12 months base
compensation (excluding bonus) determined on the basis of his
annual salary for AMH's fiscal year then most recently commenced (the
"Severance Payment"). In the event such termination is a result of
Kugelman's death or mental incapacity, the Severance Payment shall be
made to Kugelman's estate or personal representative. The obligations of
AMH under this subparagraph 5(a) shall be the only obligations of AMH and
its subsidiaries for the payment of compensation (except as otherwise
provided under applicable law) to Kugelman in the event of the termination
of his employment as described in this subparagraph 5(a).
-3-
<PAGE>
(b) In the event Kugelman voluntarily terminates his employment with
AMH within 120 days after the occurrence of a Change of Control or in the
event of his "Involuntary Termination" (as defined in subparagraph 5(d)
hereof) within 12 months after the occurrence of a Change of Control,
Kugelman shall be entitled to receive and AMH shall be obligated to pay to
Kugelman, his estate or personal representative, the Severance Payment (in
addition to any and all amounts due him pursuant to paragraphs 3 and 4
hereof and any and all amounts due him under applicable law). Any and all
payments to be made to Kugelman pursuant to this subparagraph 5(b) shall
be made within 14 calendar days after the effective date of Kugelman's
voluntary termination or his Involuntary Termination. The obligations of
AMH referenced in this subparagraph 5(b) shall be the only obligations of
AMH and its subsidiaries for the payment of compensation to Kugelman
in the event of the termination of his employment as described in this
subparagraph 5(b).
(c) For purposes of this Employment Agreement, Kugelman shall be
deemed to be terminated for cause if his employment is terminated due to
(i) the commission by Kugelman of an act of fraud or embezzlement
(including the unauthorized disclosure of confidential or proprietary
information of AMH or its subsidiaries), (ii) a conviction of Kugelman
(including a NOLO CONTENDERE plea) involving in the good faith judgment of
the Board of Directors of AMH, fraud, dishonesty or moral turpitude, (iii)
willful misconduct as an employee of AMH or a subsidiary or (iv) the
willful failure of Kugelman to render services to AMH or a subsidiary in
accordance with his employment.
(d) For purposes of this Employment Agreement, an "Involuntary
Termination" of Kugelman's employment with AMH shall be deemed to have
occurred if: (i) Kugelman's employment with AMH or its successor is
terminated for any reason other than "cause"; (ii) Kugelman's total
compensation, including benefits, is substantially reduced other than in
connection with an across-the-board reduction similarly affecting all
executives of AMH; (iii) the title, functions, duties, authority or
responsibilities of Kugelman's present position are materially reduced or
diminished; (iv) Kugelman is reassigned to another geographic location
more than 50 miles from his current place of employment; or (v) AMH is
liquidated, dissolved, consolidated or merged, or all or substantially all
of its assets are transferred, assigned or sold, unless a successor
assumes all of AMH's obligations under this Employment Agreement."
-4-
<PAGE>
6. Paragraph 7 of the Employment Agreement is hereby amended in its
entirety as follows:
"Subject to the terms of this Employment Agreement, Kugelman
shall have the right to participate in all other employee plans and
benefits currently existing or hereafter granted by AMH to its employees
and, except for the AMH Supplemental Executive Retirement Plan (the
"SERP"), all waiting periods will be waived to the full extent possible
unless such waiver would require AMH to waive waiting periods for other
employees. Kugelman shall be eligible to participate in all employee
compensation and benefit plans customarily available to executive vice
presidents."
7. INTEGRATION. The Employment Agreement constitutes the entire
agreement of the parties hereto with respect to Kugelman's employment, and no
modification, amendment or waiver of any of the provisions of the Employment
Agreement shall be effective unless in writing and signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
AMERICAN MEDICAL HOLDINGS, INC.
By: /s/ Robert W. O'Leary
-----------------------------------------
Its: Chairman and CEO
-----------------------------------
Accepted and Agreed this 10th
day of December, 1992.
By: /s/ Lawrence N. Kugelman
-------------------------------
Lawrence N. Kugelman
-5-
<PAGE>
EXHIBIT 11
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
SIMPLE:
Net income before extraordinary loss................................ $139,020 $66,969 $109,618
Extraordinary loss on early extinguishment of debt.................. (1,909) (25,431) (9,997)
-------- ------- --------
Net income.......................................................... $137,111 $41,538 $ 99,621
-------- ------- --------
-------- ------- --------
Average outstanding shares.......................................... 77,143 76,760 76,645
-------- ------- --------
-------- ------- --------
Simple earnings per share before extraordinary loss................. $ 1.80 $ 0.87 $ 1.43
Extraordinary loss on early extinguishment of debt.................. (0.02) (0.33) (0.13)
-------- ------- --------
Simple earnings per share........................................... $ 1.78 $ 0.54 $ 1.30
-------- ------- --------
-------- ------- --------
PRIMARY:
Net income.......................................................... $137,111 $41,538 $ 99,621
Adjustment for interest on debentures, net of tax................... 297 280 254
-------- ------- --------
Net income for primary............................................ $137,408 $41,818 $ 99,875
-------- ------- --------
-------- ------- --------
Average outstanding shares.......................................... 77,143 76,760 76,645
Common stock equivalents assuming exercise of stock options......... 1,914 819 564
Common stock equivalents assuming conversion of debentures.......... 210 210 210
-------- ------- --------
Shares for primary.................................................. 79,267 77,789 77,419
-------- ------- --------
-------- ------- --------
Primary earnings per share.......................................... $ 1.73(1) $ 0.54(1) $ 1.29(1)
-------- ------- --------
-------- ------- --------
FULLY-DILUTED:
Net income for primary.............................................. $137,408 $41,818 $ 99,875
Adjustment for interest on debentures, net of tax................... 607 527 494
-------- ------- --------
Net income for fully-diluted...................................... $138,015 $42,345 $100,369
-------- ------- --------
-------- ------- --------
Shares for primary.................................................. 79,267 77,789 77,419
Common stock equivalents assuming additional conversions of
debentures and exercise of stock options........................... 623 902 369
-------- ------- --------
Shares for fully-diluted............................................ 79,890 78,691 77,788
-------- ------- --------
-------- ------- --------
Fully-diluted earnings per share.................................... $ 1.73(1) $ 0.54(1) $ 1.29(1)
-------- ------- --------
-------- ------- --------
<FN>
- ------------------------
(1) The calculations for primary earnings per share and fully-diluted earnings
per share are submitted in accordance with Regulation S-K Item 601 (b) (11)
although it is contrary to paragraph 40 of APB Opinion No.15 because it
produces no material effect on dilution.
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 15, 1994
/s/ Robert W. O'Leary
------------------------------
Robert W. O'Leary
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 17, 1994
/s/ Robert B. Calhoun
------------------------------
Robert B. Calhoun
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 17, 1994
/s/ J. Robert Buchanan, M.D.
------------------------------
J. Robert Buchanan, M.D.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 15, 1994
/s/ John T. Casey
------------------------------
John T. Casey
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 16, 1994
/s/ Harold S. Handelsman
------------------------------
Harold S. Handelsman
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 15, 1994
/s/ Melvyn N. Klein
------------------------------
Melvyn N. Klein
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 11, 1994
/s/ Harry J. Gray
------------------------------
Harry J. Gray
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 11, 1994
/s/ Sheldon S. King
------------------------------
Sheldon S. King
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 14, 1994
/s/ Dan W. Lufkin
------------------------------
Dan W. Lufkin
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 11, 1994
/s/ William E. Mayer
------------------------------
William E. Mayer
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc., a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1994, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney shall
terminate one year from the date hereof.
DATED: November 11, 1994
/s/ Harold M. Williams
------------------------------
Harold M. Williams
Director
