<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 95-2557091
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2700 COLORADO AVENUE
SANTA MONICA, CALIFORNIA 90404
(310) 998-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SCOTT M. BROWN, ESQ.
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
TENET HEALTHCARE CORPORATION
2700 COLORADO AVENUE
SANTA MONICA, CALIFORNIA 90404
(310) 998-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------------
Copies of all communications to:
<TABLE>
<S> <C>
BRIAN J. MCCARTHY, ESQ. RICHARD D. TRUESDELL, JR., ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM DAVIS POLK & WARDWELL
300 SOUTH GRAND AVENUE, SUITE 3400 450 LEXINGTON AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10017
(213) 687-5000 (212) 450-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE(1) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Exchangeable Subordinated Notes
due 2007.............................. $310,000,000 100% $310,000,000 $106,897
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(a) promulgated under the Securities Act of
1933, as amended, based on an estimate of the maximum offering price.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1995
PROSPECTUS
, 1995 [LOGO]
TENET HEALTHCARE CORPORATION
$
% EXCHANGEABLE SUBORDINATED NOTES DUE 2007
EXCHANGEABLE FOR SHARES OF COMMON STOCK OF
VENCOR, INC.
--------------
The Exchangeable Subordinated Notes (the "Notes") to be issued by Tenet
Healthcare Corporation, a Nevada corporation (the "Company"), will be
exchangeable at the option of the holder for shares of common stock, $.25 par
value, of Vencor, Inc. (the "Vencor Common Stock") owned by the Company, at any
time on or after September 28, 1997 and prior to maturity, unless previously
redeemed, at an exchange price (the "Exchange Price") of $ per share (equivalent
to an exchange rate of shares per $1,000 principal amount of Notes), subject
to adjustment in certain events and subject to the Company's right to pay an
amount in cash equal to the Market Price (as defined herein) of the shares of
Vencor Common Stock for which such Notes are exchangeable in lieu of delivery of
such shares. The Notes will be exchangeable prior to September 28, 1997 only in
the event of a merger, consolidation or liquidation of Vencor, Inc. pursuant to
which the shares of Vencor Common Stock held by the Escrow Agent (as defined
herein) are converted into or exchanged for cash or other securities registered
under the Securities Act of 1933. Interest on the Notes is payable semi-annually
on and of each year, commencing on , 1996. On October
, 1995, the last reported sale price for Vencor Common Stock on the New York
Stock Exchange (where it trades under the symbol "VC") was $ per share.
Application will be made to have the Notes listed on the New York Stock
Exchange.
The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on or after , 1997, PROVIDED, HOWEVER, that the
Notes will be redeemable prior to , 1998 only if, for a period of
twenty consecutive trading days, the last reported sale price for Vencor Common
Stock on each such day shall have exceeded 150% of the Exchange Price then in
effect.
The Notes are unsecured general obligations of the Company, subordinated in
right of payment to all existing and future Senior and Senior Subordinated Debt
(as defined herein) of the Company. The indenture governing the Notes will not
restrict the incurrence of Senior and Senior Subordinated Debt or other
indebtedness by the Company or its subsidiaries. As of August 31, 1995, on a pro
forma basis after giving effect to the issuance and sale of the Notes and
certain other transactions described herein under "Pro Forma Financial
Information," the aggregate outstanding principal amount of Senior and Senior
Subordinated Debt would have been approximately $3.1 billion. In addition, the
Notes will be effectively subordinated to all indebtedness and other obligations
of the Company's subsidiaries, which on a pro forma basis as described above
would have been approximately $1.4 billion at August 31, 1995 (excluding trade
payables of $257.6 million at August 31, 1995).
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC (1) COMMISSIONS (2) COMPANY (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................. % % %
Total..................... $ $ $
- --------------------------------------------------------------------------------
<FN>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $ MILLION.
</TABLE>
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to various prior
conditions. The Underwriters reserve the right to withdraw, cancel or modify any
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about ,
1995.
DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO.
SECURITIES CORPORATION
<PAGE>
AVAILABLE INFORMATION
Tenet Healthcare Corporation, a Nevada corporation (together with its
subsidiaries, "Tenet" or the "Company"), has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of the Notes (as defined herein) offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Notes,
reference is made to the Registration Statement, including the exhibits thereto,
and the financial statements and notes filed as a part thereof. Statements made
in this Prospectus concerning the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Pacific Stock Exchange (the "PSE") under the symbol "THC".
Reports, proxy statements and other information filed by the Company may be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005 and at the offices of the PSE at 301 Pine Street, San Francisco,
California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act (File No. 0-11290) are incorporated in this Prospectus by
reference and are made a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(the "Tenet 10-K");
2. Quarterly Report on Form 10-Q for the quarterly period ended August
31, 1995;
3. Current Reports on Form 8-K dated July 6, 1995 and September 29,
1995;
4. The portions of Tenet's Proxy Statement for the Annual Meeting of
Shareholders held on September 27, 1995, that have been incorporated by
reference into the Tenet 10-K;
5. The portions of Tenet's Annual Report to Shareholders for the fiscal
year ended May 31, 1995 that have been incorporated by reference into the
Tenet 10-K; and
6. American Medical Holdings, Inc.'s ("AMH") and American Medical
International, Inc.'s ("AMI") Annual Report on Form 10-K for the fiscal year
ended August 31, 1994.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities made
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon oral or written
request, a copy of any or all of the documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Written or telephone requests
should be directed to Tenet Healthcare Corporation, 2700 Colorado Avenue, Santa
Monica, California 90404, Attention: Scott M. Brown, Esq., Senior Vice
President, Secretary and General Counsel (telephone (310) 998-8000).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "TENET" OR "COMPANY" REFER TO TENET HEALTHCARE CORPORATION
(FORMERLY KNOWN AS NATIONAL MEDICAL ENTERPRISES, INC.) AND ITS SUBSIDIARIES AND
THEIR RESPECTIVE OPERATIONS.
THE COMPANY
Tenet is a leading investor-owned healthcare company that operates general
hospitals and related healthcare facilities serving primarily urban areas in 13
states and holds investments in other healthcare companies. At August 31, 1995,
Tenet operated 72 domestic general hospitals, with a total of 16,210 licensed
beds, located in Alabama, Arkansas, California, Florida, Georgia, Indiana,
Louisiana, Missouri, Nebraska, North Carolina, South Carolina, Tennessee and
Texas. Tenet grew from an operator of 35 general hospitals at May 31, 1994, to
an operator of 72 general hospitals and related healthcare facilities at August
31, 1995, principally through its acquisition of American Medical Holdings, Inc.
("AMH"). That acquisition was accomplished on March 1, 1995, when a subsidiary
of Tenet was merged into AMH, leaving AMH as a wholly owned subsidiary of Tenet
(the "Merger").
At August 31, 1995, Tenet also operated six rehabilitation hospitals, seven
long-term care facilities and five psychiatric facilities located on the same
campus as, or nearby, Tenet's general hospitals and various ancillary healthcare
operations.
At August 31, 1995, Tenet operated 11 general hospitals in Australia,
Malaysia and Spain with a total of 1,043 licensed beds. On June 28, 1995, Tenet
sold its two Singapore hospitals, which together had 650 licensed beds, and is
in the process of selling certain of its other international operations. See
"Recent Developments."
At August 31, 1995, Tenet held investments in the following other healthcare
companies: (i) an approximately 26% voting interest in The Hillhaven Corporation
("Hillhaven"), a publicly traded company listed on the New York Stock Exchange
(the "NYSE") that operated 311 long-term care facilities, 55 pharmacies and 23
retirement housing communities in the United States at August 31, 1995, (ii) an
approximately 42% interest in Westminster Health Care Holdings PLC, a publicly
traded company listed on the London Stock Exchange that operated 69 long-term
care facilities and was the second-largest long-term care provider in the United
Kingdom at August 31, 1995, (iii) an approximately 20% voting interest in Total
Renal Care, Inc. ("TRC"), which operated 62 free-standing kidney dialysis units
in 10 states at August 31, 1995, and (iv) an approximately 23% interest in
Health Care Property Partners, a partnership originally formed by the Company
and Health Care Property Investors, Inc. On September 28, 1995, Vencor, Inc.
("Vencor") acquired Hillhaven pursuant to a transaction approved by the
shareholders of each of Vencor and Hillhaven on September 27, 1995 (the
"Hillhaven Acquisition"). As a result of the transaction, Tenet's Hillhaven
shares were exchanged for 8,301,067 shares of Common Stock of Vencor (the
"Vencor Common Stock"). See "Recent Developments."
The Company's principal executive offices are located at 2700 Colorado
Avenue, Santa Monica, California 90404, and its telephone number is (310)
998-8000.
VENCOR
According to Vencor's publicly available documents, Vencor, a Delaware
corporation, provides healthcare services primarily focusing on the needs of the
elderly. Vencor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, Vencor files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such reports, proxy statements and
other information may be inspected and copied at the Commission locations listed
under "Available Information" and at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
3
<PAGE>
At October , 1995, the Company owned 8,301,067 shares of Vencor Common
Stock which represented approximately 12.9% of the outstanding Vencor Common
Stock, with sole voting and investment power over all such shares. The Company
believes that it is not an affiliate of Vencor. See "Relationship Between the
Company and Vencor."
THIS PROSPECTUS RELATES ONLY TO THE NOTES OFFERED HEREBY AND DOES NOT RELATE
TO THE VENCOR COMMON STOCK OR TO THE EXCHANGE OF THE NOTES INTO THE VENCOR
COMMON STOCK. ALTHOUGH THE COMPANY HAS NO REASON TO BELIEVE THE INFORMATION
CONCERNING VENCOR INCLUDED HEREIN OR IN VENCOR'S PUBLICLY AVAILABLE DOCUMENTS IS
NOT RELIABLE, IT HAS NOT VERIFIED EITHER ITS ACCURACY OR ITS COMPLETENESS.
NEITHER THE COMPANY NOR THE UNDERWRITERS WARRANT THAT THERE HAVE NOT OCCURRED
EVENTS, NOT YET PUBLICLY DISCLOSED BY VENCOR, WHICH WOULD AFFECT EITHER THE
TRADING PRICE OF THE VENCOR COMMON STOCK OR THE ACCURACY OR THE COMPLETENESS OF
ANY STATEMENTS CONCERNING VENCOR INCLUDED HEREIN OR IN VENCOR'S PUBLICLY
AVAILABLE DOCUMENTS.
RECENT DEVELOPMENTS
GENERAL HOSPITAL ACQUISITIONS AND DEVELOPMENTS
In August 1995, Tenet acquired for approximately $222.6 million in cash the
Mercy+Baptist Medical Center ("Mercy+Baptist"), a not-for-profit system of two
general hospitals with an aggregate of 759 licensed beds located in New Orleans,
Louisiana, and a related physician practice. In September 1995, Tenet acquired
for approximately $80.3 million in cash (including the purchase or assumption of
working capital) the Providence Memorial Hospital ("Providence"), a
not-for-profit general hospital located in El Paso, Texas. Providence is
licensed for 471 general hospital beds (34 of which may be used as skilled
nursing beds) and is licensed for 30 additional rehabilitation and sub-acute
care beds. The Company utilized a portion of its Senior Revolving Debt (as
defined herein) to finance these acquisitions.
In August 1995, Tenet entered into an agreement with the Cleveland Clinic
Florida to develop a new 150-bed general hospital in western Broward County,
Florida. In July 1995, Tenet acquired a one-third interest in St. Clair
Hospital, a not-for-profit general hospital with 82 licensed beds located
outside of Birmingham, Alabama. In June 1995, the Company also announced the
signing of a letter of intent to participate in a joint venture to acquire the
104-bed not-for-profit Methodist Hospital of Jonesboro, a general hospital in
Jonesboro, Arkansas. The parties currently are negotiating the terms of that
transaction. While management considers these transactions to be strategically
important, the aggregate capital commitment is not expected to exceed $110.0
million.
DIVESTITURE OF INTERNATIONAL OPERATIONS
During fiscal 1995, Tenet's management concluded that it would be in the
best interests of Tenet's shareholders for the Company to focus on its core
business of operating domestic general hospitals rather than on its
international operations. Consequently, pursuant to a May 24, 1995 agreement,
Tenet sold its two Singapore hospitals to Parkway Holdings Limited ("Parkway")
on June 28, 1995. The net cash consideration Tenet received in the Singapore
transaction was approximately $243.3 million. In addition, Parkway assumed
approximately $78.3 million of debt. The Company used the net proceeds from this
sale to repay secured bank loans under its Credit Agreement (as defined herein).
On July 5, 1995, Tenet and Parkway entered into an agreement pursuant to
which Parkway agreed to purchase Tenet's 52% interest in Australian Medical
Enterprises Limited ("AME"). Parkway's purchase was subject to approval by the
shareholders of AME (other than Tenet, which was not permitted to vote). On
September 22, 1995, AME's shareholders voted to reject Parkway's bid for Tenet's
shares. Two parties have since announced bids for all of AME's shares, both at
share prices exceeding Parkway's bid. Tenet expects to complete the sale of its
interest in AME prior to the end of the second quarter of fiscal 1996. Tenet
also expects to sell its 40% interest in the Bumrungrad Medical Center in
Thailand prior to the end of the second quarter of fiscal 1996. Tenet expects to
receive aggregate cash consideration of approximately $82.0 million from the
sale of its holdings in Australia and Thailand. In addition, on October 3, 1995,
Tenet sold its 30% interest in the Subang Jaya Medical Centre in Malaysia to
Tenet's Malaysian partner for $12.0 million. The proceeds from these
transactions have been or will be applied to repay secured bank loans under the
Company's Credit Agreement.
4
<PAGE>
VENCOR'S ACQUISITION OF HILLHAVEN
On September 28, 1995, Vencor acquired Hillhaven pursuant to a transaction
approved by the shareholders of each of Vencor and Hillhaven on September 27,
1995. As a result of the transaction, the 8,878,147 shares of Hillhaven common
stock owned by Tenet were exchanged for 8,301,067 shares of Vencor Common Stock
(at an exchange ratio of 0.935 Vencor shares for each Hillhaven share). In
addition, Tenet received approximately $91.8 million for its Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock. The proceeds from the
redemption of the Hillhaven preferred stock were applied to repay secured bank
loans under the Company's Credit Agreement.
SENIOR NOTES OFFERING
On October 16, 1995, the Company consummated an offering of $500,000,000
8 5/8% Senior Notes due 2003 (the "Senior Notes Offering"). The net proceeds to
the Company from the Senior Notes Offering of approximately $486.7 million
(after deducting estimated expenses and underwriting discounts and commissions)
were used to repay secured bank loans under the Company's Credit Agreement.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Notes Offered..................... $ principal amount of % Exchangeable
Subordinated Notes due 2007 (the "Notes").
Maturity Date..................... , 2007.
Interest Payment Dates............ and , commencing , 1996.
Exchange Rights................... The Notes will be exchangeable for shares of Vencor
Common Stock at any time on or after September 28, 1997
and prior to maturity, unless previously redeemed, at an
exchange price of $ per share, subject to adjustment
under certain circumstances as described herein (the
"Exchange Price") and subject to the Company's right to
pay an amount in cash equal to the Market Price of the
shares of Vencor Common Stock for which such Notes are
exchangeable in lieu of delivery of such shares. Accord-
ingly, each $1,000 principal amount of Notes is
exchangeable for shares of Vencor Common Stock,
subject to adjustment, for an aggregate of 8,301,067
shares. The Notes will be exchangeable prior to
September 28, 1997 only in the event of a merger,
consolidation or liquidation of Vencor pursuant to which
the shares of Vencor Common Stock held by the Escrow
Agent are converted into or exchanged for cash or other
securities registered under the Securities Act of 1933,
as amended (the "Securities Act").
Mandatory Redemption.............. None.
Optional Redemption............... The Notes will be redeemable, in whole or in part, at
the option of the Company at any time on or after
, 1997 at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of
redemption, PROVIDED, HOWEVER, that the Notes will be
redeemable prior to , 1998 only if, for a
period of twenty consecutive trading days, the last
reported sale price for Vencor Common Stock on each such
day shall have exceeded 150% of the Exchange Price then
in effect.
Change of Control of Tenet........ Upon a Change of Control Triggering Event (as defined
herein), each holder of Notes will have the right to
require Tenet to repurchase such holder's Notes at 100%
of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. The terms of the
Company's Credit Agreement effectively will prohibit and
the indentures governing certain Senior and Senior
Subordinated Debt of the Company may prohibit the
Company from repurchasing Notes upon the occurrence of a
Change of Control Triggering Event. There can be no
assurance that Tenet will have the financial resources
to repurchase the Notes in the event of a Change of
Control Triggering Event, particularly if such Change of
Control Triggering Event requires Tenet to refinance, or
results in the acceleration of, other indebtedness. See
"Description of the Credit Agreement" and "Description
of Notes--Repurchase at the Option of Holders."
Subordination..................... The Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior and Senior Subordinated Debt
of the Company. The Indenture (as defined herein) will
not restrict the incurrence of Senior and Senior
Subordinated Debt or other indebtedness by the Company
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
or any of its subsidiaries. As of August 31, 1995, on a
pro forma basis after giving effect to the issuance and
sale of the Notes and certain other transactions
described herein under "Pro Forma Financial
Information," the aggregate outstanding principal amount
of Senior and Senior Subordinated Debt would have been
approximately $3.1 billion. In addition, the Notes will
be effectively subordinated to all indebtedness and
other obligations of the Company's subsidiaries, which
on a pro forma basis would have been approximately $1.4
billion at August 31, 1995 (excluding trade payables of
$257.6 million at August 31, 1995). See "Pro Forma
Financial Information."
Use of Proceeds................... The net proceeds to the Company from the sale of the
Notes are estimated to be approximately $ million
(after deducting estimated expenses and underwriting
discounts and commissions). The Company intends to use
all of such net proceeds to repay secured bank loans
under the Company's Credit Agreement. See "Use of
Proceeds."
Vencor Common Stock............... The Vencor Common Stock is listed on the NYSE where it
trades under the symbol "VC".
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers in connection with an investment in the
Notes offered hereby.
7
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following table presents summary pro forma financial information derived
from the Unaudited Pro Forma Condensed Combined Financial Statements included
elsewhere in this Prospectus. The Unaudited
Pro Forma Condensed Combined Financial Statements give effect to the following
transactions and events as if they had occurred as of June 1, 1994 for purposes
of the pro forma statement of operations and other operating information and on
August 31, 1995 for purposes of the pro forma balance sheet data: (i) the August
1994 sale of approximately 75% of the common stock of TRC; (ii) the elimination
of restructuring charges recorded by Tenet; (iii) the elimination of
non-recurring gains on disposals of facilities and long-term investments
recorded by Tenet; (iv) the elimination of non-recurring merger costs recorded
by AMH prior to the Merger; (v) the Merger and related transactions, applying
the purchase method of accounting; (vi) the acquisitions of Mercy+Baptist and
Providence; (vii) the June 28, 1995 sale of the Company's Mount Elizabeth
Hospital, East Shore Hospital and related healthcare businesses in Singapore as
well as the October 3, 1995 sale of the Company's holding in Malaysia and the
expected sale of the Company's holdings in Australia and Thailand; (viii)
Vencor's acquisition of Hillhaven; (ix) the consummation of the Senior Notes
Offering and (x) the consummation of this Offering.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the financial position or results of operations of Tenet had
the transactions and events assumed therein occurred on the dates specified, nor
are they necessarily indicative of the results of operations that may be
achieved in the future.
The following Summary Pro Forma Financial Information for the quarter ended
August 31, 1994 and the year ended May 31, 1995 do not reflect certain cost
savings that management believes may be realized as a result of the Merger,
currently estimated to be approximately $60.0 million annually beginning in
fiscal 1996 (before any severance or other costs of implementing certain
efficiencies). These savings are expected to be realized primarily through the
elimination of duplicative corporate overhead expenses, reduced supplies expense
through the incorporation of the acquired AMH facilities into the Company's
group purchasing program, and improved collection of the acquired AMH
facilities' accounts receivable. No assurances can be made as to the amount of
cost savings, if any, that actually will be realized.
The Unaudited Pro Forma Condensed Combined Financial Statements are based on
certain assumptions and adjustments described in the Notes to Unaudited Pro
Forma Condensed Combined Financial Statements included in the Prospectus and
should be read in conjunction therewith and with Management's Discussion and
Analysis and the Consolidated Financial Statements of Tenet and the related
Notes thereto incorporated by reference herein.
Tenet reports its financial information on the basis of a May 31 fiscal
year. AMH reported its financial information on the basis of an August 31 fiscal
year.
8
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
FISCAL THREE MONTHS ENDED
YEAR AUGUST 31,
ENDED --------------------
MAY 31, 1995 1994 1995
------------ --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues.................................................... $ 5,406.7 $ 1,327.4 $ 1,337.2
Operating expenses:
Salaries and benefits................................................... 2,167.2 533.7 527.1
Supplies................................................................ 779.4 189.6 195.4
Provision for doubtful accounts......................................... 298.6 78.9 72.9
Other operating expenses................................................ 1,159.5 279.2 283.4
Depreciation............................................................ 239.7 59.0 62.0
Amortization............................................................ 77.5 19.2 19.2
------------ --------- ---------
Operating income.......................................................... 684.8 167.8 177.2
Interest expense, net of capitalized portion.............................. (320.0) (79.1) (77.5)
Investment earnings....................................................... 19.3 4.2 5.4
Equity in earnings of unconsolidated affiliates........................... 11.8 2.9 2.9
Minority interest expense................................................. (5.9) (0.8) (4.1)
------------ --------- ---------
Income from continuing operations before income taxes..................... 390.0 95.0 103.9
Taxes on income........................................................... (172.8) (42.5) (46.5)
------------ --------- ---------
Income from continuing operations......................................... $ 217.2 $ 52.5 $ 57.4
------------ --------- ---------
------------ --------- ---------
Earnings per common share from continuing operations, fully diluted....... $ 1.05 $ 0.25 $ 0.27
Weighted average number of shares outstanding (in 000's).................. 214,938 213,310 215,839
Ratio of earnings to fixed charges (1).................................... 2.0x 2.0x 2.1x
OTHER OPERATING INFORMATION:
EBITDA (2)................................................................ $ 1,002.0 $ 246.0 $ 258.4
EBITDA margin............................................................. 18.5% 18.5% 19.3%
Ratio of EBITDA to net interest expense (3)............................... 3.3x 3.3x 3.6x
Ratio of total debt to EBITDA (4)......................................... 3.4x -- --
Capital expenditures...................................................... $ 325.4 $ 25.1 $ 85.0
</TABLE>
<TABLE>
<CAPTION>
AS OF
AUGUST 31,
1995
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital................................................................................. $ 69.2
Total assets.................................................................................... 8,060.2
Long-term debt, net of current portion.......................................................... 3,170.8
Shareholders' equity............................................................................ 2,227.4
<FN>
- ------------------------
(1) The ratio of earnings to fixed charges is calculated by dividing income
from continuing operations before income taxes plus fixed charges by fixed
charges. Fixed charges consist of interest expense, including amortization
of financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(2) EBITDA represents operating income before depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statements of Cash Flows of Tenet and AMH and
the related Notes thereto incorporated by reference in this Prospectus.
EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(3) Net of capitalized portion and net of pro forma investment earnings.
(4) Represents pro forma combined total debt outstanding at August 31, 1995 of
$3,449.5 million divided by pro forma combined EBITDA of $1,002.0 million
for the fiscal year ended May 31, 1995.
</TABLE>
9
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, THE
FOLLOWING FACTORS BEFORE PURCHASING THE NOTES OFFERED HEREBY.
COMPARISON TO OTHER DEBT SECURITIES; RELATIONSHIP TO VENCOR COMMON STOCK
The terms of the Notes differ from those of ordinary debt securities in that
the value that a holder of the Notes will receive upon the optional exchange of
the Notes is not fixed, but is based on the price of the Vencor Common Stock as
specified in the Exchange Price.
The opportunity for equity appreciation afforded by an investment in the
Notes is less than the opportunity for equity appreciation afforded by an
investment in the Vencor Common Stock because the amount receivable by holders
of the Notes upon exchange will only exceed the principal amount of such Notes
if the price of the Vencor Common Stock appreciates % from the date of the
Notes' issuance. Because the price of the Vencor Common Stock is subject to
market fluctuations, the exchange of the Notes into Vencor Common Stock may
never be in the economic best interest of the holder.
It is impossible to predict whether the price of Vencor Common Stock will
rise or fall. Trading prices of Vencor Common Stock will be influenced by
Vencor's operational results and by complex and interrelated political,
economic, financial and other factors that can affect the capital markets
generally, the New York Stock Exchange (on which Vencor Common Stock is traded)
and the market segment of which Vencor is a part.
NO OBLIGATION ON THE PART OF VENCOR WITH RESPECT TO THE NOTES
Vencor has no obligation with respect to the Notes or amounts to be paid to
the holders of the Notes, including any obligation to take into consideration
for any reason the needs of the Company or the holders. Vencor will not receive
any of the proceeds of the Offering of the Notes and is not responsible for the
determination of the time of, prices for or quantities of the Notes to be issued
or the optional redemption of such Notes.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on or after , 1997, PROVIDED, HOWEVER, that the
Notes will be redeemable prior to , 1998 only if, for a period of
twenty consecutive trading days, the last reported sale price for Vencor Common
Stock on each such day shall have exceeded 150% of the Exchange Price then in
effect.
EXCHANGE RIGHTS
The Company will not be obligated to exchange on a voluntary basis (for
example, in the context of a cash tender offer) any of the Vencor Common Stock
for cash, securities or other property. In certain situations, this could be
detrimental to the interests of the holders of the Notes and might require such
holders to exchange their Notes for shares of Vencor Common Stock in order to
participate in any such voluntary exchange. In certain circumstances including,
without limitation, a cash merger of Vencor, it is possible that the shares of
Vencor Common Stock which theretofore might have been received in exchange for
the Notes will no longer be available for exchange. In such event, only the
cash, securities or other property received upon the exchange of the shares of
Vencor Common Stock (exclusive of any interest or dividends payable with respect
thereto) will be available upon exchange of the Notes to the holders thereof.
The right of a holder to exchange its Notes for shares of Vencor Common
Stock (or other securities, property or cash) could be adversely affected in the
event of the bankruptcy, insolvency or liquidation of the Company. In such event
the shares of Vencor Common Stock (or other securities, property or cash) could
be deemed to be an asset of the Company subject to the claims of its general
creditors. See "Description of Notes -- Exchange Rights."
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<PAGE>
ABSENCE OF COVENANT PROTECTION
The Indenture will not limit the Company's ability to incur additional
indebtedness, or to grant liens on its assets to secure indebtedness, to pay
dividends or to repurchase shares of its capital stock. The Indenture does not
contain any provisions specifically intended to protect holders of the Notes in
the event of a future highly leveraged transaction involving the Company.
SUBORDINATION; SUBSIDIARY OPERATIONS
The Notes will be subordinated in right of payment to all existing and
future Senior and Senior Subordinated Debt and will be structurally subordinated
to all liabilities (including trade payables) of the Company's subsidiaries. The
Indenture will not restrict the incurrence of Senior and Senior Subordinated
Debt or other indebtedness by the Company or its subsidiaries. As of August 31,
1995, on a pro forma basis after giving effect to the issuance and sale of the
Notes and certain other transactions, the aggregate outstanding principal amount
of Senior and Senior Subordinated Debt would have been approximately $3.1
billion. See "Pro Forma Financial Information." By reason of such subordination
of the Notes, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of the Company or upon
a default in payment with respect to any indebtedness of the Company or an event
of default with respect to such indebtedness resulting in the acceleration
thereof, the assets of the Company will be available to pay the amounts due on
the Notes only after all Senior and Senior Subordinated Debt has been paid in
full. The Notes will rank PARI PASSU in all respects with other unsecured
subordinated obligations of the Company. See "Description of
Notes--Subordination."
Since substantially all of the Company's operations are conducted, and
substantially all of the assets of Tenet are owned, by its subsidiaries, the
Notes (which are obligations of Tenet but not its subsidiaries) effectively will
be subordinated to all existing and future obligations and other liabilities
(including trade payables) of Tenet's subsidiaries. Any right of Tenet to the
assets of any of its subsidiaries upon the liquidation, reorganization or
insolvency of such subsidiary (and the consequent right of the holders of the
Notes to participate in those assets) will be subject to the claims of the
creditors (including trade creditors) and preferred stockholders, if any, of
such subsidiary, except to the extent Tenet has a claim against such subsidiary
as a creditor of such subsidiary. In addition, in the event that claims of Tenet
as a creditor of a subsidiary are recognized, such claims would be subordinate
to any security interest in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by Tenet. The ability of Tenet and its
subsidiaries to incur certain obligations is limited by certain of the
restrictive covenants contained in the Credit Agreement. Additionally,
borrowings under the Credit Agreement are secured by a first priority lien on
the capital stock of the Company's direct subsidiaries, all intercompany
indebtedness owed to the Company and one of the Company's subsidiary's equity
investments, and have priority as to such collateral over the Notes. The
Indenture will not limit the ability of subsidiaries of Tenet to incur
additional indebtedness.
In addition, Tenet's ability to make required principal and interest
payments with respect to Tenet's indebtedness, including the Notes, depends on
the earnings of its subsidiaries and on its ability to receive funds from such
subsidiaries through dividends or other payments. Since the Notes are
obligations of Tenet only, Tenet's subsidiaries are not obligated or required to
pay any amounts due pursuant to the Notes or to make funds available therefor in
the form of dividends or advances to Tenet.
CERTAIN FINANCING CONSIDERATIONS; LEVERAGE
As of August 31, 1995, Tenet's total indebtedness was $3.5 billion,
constituting 62.5% of its total capitalization, including short-term debt. See
"Historical and Pro Forma Capitalization."
Tenet's Credit Agreement includes covenants prohibiting or limiting, among
other things, the sale of assets, the making of acquisitions and other
investments, capital expenditures, the incurrence of additional debt and liens
and the payment of dividends, in addition to a minimum consolidated net worth
requirement and certain ratio coverage tests including debt ratios and
fixed-charge ratios. In addition, the indentures governing certain Senior and
Senior Subordinated Debt include, among other things, covenants limiting the
11
<PAGE>
incurrence of additional debt and liens and the payment of dividends. Tenet's
failure to comply with any of these covenants could result in an event of
default under its indebtedness, including the Notes, which in turn could have a
material adverse effect on Tenet.
The degree to which Tenet is leveraged and the covenants described above may
adversely affect Tenet's ability to finance its future operations and could
limit its ability to pursue business opportunities that may be in the interests
of Tenet and its securityholders. In particular, changes in medical technology,
existing, proposed and future legislation, regulations and the interpretation
thereof, and the increasing importance of managed care contracts and integrated
healthcare delivery systems may require significant investment in facilities,
equipment, personnel or services. Although the Company believes that cash
generated from operations and amounts available under the revolving credit
portion of the Credit Agreement will be sufficient to allow it to make such
investments, there can be no assurance that Tenet will be able to obtain the
funds necessary to make such investments. Furthermore, tax-exempt or
government-owned competitors have certain financial advantages such as
endowments, charitable contributions, tax-exempt financing and exemption from
sales, property and income taxes not available to Tenet, providing them with a
potential competitive advantage in making such investments.
COMPETITION
The healthcare industry has been characterized in recent years by increased
competition for patients and staff physicians, excess capacity at general
hospitals, a shift from inpatient to outpatient settings and increased
consolidation. The principal factors contributing to these trends are advances
in medical technology, cost-containment efforts by managed care payors,
employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing healthcare
providers and changes in physician practice patterns. Tenet's future success
will depend, in part, on the ability of the Company's hospitals to continue to
attract staff physicians, to enter into managed care contracts and to organize
and structure integrated healthcare delivery systems with other healthcare
providers and physician practice groups. There can be no assurance that Tenet's
hospitals will continue to be able, on terms favorable to the Company, to
attract physicians to their staffs, to enter into managed care contracts or to
organize and structure integrated healthcare delivery systems, for which other
healthcare companies with greater financial resources or a wider range of
services may be competing.
Tenet's ability to continue to compete successfully for such contracts or to
form or participate in such systems also may depend upon, among other things,
Tenet's ability to increase the number of its facilities and services offered
through the acquisition of hospitals, groups of hospitals, other healthcare
businesses, ancillary healthcare providers, physician practices and physician
practice assets and Tenet's ability to finance such acquisitions. There can be
no assurance that suitable acquisitions, for which other healthcare companies
with greater financial resources than Tenet may be competing, can be
accomplished on terms favorable to Tenet or that financing, if necessary, can be
obtained for such acquisitions. See "--Certain Financing Considerations;
Leverage." There can be no assurance that Tenet will be able to operate
profitably any hospitals, facilities, businesses or other assets it may acquire,
effectively integrate the operations of such acquisitions or otherwise achieve
the intended benefits of such acquisitions.
LIMITS ON REIMBURSEMENT
Tenet derives a substantial portion of its net operating revenues from
third-party payors, including the Medicare and Medicaid programs. Changes in
government reimbursement programs have resulted in limitations on increases in,
and in some cases in reduced levels of, reimbursement for healthcare services,
and additional changes are anticipated. Such changes are likely to result in
further limitations on reimbursement levels. In addition, private payors,
including managed care payors, increasingly are demanding discounted fee
structures or the assumption by healthcare providers of all or a portion of the
financial risk through prepaid capitation arrangements. Inpatient utilization,
average lengths of stay and occupancy rates continue to be negatively affected
by payor-required pre-admission authorization and utilization review and by
payor pressure to maximize outpatient and alternative healthcare delivery
services for less acutely ill patients. In addition, efforts to impose reduced
allowances, greater discounts and more stringent cost controls by government and
other payors are expected to continue. Although Tenet is unable to predict the
12
<PAGE>
effect these changes will have on its operations, as the number of patients
covered by managed care payors increases, significant limits on the scope of
services reimbursed and on reimbursement rates and fees could have a material
adverse effect on the financial results of such operations.
EXTENSIVE REGULATION
The healthcare industry is subject to extensive Federal, state and local
regulation relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services and prices for services. In
particular, Medicare and Medicaid antifraud and abuse amendments codified under
Section 1128B(b) of the Social Security Act (the "Antifraud Amendments")
prohibit certain business practices and relationships that might affect the
provision and cost of healthcare services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Antifraud Amendments include criminal penalties and
civil sanctions, including fines and possible exclusion from the Medicare and
Medicaid programs. Pursuant to the Medicare and Medicaid Patient and Program
Protection Act of 1987, the Department of Health and Human Services ("HHS") has
issued regulations that describe some of the conduct and business relationships
permissible under the Antifraud Amendments ("Safe Harbors"). Tenet believes its
business arrangements comply in all material respects with applicable law and
satisfy the Safe Harbors. The fact that a given business arrangement does not
fall within a Safe Harbor does not render the arrangement per se illegal.
Business arrangements of healthcare service providers that fail to satisfy the
applicable Safe Harbor criteria, however, risk increased scrutiny by enforcement
authorities. Because Tenet may be less willing than some of its competitors to
enter into business arrangements that do not clearly satisfy the Safe Harbors,
it could be at a competitive disadvantage in entering into certain transactions
and arrangements with physicians and other healthcare providers.
In addition, Section 1877 of the Social Security Act, which restricts
referrals by physicians of Medicare and other government-program patients to
providers of a broad range of designated health services with which they have
ownership or certain other financial arrangements, was amended effective January
1, 1995, to significantly broaden the scope of prohibited physician referrals
under the Medicare and Medicaid programs to providers with which they have
ownership or certain other financial arrangements (the "Self-Referral
Prohibitions"). Many states have adopted or are considering similar legislative
proposals, some of which extend beyond the Medicaid program to prohibit the
payment or receipt of remuneration for the referral of patients and physician
self-referrals regardless of the source of the payment for the care. Tenet's
participation in and development of joint ventures and other financial
relationships with physicians could be adversely affected by these amendments
and similar state enactments.
Certificates of Need, which are issued by governmental agencies with
jurisdiction over healthcare facilities, are at times required for capital
expenditures exceeding a prescribed amount, changes in bed capacity or services
and certain other matters. Following a number of years of decline, the number of
states requiring Certificates of Need is once again on the rise as state
legislators once again are looking at the Certificate of Need process as a way
to contain rising healthcare costs. Tenet operates hospitals in eight states
that require state approval under Certificate of Need Programs. Tenet is unable
to predict whether it will be able to obtain any Certificates of Need in any
jurisdiction where such Certificates of Need are required.
Tenet is unable to predict the future course of Federal, state and local
regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the financial results of Tenet's operations.
HEALTHCARE REFORM LEGISLATION
Healthcare, as one of the largest industries in the United States, continues
to attract much legislative interest and public attention. Medicare, Medicaid,
mandatory and other public and private hospital cost-containment programs,
proposals to limit healthcare spending, proposals to limit prices and industry
competitive factors are highly significant to the healthcare industry.
13
<PAGE>
There continue to be Federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as Tenet and proposals to increase co-payments and deductibles from program
and private patients. In addition, a number of states are considering the
enactment of managed care initiatives designed to provide universal low-cost
coverage and/or additional taxes on hospitals to help finance or expand the
states' Medicaid systems. Tenet's facilities also are affected by controls
imposed by government and private payors designed to reduce admissions and
lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties also is a requirement of many managed care
arrangements. Tenet cannot predict whether any of the above proposals or any
other proposals will be adopted, and if adopted, no assurance can be given that
the implementation of such reforms will not have a material adverse effect on
Tenet's business.
CERTAIN LEGAL PROCEEDINGS
Tenet has been involved in certain significant legal proceedings and
investigations related principally to its discontinued psychiatric business.
These proceedings and investigations include class action and derivative
lawsuits by certain stockholders, psychiatric patient litigation alleging fraud
and conspiracy, certain lawsuits filed by third-party private-payor insurance
companies and investigations by various state and Federal agencies. Tenet (i)
has reached agreements with the United States Department of Justice (the "DOJ"),
HHS and the Securities and Exchange Commission (the "Commission") resolving all
Federal healthcare and related disclosure investigations of the Company (but
various government agencies are continuing to pursue investigations against
certain individuals), (ii) has reached an agreement with the District of
Columbia and all states where Tenet's psychiatric facilities received Medicaid
payments, settling all potential state claims related to the matters that were
the subject of the Federal investigations, (iii) has resolved the litigation
between Tenet and the insurers, (iv) has reached an agreement, pending court
approval, to resolve the shareholder derivative lawsuit, (v) has reached an
agreement to settle one of the class action lawsuits, and (vi) continues efforts
to resolve the cases brought by individual psychiatric patients. Tenet continues
to experience a greater than normal level of litigation relating to its former
psychiatric operations. The majority of the lawsuits filed contain allegations
of fraud and conspiracy against the Company and certain of its subsidiaries and
former employees. The Company believes that the increase in litigation stems, in
whole or in part, from advertisements by certain lawyers seeking former
psychiatric patients in order to ascertain whether potential claims exist
against the Company. The advertisements focus, in many instances, on the
Company's settlement of past disputes involving the operations of its
psychiatric subsidiaries, including the 1994 resolution of the government's
investigation and a corresponding criminal plea agreement. Among the suits filed
during fiscal 1995 were two lawsuits in Texas aggregating approximately 760
individual plaintiffs who are purported to have been patients in certain Texas
psychiatric facilities and a number of lawsuits filed in the District of
Columbia. In addition, a purported class action was filed in Texas state court
in May 1995. Tenet expects that additional lawsuits of this nature will be
filed. Tenet's reserves for unusual litigation costs represent management's
estimate of the costs of the defense of these matters. There can be no
assurance, however, that the ultimate liability will not exceed such estimates.
In the event such reserves are not adequate, the adverse determination of these
matters could have a material adverse effect on Tenet's financial condition and
results of operations.
In its agreements with the DOJ and HHS, Tenet agreed to maintain its
previously established ethics program and ethics hotline and also agreed to
implement certain additional compliance-related oversight procedures. Should the
hotline or oversight procedures reveal, after investigation by Tenet, credible
evidence of violations of criminal, or material violations of civil, laws, rules
or regulations governing Federally funded programs, Tenet is required to report
any such violation to the DOJ and HHS. As a result of the existing agreements
with the DOJ and HHS and the recent legal proceedings and investigations in
which Tenet has been involved, Tenet is subject to increased Federal and state
regulatory scrutiny and, in the event
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<PAGE>
that Tenet violates such decrees or engages in conduct that violates Federal or
state laws, rules or regulations, Tenet may be subject to a risk of increased
sanctions or penalties, including, but not limited to, partial or complete
disqualification as a provider of Medicare or Medicaid services.
INCOME TAX EXAMINATIONS
The Internal Revenue Service (the "IRS") is currently examining Tenet's
Federal income tax returns for fiscal years 1986 through 1990 and has not yet
begun examining any returns for subsequent years (collectively, the "Open
Years"). Although the IRS has not proposed any material adjustments to Tenet's
returns in the Open Years, there can be no assurance that significant issues
will not be raised. While Tenet has no reason to believe that the tax
liabilities it has recorded will be inadequate, if audits of the Open Years or
fiscal 1995, for which Tenet has not yet filed a tax return, result in
determinations significantly in excess of such reserves, Tenet's financial
condition could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL AND PHYSICIANS
Tenet's operations are dependent on the efforts, ability and experience of
its key executive officers. Tenet's continued growth depends on its ability to
attract and retain skilled employees, on the ability of its officers and key
employees to manage growth successfully and on Tenet's ability to attract and
retain physicians at its hospitals. In addition, the success of Tenet is, in
part, dependent upon the number, specialties and quality of physicians on its
hospitals' medical staffs, most of whom have no long-term contractual
relationship with Tenet and may terminate their association with Tenet's
hospitals at any time. The loss of some or all of these key executive officers
or an inability to attract or retain sufficient numbers of qualified physicians
could have a material adverse impact on Tenet's future results of operations.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company insures substantially all of its professional and comprehensive
general liability risks in excess of self-insured retentions, which vary by
hospital from $500,000 to $3.0 million per occurrence, through an insurance
company owned by several healthcare companies and in which the Company has a 77%
equity interest. A significant portion of these risks is, in turn, reinsured
with major independent insurance companies. Through May 31, 1994, the Company
insured its professional and comprehensive general liability risks related to
its psychiatric and physical rehabilitation hospitals through its wholly owned
insurance subsidiary that reinsured risks in excess of $500,000 with major
independent insurance companies. The Company has reached the policy limits
provided by this insurance subsidiary related to the psychiatric hospitals in
certain years. In addition, damages, if any, arising from fraud and conspiracy
claims in psychiatric malpractice cases may not be insured. In addition to the
reserves recorded by the above insurance companies, the Company maintains an
unfunded reserve for the self-insured portion of its professional liability
risks, which is based on actuarial estimates.
While cash from operations has been adequate to provide for unforeseen
liability claims in the past, there can be no assurance that Tenet's cash flow
will continue to be adequate to cover such claims. If actual payments of claims
with respect to Tenet's self-insured liabilities exceed projected payments of
claims, the financial results of Tenet's operations could be materially
adversely affected.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL OF TENET
Under the terms of the Credit Agreement, the prepayment of debt (other than
debt under the Credit Agreement) will result in a default under the Credit
Agreement and, accordingly, Tenet effectively is prohibited from repurchasing
Notes upon the occurrence of a Change of Control Triggering Event. The
indentures governing certain Senior and Senior Subordinated Debt contain similar
terms that may effectively prohibit the repurchase of Notes upon the occurrence
of a Change of Control Triggering Event. Accordingly, Tenet may not be able to
satisfy its obligations to repurchase the Notes unless Tenet is able to
refinance or obtain waivers with respect to the Credit Agreement and certain
other indebtedness. There can be no assurance that Tenet will have the financial
resources to repurchase the Notes in the event of a Change of Control Triggering
Event, particularly if such Change of Control Triggering Event requires Tenet to
refinance, or results in the acceleration of, other indebtedness. See
"Description of Notes."
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<PAGE>
The change of control provisions of the Indenture will obligate the Company
to repurchase Notes at the option of the holder thereof in the event Tenet
incurs additional leverage through certain types of recapitalizations, leveraged
buy-outs or similar transactions that could increase the indebtedness of the
Company or decrease the value of the Notes; PROVIDED, HOWEVER, if the Company
does not experience a Rating Decline (as defined herein) after the public notice
of its intent to enter into such a transaction, the Company will not be
obligated to undertake a Change of Control Offer (as defined herein).
Substantially all of the Senior and Senior Subordinated Debt of the Company,
approximately $3.1 billion in aggregate principal amount on a pro forma basis as
of August 31, 1995, has similar change of control or cross-default provisions
which effectively would decrease the amount of funds available for the Company
to purchase the Notes pursuant to a Change of Control Offer.
NO PRIOR PUBLIC MARKET
Application will be made to have the Notes listed on the NYSE. The Notes
will constitute a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that, following the completion
of this Offering, the Underwriters presently intend to make a market in the
Notes as permitted by applicable laws and regulations. The Underwriters,
however, are under no obligation to do so and may discontinue any market making
activities at any time at the sole discretion of the Underwriters. There can be
no assurance as to the liquidity of the market that may develop for the Notes,
the ability of holders of the Notes to sell their Notes or the prices at which
holders would be able to sell their Notes. The Notes could trade at prices that
may be higher or lower than the initial offering price thereof depending on many
factors, including prevailing interest rates, the Company's operating results
and the markets for similar securities. See "Underwriting."
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USE OF PROCEEDS
The net proceeds to Tenet from the sale of the Notes in this Offering are
estimated to be approximately $ million (after deducting estimated expenses
and underwriting discounts and commissions). Tenet intends to use all of such
net proceeds to repay secured indebtedness outstanding under the Company's
Credit Agreement.
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Tenet at August 31,
1995 and as adjusted to give effect to the consummation of this Offering and to
the application of the net proceeds therefrom as described under "Use of
Proceeds" and certain other transactions described herein under "Pro Forma
Financial Information."
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1995
------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Current portion of long-term debt............................................... $ 276.6 $ 276.6
Short-term borrowings and notes................................................. 2.1 2.1
----------- -----------
Total current debt.......................................................... $ 278.7 $ 278.7
----------- -----------
----------- -----------
Long-term debt, net of current portion:
Credit Agreement.............................................................. $ 1,765.0 $ 899.7
Senior Notes due 2002......................................................... 300.0 300.0
Senior Notes due 2003......................................................... -- 500.0
Other debt (1)................................................................ 261.1 261.1
Senior Subordinated Notes due 2005............................................ 900.0 900.0
Exchangeable Subordinated Notes due 2007...................................... -- 310.0
----------- -----------
Total long-term debt ....................................................... 3,226.1 3,170.8
----------- -----------
Shareholders' equity:
Tenet common stock, par value $0.075, authorized 450,000,000 shares; issued
218,713,406 shares (2)....................................................... 16.4 16.4
Other shareholders' equity.................................................... 2,359.5 2,481.0
Less treasury stock, at cost, 18,660,394 shares............................... (270.0) (270.0)
----------- -----------
Total shareholders' equity.................................................. 2,105.9 2,227.4
----------- -----------
Total capitalization.......................................................... $ 5,332.0 $ 5,398.2
----------- -----------
----------- -----------
<FN>
- --------------------------
(1) Includes several series of medium term notes, certain other secured and
unsecured notes payable, mortgage notes and capitalized lease obligations,
net of the unamortized discount on the Company's Senior Notes due 2002 and
Senior Subordinated Notes due 2005.
(2) Does not include 36,405,015 shares of Tenet Common Stock reserved for
issuance upon exchange of Tenet options and conversion of outstanding
securities of Tenet.
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company on an historical basis for the year ended May 31, 1995, each of the
preceding four years ended May 31, and for the three-month periods ended August
31, 1994 and 1995.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
AUGUST
YEAR ENDED MAY 31, 31,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (1)................... 2.3x 3.5x 4.3x 4.2x 2.7x 5.1x
<CAPTION>
1995
---------
<S> <C>
Ratio of Earnings to Fixed Charges (1)................... 3.4x
<FN>
- --------------------------
(1) For the purpose of calculating such ratios, "earnings" consist of income
from continuing operations before income taxes plus fixed charges, and
"fixed charges" consist of interest expense, net of capitalized portion;
capitalized interest; amortization of debt offering expenses and discount
or premium and that portion of rents representative of interest.
</TABLE>
17
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Statements give effect
to the following transactions and events as if they had occurred as of June 1,
1994 for purposes of the pro forma statement of operations and other operating
information and on August 31, 1995 for purposes of the pro forma balance sheet
data: (i) the August 1994 sale of approximately 75% of the common stock of TRC;
(ii) the elimination of restructuring charges recorded by Tenet; (iii) the
elimination of non-recurring gains on disposals of facilities and long-term
investments recorded by Tenet; (iv) the elimination of non-recurring merger
costs recorded by AMH prior to the Merger; (v) the Merger and related
transactions, applying the purchase method of accounting; (vi) the acquisitions
of Mercy+Baptist and Providence; (vii) the June 28, 1995 sale of the Company's
Mount Elizabeth Hospital, East Shore Hospital and related healthcare businesses
in Singapore as well as the October 3, 1995 sale of the Company's holdings in
Malaysia and the expected sale of the Company's holdings in Australia and
Thailand; (viii) Vencor's acquisition of Hillhaven; (ix) the consummation of the
Senior Notes Offering and (x) the consummation of this Offering.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the financial position or results of operations of Tenet had
the transactions and events assumed therein occurred on the dates specified, nor
are they necessarily indicative of the results of operations that may be
achieved in the future.
The following Unaudited Pro Forma Condensed Combined Financial Statements
for the quarter ended August 31, 1994 and the year ended May 31, 1995 do not
reflect certain cost savings that management believes may be realized as a
result of the Merger, currently estimated to be approximately $60.0 million
annually beginning in fiscal 1996 (before any severance or other costs of
implementing certain efficiencies). These savings are expected to be realized
primarily through the elimination of duplicative corporate overhead expenses,
reduced supplies expense through the incorporation of the acquired AMH
facilities into the Company's group purchasing program, and improved collection
of the acquired AMH facilities' accounts receivable. No assurances can be made
as to the amount of cost savings, if any, that actually will be realized.
The Unaudited Pro Forma Condensed Combined Financial Statements are based on
certain assumptions and adjustments described in the Notes to Unaudited Pro
Forma Condensed Combined Financial Statements included in the Prospectus and
should be read in conjunction therewith and with Management's Discussion and
Analysis and the Consolidated Financial Statements of Tenet and the related
Notes thereto incorporated by reference herein.
Tenet reports its financial information on the basis of a May 31 fiscal
year. AMH reported its financial information on the basis of an August 31 fiscal
year.
18
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1995
-----------------------------------------------------------------------
INTERNATIONAL VENCOR'S
PROVIDENCE OPERATIONS ACQUISITION
HISTORICAL ACQUISITION DIVESTED OF HILLHAVEN THE PRO FORMA
TENET (A) (B) (C) OFFERINGS AS ADJUSTED
----------- ------------- --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 106.4 $ -- $ -- $ -- $ -- $ 106.4
Short-term investments, at cost which
approximates market........................ 135.6 135.6
Accounts and notes receivable, less
allowance for doubtful accounts............ 601.8 601.8
Inventories of supplies, at cost............ 119.9 1.5 121.4
Deferred income taxes....................... 303.1 303.1
Assets held for sale........................ 124.5 (95.6) 28.9
Prepaid expenses and other current assets... 50.4 1.9 52.3
----------- ------ ------ ------ ----------- -----------
Total current assets...................... 1,441.7 3.4 (95.6) 1,349.5
Investments and other assets.................. 370.0 129.4 499.4
Property, plant and equipment, net............ 3,418.0 87.0 3,505.0
Intangible assets, at cost less accumulated
amortization................................. 2,655.0 28.0 13.3(d) 2,706.3
10.0(e)
----------- ------ ------ ------ ----------- -----------
$ 7,884.7 $ 118.4 $ (95.6) $ 129.4 $ 23.3 $ 8,060.2
----------- ------ ------ ------ ----------- -----------
----------- ------ ------ ------ ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... $ 276.6 $ -- $ -- $ -- $ -- $ 276.6
Short-term borrowings and notes............. 2.1 2.1
Accounts payable............................ 258.2 9.7 267.9
Employee compensation and benefits.......... 161.2 161.2
Reserves related to discontinued
operations................................. 66.3 66.3
Income taxes payable........................ 2.1 2.1
Other current liabilities................... 490.7 13.4 504.1
----------- ------ ------ ------ ----------- -----------
Total current liabilities................. 1,257.2 23.1 1,280.3
Long-term debt, net of current portion........ 3,226.1 80.3 (94.0) (64.9) 500.0(d) 3,170.8
(486.7)(d)
310.0(e)
(300.0)(e)
Other long-term liabilities and minority
interests.................................... 988.5 15.0 1,003.5
Deferred income taxes......................... 307.0 71.2 378.2
Shareholders' equity:
Common stock................................ 16.4 16.4
Other shareholders' equity.................. 2,359.5 (1.6) 123.1 2,481.0
Less common stock in treasury, at cost...... (270.0) (270.0)
----------- ------ ------ ------ ----------- -----------
Total shareholders' equity................ 2,105.9 -- (1.6) 123.1 -- 2,227.4
----------- ------ ------ ------ ----------- -----------
$ 7,884.7 $ 118.4 $ (95.6) $ 129.4 $ 23.3 $ 8,060.2
----------- ------ ------ ------ ----------- -----------
----------- ------ ------ ------ ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
19
<PAGE>
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1995
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
TENET YEAR HISTORICAL
ENDED AMH NINE TENET AMH TENET/AMH
MAY 31, MONTHS ENDED ADJUSTMENTS ADJUSTMENTS MERGER
1995 FEBRUARY 28, 1995 (F) (G) ADJUSTMENTS
---------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net operating revenues....................... $3,318.4 $1,938.3 $(16.6) $-- $ --
Operating expenses:
Salaries and benefits...................... 1,366.8 716.2 (5.9)
Supplies................................... 431.5 280.3
Provision for doubtful accounts............ 137.5 138.5 (0.4)
Other operating expenses................... 759.2 492.6 (6.8) (73.9)
Depreciation............................... 164.4 93.9 (0.6) (16.9)(h)
Amortization............................... 30.6 29.5 (0.2) 17.3(i)
Restructuring charges...................... 36.9 -- (36.9)
---------- -------- ----------- ----------- -----------
Operating income............................. 391.5 187.3 34.2 73.9 (0.4)
Interest expense, net of capitalized
portion..................................... (138.1) (120.2) -- (76.6)(j)
Investment earnings.......................... 27.5 2.6 -- (3.2)(k)
Equity in earnings of unconsolidated
affiliates.................................. 28.4 -- (0.1)
Minority interest in income of consolidated
subsidiaries................................ (9.4) (3.3) 0.4
Net gain on disposals of facilities and long-
term investments............................ 29.5 -- (29.5)
---------- -------- ----------- ----------- -----------
Income from continuing operations before
income taxes................................ 329.4 66.4 5.0 73.9 (80.2)
Taxes on income.............................. (135.0) (41.3) (2.0) (18.7) 24.5(l)
---------- -------- ----------- ----------- -----------
Income from continuing operations............ $ 194.4 $ 25.1 $ 3.0 $ 55.2 $ (55.7)
---------- -------- ----------- ----------- -----------
---------- -------- ----------- ----------- -----------
Earnings per common share from continuing
operations, fully diluted................... $ 1.06
----------
----------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 190,139 24,799(m)
---------- -----------
---------- -----------
Ratio of earnings to fixed charges........... 2.7x
----------
----------
<CAPTION>
VENCOR'S
GENERAL INTERNATIONAL ACQUISITION
HOSPITAL OPERATIONS OF
TENET/AMH ACQUISITIONS DIVESTED HILLHAVEN PRO FORMA PRO FORMA
COMBINED (N) (O) (C) ADJUSTMENTS COMBINED
--------- ------------ ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues....................... $5,240.1 $370.0 $(203.4) $-- $ -- $5,406.7
Operating expenses:
Salaries and benefits...................... 2,077.1 170.8 (80.7) 2,167.2
Supplies................................... 711.8 85.4 (17.8) 779.4
Provision for doubtful accounts............ 275.6 23.9 (0.9) 298.6
Other operating expenses................... 1,171.1 39.5 (51.1) 1,159.5
Depreciation............................... 240.8 26.5 (14.0) (13.6)(p) 239.7
Amortization............................... 77.2 -- (1.9) 2.2(q) 77.5
Restructuring charges...................... -- -- -- --
--------- ------ ------------- ---------- ----------- ---------
Operating income............................. 686.5 23.9 (37.0) 11.4 684.8
Interest expense, net of capitalized
portion..................................... (334.9) (7.1) 5.8 7.1(r) (320.0)
29.4(s)
(20.3)(t)
Investment earnings.......................... 26.9 -- (0.8) (6.8) 19.3
Equity in earnings of unconsolidated
affiliates.................................. 28.3 -- (0.6) (15.9) 11.8
Minority interest in income of consolidated
subsidiaries................................ (12.3) -- 6.4 (5.9)
Net gain on disposals of facilities and long-
term investments............................ -- -- -- --
--------- ------ ------------- ---------- ----------- ---------
Income from continuing operations before
income taxes................................ 394.5 16.8 (26.2) (22.7) 27.6 390.0
Taxes on income.............................. (172.5) 10.4 6.6 (17.3)(u) (172.8)
--------- ------ ------------- ---------- ----------- ---------
Income from continuing operations............ $ 222.0 $ 16.8 $ (15.8) $(16.1) $ 10.3 $ 217.2
--------- ------ ------------- ---------- ----------- ---------
--------- ------ ------------- ---------- ----------- ---------
Earnings per common share from continuing
operations, fully diluted................... $ 1.05
---------
---------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 214,938
---------
---------
Ratio of earnings to fixed charges........... 2.0x
---------
---------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
20
<PAGE>
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED AUGUST 31, 1994
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
TENET QUARTER AMH QUARTER
ENDED ENDED TENET TENET/AMH
AUGUST 31, AUGUST 31, ADJUSTMENTS MERGER
1994 1994 (F) ADJUSTMENTS
------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating revenues....................... $ 662.8 $ 638.2 $(16.6) $--
Operating expenses:
Salaries and benefits...................... 283.2 234.0 (5.9)
Supplies................................... 80.6 92.1
Provision for doubtful accounts............ 26.1 47.4 (0.4)
Other operating expenses................... 150.1 137.8 (6.8)
Depreciation............................... 34.3 30.9 (0.6) (5.6)(h)
Amortization............................... 3.6 10.0 (0.2) 5.7(i)
------------- ------ ----------- -----------
Operating income............................. 84.9 86.0 (2.7) (0.1)
Interest expense, net of capitalized
portion..................................... (17.7) (40.0) (25.5)(j)
Investment earnings.......................... 6.0 0.8 (1.1)(k)
Equity in earnings of unconsolidated
affiliates.................................. 6.3 (0.1)
Minority interest expense in income of
consolidated subsidiaries................... (2.0) (0.9) 0.4
Net gain on disposals of facilities and
long-term investments....................... 29.5 (29.5)
------------- ------ ----------- -----------
Income from continuing operations before
income taxes................................ 107.0 45.9 (31.9) (26.7)
Taxes on income.............................. (43.0) (19.0) 12.4 8.2(l)
------------- ------ ----------- -----------
Income from continuing operations............ $ 64.0 $ 26.9 $(19.5) $(18.5)
------------- ------ ----------- -----------
------------- ------ ----------- -----------
Earnings per common share from continuing
operations, fully diluted................... $ 0.36
-------------
-------------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 180,153 33,157(m)
------------- -----------
------------- -----------
Ratio of earnings to fixed charges........... 5.1x
-------------
-------------
<CAPTION>
VENCOR'S
GENERAL INTERNATIONAL ACQUISITION
HOSPITAL OPERATIONS OF
TENET/AMH ACQUISITIONS DIVESTED HILLHAVEN PRO FORMA PRO FORMA
COMBINED (N) (O) (C) ADJUSTMENTS COMBINED
--------- ------------ ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues....................... $1,284.4 $ 92.5 $ (49.5) $-- $ -- $1,327.4
Operating expenses:
Salaries and benefits...................... 511.3 42.7 (20.3) 533.7
Supplies................................... 172.7 21.4 (4.5) 189.6
Provision for doubtful accounts............ 73.1 6.0 (0.2) 78.9
Other operating expenses................... 281.1 9.9 (11.8) 279.2
Depreciation............................... 59.0 6.6 (3.2) (3.4)(p) 59.0
Amortization............................... 19.1 (0.5) 0.6(q) 19.2
--------- ----- ------ ----- ----- ---------
Operating income............................. 168.1 5.9 (9.0) 2.8 167.8
Interest expense, net of capitalized
portion..................................... (83.2) (1.8) 1.9 1.8(r) (79.1)
7.3(s)
(5.1)(t)
Investment earnings.......................... 5.7 (0.3) (1.2) 4.2
Equity in earnings of unconsolidated
affiliates.................................. 6.2 (0.1) (3.2) 2.9
Minority interest expense in income of
consolidated subsidiaries................... (2.5) 1.7 (0.8)
Net gain on disposals of facilities and
long-term investments.......................
--------- ----- ------ ----- ----- ---------
Income from continuing operations before
income taxes................................ 94.3 4.1 (5.8) (4.4) 6.8 95.0
Taxes on income.............................. (41.4) 1.9 1.3 (4.3)(u) (42.5)
--------- ----- ------ ----- ----- ---------
Income from continuing operations............ $ 52.9 $ 4.1 $ (3.9) $ (3.1) $ 2.5 $ 52.5
--------- ----- ------ ----- ----- ---------
--------- ----- ------ ----- ----- ---------
Earnings per common share from continuing
operations, fully diluted................... $ 0.26 $ 0.25
--------- ---------
--------- ---------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 213,310 213,310
--------- ---------
--------- ---------
Ratio of earnings to fixed charges........... 2.0x
---------
---------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
21
<PAGE>
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED AUGUST 31, 1995
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
HISTORICAL VENCOR'S
TENET QUARTER GENERAL INTERNATIONAL ACQUISITION
ENDED TENET HOSPITAL OPERATIONS OF
AUGUST 31, ADJUSTMENTS ACQUISITIONS DIVESTED HILLHAVEN PRO FORMA
1995 (F) (N) (O) (C) ADJUSTMENTS
------------- ----------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues....................... $ 1,283.9 $-- $ 87.2 $ (33.9) $-- $ --
Operating expenses:
Salaries and benefits...................... 502.2 39.9 (15.0)
Supplies................................... 178.7 20.6 (3.9)
Provision for doubtful accounts............ 67.3 5.7 (0.1)
Other operating expenses................... 281.6 9.2 (7.4)
Depreciation............................... 61.4 6.2 (2.2) (3.4)(p)
Amortization............................... 18.8 (0.2) 0.6(q)
------------- ----------- ----- ------ ----- -----
Operating income............................. 173.9 5.6 (5.1) 2.8
Interest expense, net of capitalized
portion..................................... (77.1) (1.8) 0.3 1.8(r)
4.4(s)
(5.1)(t)
Investment earnings.......................... 7.3 (0.2) (1.7)
Equity in earnings of unconsolidated
affiliates.................................. 6.9 (0.1) (3.9)
Minority interest in income of consolidated
subsidiaries................................ (5.6) 1.5
Net gain on disposals of facilities and
long-term investments....................... 123.5 (123.5)
------------- ----------- ----- ------ ----- -----
Income from continuing operations before
income taxes................................ 228.9 (123.5) 3.8 (3.6) (5.6) 3.9
Taxes on income.............................. (110.6) 64.1 0.1 1.3 1.6 (3.0)(u)
------------- ----------- ----- ------ ----- -----
Income from continuing operations............ $ 118.3 $(59.4) $ 3.9 $ (2.3) $ (4.0) $ 0.9
------------- ----------- ----- ------ ----- -----
------------- ----------- ----- ------ ----- -----
Earnings per common share from continuing
operations, fully diluted................... $ 0.56
-------------
-------------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 215,839
-------------
-------------
Ratio of earnings to fixed charges........... 3.4x
-------------
-------------
<CAPTION>
PRO FORMA
---------
<S> <C>
Net operating revenues....................... $1,337.2
Operating expenses:
Salaries and benefits...................... 527.1
Supplies................................... 195.4
Provision for doubtful accounts............ 72.9
Other operating expenses................... 283.4
Depreciation............................... 62.0
Amortization............................... 19.2
---------
Operating income............................. 177.2
Interest expense, net of capitalized
portion..................................... (77.5)
Investment earnings.......................... 5.4
Equity in earnings of unconsolidated
affiliates.................................. 2.9
Minority interest in income of consolidated
subsidiaries................................ (4.1)
Net gain on disposals of facilities and
long-term investments.......................
---------
Income from continuing operations before
income taxes................................ 103.9
Taxes on income.............................. (46.5)
---------
Income from continuing operations............ $ 57.4
---------
---------
Earnings per common share from continuing
operations, fully diluted................... $ 0.27
---------
---------
Weighted average number of shares
outstanding, fully diluted (in 000's)....... 215,839
---------
---------
Ratio of earnings to fixed charges........... 2.1x
---------
---------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
quarter ended August 31, 1994 and the year ended May 31, 1995 do not give effect
to certain cost savings that may be realized as a result of the Merger,
estimated by Tenet management to be approximately $60.0 million annually
beginning in fiscal 1996 (before any severance or other costs of implementing
such efficiencies). The anticipated savings are based on estimates and
assumptions made by Tenet that are inherently uncertain, though considered
reasonable by Tenet, and are subject to significant business, economic and
competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of management. There can be no
assurance that such savings, if any, will be achieved.
The adjustments to arrive at the Unaudited Pro Forma Condensed Combined
Financial Statements are as follows:
<TABLE>
<S> <C> <C>
To reflect the September 29, 1995 acquisition of certain assets and liabilities of
Providence under the purchase method of accounting. The assets acquired and liabilities
assumed in this transaction are recorded at their estimated fair values. The excess of
the aggregate purchase price of $80.3 million (including the purchase or assumption of
working capital) over the estimated fair values of the net assets acquired is $28.0
(a) million, which will be amortized on a straight-line basis over 40 years. The acquisition
of Providence was financed using a portion of the Company's Senior Revolving Debt.
To reflect the divestiture of the Company's holdings in Malaysia and the expected sale
of the Company's holdings in Australia and Thailand. These holdings are classified as
assets held for sale at August 31, 1995. The Company realized net proceeds of
approximately $12.0 million from the sale of its holdings in Malaysia and expects to
realize aggregate net cash consideration of approximately $82.0 million from the sale of
its holdings in Australia and Thailand, resulting in a net loss of approximately $1.6
million after income taxes and other divestiture costs, which loss has not been
reflected in the Unaudited Pro Forma Condensed Combined Statements of Operations.
Pursuant to the terms of the Credit Agreement, 75% of the net proceeds from the
divestiture of these assets must be applied to the prepayment of the Senior Term Debt
(b) and the balance applied to reduce the amount outstanding under the Company's Senior
Revolving Debt.
To reflect Vencor's acquisition of Hillhaven, pursuant to which each Hillhaven common
share was exchanged for 0.935 share of Vencor common stock, or $32.25 in value based
upon the average closing market price of Vencor common stock over the ten trading days
ended September 26, 1995. Tenet had held 8,878,147 shares of common stock of Hillhaven
and had accounted for its interest in Hillhaven using the equity method of accounting.
As a result of Vencor's acquisition of Hillhaven, Tenet received 8,301,067 shares of
Vencor common stock in exchange for its interest in Hillhaven. Because Tenet owns less
than 20% of Vencor, Tenet will account for its interest in Vencor using the cost method
of accounting for investments in unconsolidated affiliates. In addition, as part of the
Vencor's acquisition of Hillhaven, Tenet received cash consideration of approximately
$91.8 million upon the redemption of its Hillhaven Series C Preferred Stock and
Hillhaven Series D Preferred Stock. These proceeds, net of certain expenses related to
the transaction, were applied to repay secured bank loans under the Company's Credit
Agreement. In connection with Vencor's acquisition of Hillhaven, Tenet recognized a net
gain on the exchange of securities of approximately $123.1 million, which gain has not
been reflected in the Unaudited Pro Forma Condensed Combined Statements of Operations.
The Unaudited Pro Forma Condensed Combined Statements of Operations reflect adjustments
made to eliminate the dividends on the Hillhaven Series C and Series D Preferred Stock
as well as the Company's equity in the earnings of Hillhaven that had been recognized by
(c) Tenet using the equity method of accounting for investments in unconsolidated
affiliates.
To reflect the consummation of the Senior Notes Offering and the application of the net
(d) proceeds therefrom.
To reflect the consummation of this Offering and the application of the net proceeds
(e) therefrom as described under "Use of Proceeds."
To adjust the results of operations of Tenet to reflect (i) the August 1994 sale of
approximately 75% of the common stock of TRC; (ii) the elimination of restructuring
charges recorded by Tenet of $36.9 million; and (iii) the elimination of non-recurring
gains on disposals of facilities and long-term investments recorded by Tenet of $29.5
(f) million in the quarter ended August 31, 1994 and $123.5 million in the quarter ended
August 31, 1995.
To eliminate non-recurring costs recorded by AMH in connection with the Merger,
(g) principally related to the buy-out of employee stock options, employee benefit costs,
and professional fees.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
(h) To adjust AMH depreciation expense for the nine months ended February 28, 1995 as
follows:
To reflect additional depreciation on the stepped-up values of AMH's
buildings and equipment.................................................. $ 2.3
To conform the estimated useful lives of the acquired buildings and
equipment to the lives used by Tenet..................................... (19.2)
---------
Net decrease in depreciation expense..................................... $ (16.9)
---------
---------
The adjustments made for the quarter ended August 31, 1994 are equal to one third of the
amounts above.
To reflect amortization of the excess of the purchase price of AMH over the fair values
(i) of the net assets acquired using the straight-line method over 40 years.
To adjust interest expense, including the amortization of deferred financing costs over
(j) the term of the related indebtedness, for the nine months ended February 28, 1995, as
follows:
To reflect pro forma interest expense related to the February 28, 1995
credit facility and the Senior Notes due 2002 and the Senior Subordinated
Notes due 2005........................................................... $ 203.1
To reduce interest expense to give effect to the refinancing and the
repayment of certain indebtedness in connection with the Merger.......... (124.4)
To reduce interest expense to reflect the amortization of the adjustment to
fair value of AMH indebtedness not refinanced............................ (2.1)
---------
Net increase in interest expense......................................... $ 76.6
---------
---------
The adjustments made for the quarter ended August 31, 1994 are equal to one third of the
amounts above.
To reflect an estimated reduction of interest income related to a lower balance of cash
(k) and cash equivalents available for investment.
To reflect income taxes at an assumed rate of 39% on the pro forma adjustments described
(l) in (h), (j) and (k) above. Amortization of goodwill in the Merger is not deductible for
tax purposes.
Represents the additional weighted average common shares that would have been
(m) outstanding upon consummation of the Merger.
To reflect the historical operations of Mercy+Baptist prior to its acquisition by the
Company in August 1995 as well as the historical operations of Providence, which was
(n) acquired by the Company in September 1995.
To reflect the divestiture of the Company's Mount Elizabeth Hospital, East Shore
Hospital and related healthcare businesses in Singapore, and a related net gain of
approximately $123.5 million, as well as the sale of the Company's holdings in Malaysia
and the expected sale of the Company's holdings in Australia and Thailand. In fiscal
1995, the divested international operations of the Company generated net operating
revenues and EBITDA of $203.4 million and $52.9 million, respectively. In fiscal 1994,
these operations generated net operating revenues and EBITDA of $175.2 million and $46.3
(o) million, respectively. Capital expenditures related to these operations were $50.0
million in fiscal 1995 and $28.7 million in fiscal 1994.
To adjust depreciation expense to reflect the estimated fair value of the buildings and
equipment acquired in the purchase of Mercy+Baptist and Providence, and to conform the
(p) estimated useful lives of the acquired buildings and equipment to those used by Tenet.
To reflect the amortization of the excess of the purchase price of Mercy+Baptist and
(q) Providence over the estimated fair values of the net assets acquired, using the
straight-line method over 40 years.
To reflect the elimination of historical interest expense incurred by Mercy+Baptist and
(r) by Providence in connection with indebtedness not assumed by Tenet.
To reflect the reduction in interest expense due to the use of the net proceeds from (i)
the sale of certain of the Company's international assets, as described in (b) above,
and (ii) the redemption of the Company's Series C and Series D Preferred Stock of
(s) Hillhaven, as described in (c) above, to repay secured bank loans under its Credit
Agreement.
To reflect interest expense on borrowings under the Senior Revolving Debt necessary to
finance the acquisitions of Mercy+Baptist and of Providence, as well as to reflect the
(t) consummation of the Senior Notes Offering and the consummation of this Offering.
To reflect income taxes at an assumed rate of 39% on the pro forma adjustments described
(u) in (n), (p), (q), (r), (s) and (t) above.
</TABLE>
24
<PAGE>
VENCOR
According to Vencor's publicly available documents, Vencor, a Delaware
corporation, provides healthcare services primarily focusing on the needs of the
elderly. Vencor is subject to the informational requirements of the Exchange
Act. Accordingly, Vencor files reports, proxy statements and other information
with the Commission. Copies of such reports, proxy statements and other
information may be inspected and copied at the Commission locations listed under
"Available Information" and at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. See "Relationship Between the Company and Vencor."
RELATIONSHIP BETWEEN THE COMPANY AND VENCOR
At October , 1995, the Company owned 8,301,067 shares of Vencor Common
Stock which represented approximately 12.9% of the outstanding Vencor Common
Stock, with sole voting and investment power over all such shares. In addition,
the Company and Vencor have entered into various intercompany transactions and
arrangements.
Pursuant to the Agreement, dated as of August 22, 1995, between the Company,
Hillhaven and Vencor (the "Three Party Agreement"), Vencor agreed to provide the
Company with registration rights for all of the Vencor Common Stock received by
the Company pursuant to Vencor's acquisition of Hillhaven. The Three Party
Agreement provides that Vencor will bear certain costs and expenses incurred in
connection with three registrations of the Company's shares of Vencor Common
Stock which registrations are requested by the Company and that Vencor will
indemnify the Company, its affiliates, its officers and directors, each
underwriter and each person who controls any such underwriter within the meaning
of Section 15 of the Securities Act, against certain liabilities, including
liabilities under the Securities Act. The Three Party Agreement also provides
that the Company shall not, for the period ending seven years following the
consummation of the Hillhaven Acquisition, (i) acquire additional shares of
Vencor Common Stock, (ii) participate in any solicitation of proxies with
respect to Vencor Common Stock, (iii) participate in a group with respect to
Vencor Common Stock, (iv) deposit its shares of Vencor Common Stock into a
voting trust or (v) otherwise act to seek to control or influence Vencor.
On January 31, 1990, the Company and Hillhaven entered into a Guarantee
Reimbursement Agreement (the "Guarantee Reimbursement Agreement") which provided
that the Company guarantee certain liabilities of Hillhaven in consideration for
a fee. Upon Vencor's acquisition of Hillhaven, the rights and duties of
Hillhaven under the agreement were assumed by Vencor. At May 31, 1995 and 1994,
an aggregate total of approximately $182.0 million and $279.0 million,
respectively, of long-term debt, leases and contingent liabilities were
guaranteed by the Company and the Company received fees of approximately $4.6
million, $6.7 million and $9.6 million during fiscal years 1995, 1994 and 1993,
respectively.
Pursuant to the Management Agreement, dated January 31, 1990, between the
Company and Hillhaven (the "Management Agreement"), which Management Agreement
was assumed by Vencor, Vencor provides management, consulting and advisory
services in connection with the operation of seven nursing centers owned or
leased by the Company or its subsidiaries. Under the Management Agreement, the
Company must pay management fees and reimburse certain costs and expenses. Such
amounts totalled approximately $3.1 million, $3.2 million and $2.4 million in
fiscal years 1995, 1994 and 1993, respectively.
Vencor is currently leasing certain nursing centers from Health Care
Property Partners, a joint venture in which the Company has a minority interest.
Lease payments by Vencor to this joint venture amounted to approximately $9.6
million, $9.9 million and $9.7 million for the years ended May 31, 1995, 1994
and 1993, respectively.
Vencor is operated and managed as an independent corporation from the
Company, and while the Company may have some influence over Vencor, the Company
does not consider that its ownership of Vencor Common Stock affords it the power
to control the management or policies of Vencor. Accordingly, the Company
believes that it is not an affiliate of Vencor.
Vencor has no obligation with respect to the Notes or amounts to be paid to
the holders of the Notes, including any obligation to take into consideration
for any reason the needs of the Company or the holders.
25
<PAGE>
Vencor will not receive any of the proceeds of the Offering of the Notes made
hereby and is not responsible for the determination of the time of, prices for
or quantities of the Notes to be issued or the optional redemption of such
Notes.
PRICE RANGE OF VENCOR COMMON STOCK AND DIVIDENDS
Vencor Common Stock has been listed and traded on the NYSE under the symbol
"VC" since February 4, 1992. Prior to such time, Vencor Common Stock was listed
and traded on NASDAQ under the symbol "VCOR". On October , 1995, there were
holders of record of Vencor Common Stock.
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the range of high and low
sales prices of Vencor Common Stock as reported on the NYSE Composite Tape. The
prices in the table for Vencor Common Stock are adjusted to reflect a three-for-
two stock split effected on October 25, 1994.
<TABLE>
<CAPTION>
VENCOR COMMON STOCK
-----------------
HIGH LOW
----------- -----------
<S> <C> <C>
1993:
First quarter.............................................................. $ 24 1/8 $ 14
Second quarter............................................................. 19 1/2 13 7/8
Third quarter.............................................................. 20 7/8 13
Fourth quarter............................................................. 19 7/8 14 3/8
1994:
First quarter.............................................................. 24 7/8 19 1/8
Second quarter............................................................. 24 20
Third quarter.............................................................. 30 3/8 22 3/8
Fourth quarter............................................................. 30 5/8 25 3/4
1995:
First quarter.............................................................. 37 27 1/8
Second quarter............................................................. 38 28 1/2
Third quarter.............................................................. 36 1/4 28 1/4
Fourth quarter.............................................................
</TABLE>
On October , 1995, the last reported sales prices on the NYSE Composite
Tape was $ per share of Vencor Common Stock.
Vencor has not paid a dividend on outstanding shares of Vencor Common Stock.
26
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company and The Bank of New York as Trustee (the "Trustee") and will be
entitled to the benefits of an escrow agreement (the "Escrow Agreement") between
the Company and The Bank of New York, as escrow agent (the "Escrow Agent"). The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. A copy
of the proposed form of Indenture and Escrow Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions." As used in this Description of Notes, the term
"Company" refers to Tenet Healthcare Corporation and not to any of its
Subsidiaries.
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior and Senior Subordinated
Debt of the Company. As of August 31, 1995, on a pro forma basis as described
above, the aggregate outstanding principal amount of Senior and Senior
Subordinated Debt of the Company would have been approximately $3.1 billion. In
addition, the Notes will be effectively subordinated to all indebtedness of and
other obligations of the Company's subsidiaries, which, at August 31, 1995 on a
pro forma basis, would have been approximately $1.4 billion (excluding trade
payables of $257.6 million at August 31, 1995). See "Historical and Pro Forma
Capitalization."
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is dependent upon the cash flow of its subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes
effectively will be subordinated to all outstanding Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's subsidiaries. Any right of the Company to receive assets of any of
its subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of Notes to participate in those assets)
effectively will be subordinated to the claims of that subsidiary's creditors,
except to the extent that the Company itself is recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interest in the assets of such subsidiary and any Indebtedness
of such subsidiary senior to that held by the Company. At August 31, 1995, the
outstanding Indebtedness and other obligations of the Company's subsidiaries
were approximately $1.4 billion, excluding trade payables of $257.6 million at
August 31, 1995, and intercompany Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be general unsecured obligations of the Company limited in
aggregate principal amount to $ million and will mature on , 2007.
Interest on the Notes will accrue at the rate per annum set forth on the cover
page of this Prospectus and will be payable semi-annually in arrears on
and of each year, commencing on , 1996, to Holders of record on
the immediately preceding and , respectively. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of holders of
Notes; provided that all payments with respect to Notes, the Holders of which
have given wire transfer instructions, on or prior to the relevant record date,
to the paying agent, will be required to be made by wire transfer of immediately
available funds to the accounts specified by such Holders. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in denominations of $1,000 and integral multiples thereof.
27
<PAGE>
EXCHANGE RIGHTS
The Notes are exchangeable for shares of Vencor Common Stock at any time or
from time to time on or after September 28, 1997 and prior to maturity of the
Notes at the exchange rate (the "Exchange Rate") of shares of Vencor
Common Stock per $1,000 principal amount of Notes subject to adjustment under
the circumstances described below and subject to the Company's right to pay cash
equal to the Market Price of the shares of Vencor Common Stock for which such
Notes are exchangeable in lieu of delivery of such shares as described below.
The Notes will be exchangeable prior to September 28, 1997 only in the event of
a merger, consolidation or liquidation of Vencor pursuant to which all shares of
Vencor Common Stock held by the Exchange Agent are converted into or exchanged
for cash or other securities registered under the Securities Act. No payment or
adjustment will be made on exchange of any Note for interest accrued thereon or
dividends on any shares of Vencor Common Stock; provided that if a Note is
surrendered for exchange after the record date for an interest payment and on or
before the date for payment of interest, then notwithstanding such exchange, the
interest falling due on such interest payment date will be paid to the person in
whose name the Note is registered at the close of business on such record date.
In the event the Notes are called for redemption, the exchange rights will
terminate at the close of business on the business day preceding the redemption
date (or, in the case of a call for redemption within ten days following a
tender or exchange offer for shares of Vencor Common Stock (or any other
securities deliverable upon exchange) on the last business day preceding the
fifteenth day after the mailing of the notice of redemption).
In order to exercise the right of exchange, the Holder of any Note must
surrender his or her Note at the office or agency of the Company maintained for
such purpose in New York, New York, which initially will be the corporate trust
office of the Escrow Agent. Each Note to be surrendered must be accompanied by
written notice to the Company and the Escrow Agent that the Holder elects to
exchange such Note. The Indenture provides that delivery of certificates for
shares of Vencor Common Stock (and any securities, property or cash apportioned
thereto as described below) may be delayed at the request of the Company in
order to effectuate the calculations of any adjustment to the number of shares
of Vencor Common Stock and securities, property and cash apportioned thereto
deliverable upon exchange, to obtain any certificate representing securities to
be delivered or to complete any reapportionment of the Vencor Common Stock (and
any securities, property or cash apportioned thereto) which is required by the
Indenture. No fractional shares of Vencor Common Stock will be delivered on any
exchange of Notes and in lieu thereof a cash adjustment based on the Market
Price of Vencor Common Stock will be paid. Any shares of Vencor Common Stock, or
any other securities or property held in escrow for the benefit of Holders of
Notes, remaining in escrow after the expiration of the right to surrender Notes
for exchange and when all other obligations of the Company under the Escrow
Agreement shall have been satisfied, will be returned to and become the property
of the Company and/or its Permitted Transferees, if any (as defined below under
"-- Sale or Transfer of Vencor Common Stock") as their interests may appear.
In lieu of delivering certificates representing shares of Vencor Common
Stock in exchange for any Notes, the Escrow Agent shall, if so directed by the
Company, pay to the Holder surrendering such Notes an amount in cash equal to
the Market Price of the shares of Vencor Common Stock for which such Notes are
exchangeable, determined as of the date of receipt by the Escrow Agent of the
notice of exchange relating to such Notes, plus any cash or other property
theretofore apportioned to such shares of Vencor Common Stock. Prior to so
directing the Escrow Agent to make any such cash payment, the Company shall
deposit with the Escrow Agent the cash so payable.
The Company or its Permitted Transferee will be entitled to all cash
dividends paid on the shares of Vencor Common Stock held for exchange by the
Escrow Agent, other than dividends paid pursuant to a plan of liquidation,
partial liquidation, recapitalization or restructuring or other extraordinary
cash dividends. The Company or its Permitted Transferee will also be entitled to
all interest payments on any debt securities held for exchange by the Escrow
Agent which are issued in exchange for or with respect to Vencor Common Stock
held by the Exchange Agent, including pursuant to any merger or consolidation of
Vencor or in connection with any sale of all or substantially all of the assets
of Vencor.
28
<PAGE>
If the number of shares of Vencor Common Stock shall be increased by a stock
split or reclassification or by way of a stock dividend or decreased by a
reverse stock split, the Exchange Rate and the Exchange Price will be
proportionately adjusted.
If any distribution of cash, securities or other property is made with
respect to the shares of Vencor Common Stock or other property held for exchange
by the Escrow Agent (other than cash dividends payable on the shares of Vencor
Common Stock to which the Company or its Permitted Transferee is entitled as
described above, the distributions described in the preceding paragraph or any
securities or other property received in a merger or consolidation of Vencor or
in connection with any sale of all or substantially all of the assets of Vencor
as described in the next paragraph) or if transferable subscription rights,
options, warrants or other similar rights are granted to the Escrow Agent or the
Company or its Permitted Transferee in respect of the shares of Vencor Common
Stock or other property held for exchange by the Escrow Agent, the Company will
cause any such securities, other property, cash, and rights that it or any
Permitted Transferee receives to be deposited with the Escrow Agent and the
Escrow Agent will notify the Company of any such securities, other property,
cash and rights that it receives. The Company will direct the Escrow Agent, to
the extent such securities, other property and rights are transferable, to sell
all such securities, other property and rights for cash. The Escrow Agent will
hold the cash proceeds for distribution pro rata with the Vencor Common Stock or
other securities to be delivered upon exchange. To the extent such securities,
other property or rights are non-transferable, the Company, at its option, will
either (a) cause such securities, other property or rights to be distributed to
the Holders of the Notes, (b) provide the Escrow Agent with funds for the
exercise of any such rights, or (c) direct the Escrow Agent to retain such
securities, other property or rights for the benefit of the Holders of the
Notes.
In the case of any merger or consolidation of Vencor or any sale of all or
substantially all of the assets of Vencor, the Holder of any Note surrendered
for exchange thereafter will be entitled to receive the kind and amount of
shares of stock and other securities and property receivable upon or in
connection with such transaction by a Holder of the number of shares of Vencor
Common Stock for which such Note might have been exchanged immediately prior to
such transaction, as well as a pro rata share of any cash or property held for
exchange by the Escrow Agent in accordance with the preceding paragraph.
The Company is required to give to Holders of Notes prior notice, as
promptly as practicable after notice is received by the Company, of certain
dividends on the shares of Vencor Common Stock required to be held for the
benefit of the Holders, the granting by Vencor of certain rights, options or
warrants to Holders of shares of Vencor Common Stock, reclassification of the
shares of Vencor Common Stock, certain mergers involving Vencor or the sale of
all or substantially all of the assets of Vencor and the dissolution,
liquidation or winding up of Vencor.
Any cash held by the Escrow Agent that is deliverable upon exchange of the
Notes will be invested in securities issued or guaranteed by the United States
of America or any agency or instrumentality thereof, provided that such
obligations shall mature by their terms within 12 months following their
purchase. Any interest or gain on such investments will be for the benefit of
the Company, and the Company will be responsible for any losses on such
investments.
To the extent Notes are redeemed prior to exchange, the Company and, upon
demand of the Company, any applicable Permitted Transferee, will be entitled to
receive from the Escrow Agent such number of shares of Vencor Common Stock and
such amount of cash or the property, if any, held by the Escrow Agent for
exchange which exceed the number of shares of Vencor Common Stock and amount of
cash or other property required to be held by the Escrow Agent for the exchange
of all Notes remaining outstanding after such redemption.
If the Company calls the Notes in whole or in part for redemption with a
notice given within ten days after the commencement of a tender offer or
exchange offer for shares of Vencor Common Stock (or any other securities
deliverable upon exchange) the Company will have the right (but not the
obligation) to cause the Escrow Agent to tender for its own account or for the
account of a Permitted Transferee shares of Vencor Common Stock (or any other
securities deliverable upon exchange) into the offer. The number of shares of
29
<PAGE>
Vencor Common Stock tendered may not include the number of shares of Vencor
Common Stock deliverable upon exchange of the aggregate principal amount of
outstanding Notes after giving effect to such redemption. The Company must, to
the extent Notes so called for redemption are surrendered for exchange on or
before the last business day preceding the fifteenth day after the mailing of
the notice of redemption, cause to be withdrawn from the offer, or otherwise
cause to be delivered to the Escrow Agent, a number of shares of Vencor Common
Stock sufficient to permit their delivery in exchange for such Notes. The
proceeds of the sale of shares of Vencor Common Stock pursuant to any such
tender or exchange offer and any shares of Vencor Common Stock returned
following the expiration or termination of such offer, which are no longer
deliverable in exchange for Notes so called for redemption, will be for the
Company's benefit and will not be subject to the Escrow Agreement.
The Company will not be obligated, however, and the Escrow Agent shall not
have the authority, except as described below, to exchange on a voluntary basis
(for example, in the context of a cash tender offer) any of the Vencor Common
Stock for cash, securities or other property. In certain situations, this could
be detrimental to the interests of the Holders of the Notes and might require
such Holders to exchange their Notes for shares of Vencor Common Stock in order
to participate in any such voluntary exchange. Except in the event of a merger,
consolidation or liquidation of Vencor pursuant to which all shares of Vencor
Common Stock held by the Exchange Agent are converted into or exchanged for cash
or other securities registered under the Securities Act of 1933, Holders will
not have the right to exchange their Notes prior to September 28, 1997. In
certain circumstances including, without limitation, a cash merger of Vencor, it
is possible that the shares of Vencor Common Stock which theretofore might have
been received in exchange for the Notes will no longer be available for
exchange. In such event, only the cash, securities or other property received
upon the exchange of the shares of Vencor Common Stock (exclusive of any
interest or dividends payable with respect thereto) will be available upon
exchange of the Notes to the Holders thereof.
The right of a Holder to exchange his or her Note for shares of Vencor
Common Stock (or other securities, property or cash) held by the Escrow Agent
could be adversely affected in the event of the bankruptcy, insolvency or
liquidation of the Company. The shares of Vencor Common Stock (or other
securities, property or cash) held by the Escrow Agent will be deemed to be an
asset of the Company subject to the claims of its general creditors. The right
of a Holder to exchange his or her Note for shares of Vencor Common Stock (or
other securities, property or cash) held by the Escrow Agent could be adversely
affected in the event of bankruptcy, insolvency or liquidation of a Permitted
Transferee if such shares, securities or cash were determined to be an asset of
the Permitted Transferee; however, the Company shall remain liable in the event
of the bankruptcy, insolvency or liquidation of the Permitted Transferee to
perform all of the Company's duties and obligations under the Indenture and the
Escrow Agreement.
ESCROW OF EXCHANGE PROPERTY
Prior to the issuance of the Notes, the Company will deposit the shares of
Vencor Common Stock with the Escrow Agent to provide for the exchange of all
Notes offered hereby. The Escrow Agent will act as agent for the exchange of
Notes. A breach of the Escrow Agreement will not constitute grounds for
accelerating the indebtedness evidenced by the Notes, but the Holders and the
Trustee will have the remedies provided by the Indenture, including
acceleration, for failure by the Company to cause exchange in accordance with
the Indenture. The Company and its Permitted Transferee will be entitled to vote
their respective shares of the escrowed shares of Vencor Common Stock.
With certain limited exceptions, amendments and modifications of the Escrow
Agreement may be made by the Company and the Escrow Agent with the consent of
the Holders of two-thirds in principal amount of the outstanding Notes, provided
that without the consent of each Holder affected thereby no such amendment or
modification may affect adversely the right to exchange any Notes for shares of
Vencor Common Stock at the rate and upon the terms set forth in the Indenture or
reduce the percentage of Notes necessary to amend or modify the Escrow
Agreement.
SALE OR TRANSFER OF VENCOR COMMON STOCK
The Company may, at any time and from time to time in its sole discretion,
sell or transfer all or any part of its right, title and interest in the shares
of Vencor Common Stock to any wholly owned subsidiary of the
30
<PAGE>
Company or any partnership all of the general partners and limited partners of
which are wholly owned subsidiaries of the Company (any of the foregoing are
hereinafter referred to as a "Permitted Transferee"); PROVIDED THAT (1) such
shares of Vencor Common Stock sold or transferred shall remain subject to the
terms and conditions of the Escrow Agreement and the Indenture; (2) any such
Permitted Transferee must expressly agree in writing to become bound by the
terms and conditions of the Escrow Agreement, as such Escrow Agreement may be
amended from time to time, as though such Permitted Transferee were a party
thereto; (3) the Company shall notify the Escrow Agent in writing at the time of
any such sale or transfer as to the number of shares of Vencor Common Stock so
sold or transferred to such Permitted Transferee; and (4) such sale or transfer
shall be in compliance with federal and all applicable state and foreign
securities laws. Notwithstanding any such sale or transfer, except as otherwise
provided by the Escrow Agreement, the Company shall remain liable to perform all
of its duties and obligations under the Indenture and the Escrow Agreement.
REGISTRATION OF VENCOR COMMON STOCK UNDER THE SECURITIES ACT
The Company has agreed that at any time that a Holder of Notes exchanges
such Notes for certificates representing shares of Vencor Common Stock and an
effective registration statement of Vencor filed with the Commission (or related
qualification under state blue sky or securities laws) would be required in
order for the Escrow Agent to deliver such shares of Vencor Common Stock in the
United States or to a United States Person, the Company will use its reasonable
best efforts to ensure that an effective registration statement of Vencor is on
file with the Commission covering the delivery of such shares of Vencor Common
Stock and any qualification under state blue sky or securities laws required for
such delivery is maintained and, in the event such registration statement is not
effective or such qualification is not maintained, will direct the Escrow Agent
to pay such Holder cash, in lieu of delivering such shares of Vencor Common
Stock, in accordance with the provisions of the Indenture.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment as set forth in the Indenture, to the prior
payment in full of all Senior and Senior Subordinated Debt, whether outstanding
on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the Holders of Senior and Senior Subordinated Debt will
be entitled to receive payment in full of all Obligations due in respect to such
Senior and Senior Subordinated Debt (including interest accruing after the
commencement of any such proceeding at the rate specified in the applicable
Senior and Senior Subordinated Debt, whether or not allowed or allowable as a
claim in such proceeding) before the Holders of Notes will be entitled to
receive any payment with respect to the Notes, and until all Obligations with
respect to Senior and Senior Subordinated Debt are paid in full, any
distribution to which the Holders of Notes would be entitled shall be made to
the Holders of Senior and Senior Subordinated Debt (except that Holders of Notes
may receive securities that (i) are subordinated at least to the same extent as
the Notes to Senior and Senior Subordinated Debt and any securities issued in
exchange for Senior and Senior Subordinated Debt, (ii) are unsecured (except to
the extent the Notes are secured), (iii) are not Guaranteed by any Subsidiary of
the Company (except to the extent the Notes are so Guaranteed), and (iv) have a
Weighted Average Life to Maturity and final maturity that are not shorter than
the Weighted Average Life to Maturity of the Notes or any securities issued to
Holders of Senior and Senior Subordinated Debt under the Credit Facility
pursuant to a plan of reorganization or readjustment).
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities) if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior and Senior
Subordinated Debt occurs and is continuing beyond any applicable period of grace
or (ii) any other default occurs and is continuing with respect to Designated
Senior and Senior Subordinated Debt that permits Holders of the Designated
Senior and Senior Subordinated Debt as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
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<PAGE>
"Payment Blockage Notice"), for so long as any Obligations are outstanding under
the Credit Facility, from the Representative thereunder and, thereafter, from
the Holders or Representative of any Designated Senior and Senior Subordinated
Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior and Senior Subordinated Debt has been accelerated. No new
period of payment blockage may be commenced within 360 days after the receipt by
the Trustee of any prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Indenture will further require that the Company promptly notify Holders
of Senior and Senior Subordinated Debt if payment of the Notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are Holders of Senior and Senior Subordinated Debt.
OPTIONAL REDEMPTION
The Notes will not be subject to redemption prior to , 1997 and will
be redeemable on such date and thereafter at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' notice to each Holder,
at the redemption prices (expressed as percentages of the principal amount) set
forth below plus accrued and unpaid interest thereon to the applicable
redemption date (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date), if redeemed during the 12-month period beginning on of
the years indicated below; PROVIDED, HOWEVER, that the Notes are redeemable
prior to , 1998 only if, for a period of twenty consecutive trading
days, the last reported sale price for Vencor Common Stock shall have exceeded
150% of the Exchange Price then in effect.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
<S> <C>
1997.......................................................... %
1998.......................................................... %
1999.......................................................... %
2000.......................................................... %
2001.......................................................... %
2002 and thereafter........................................... %
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are then listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that Notes with a principal amount of $1,000 shall not be redeemed in
part. Notice of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions of them called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company will not be required to make any mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Change of Control Triggering Event, each Holder of
Notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such
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<PAGE>
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 100% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon to the date of purchase
(the "Change of Control Payment") on a date that is not more than 90 days after
the occurrence of such Change of Control Triggering Event (the "Change of
Control Payment Date"). Within 30 days following any Change of Control
Triggering Event, the Company will mail, or at the Company's request the Trustee
will mail, a notice to each Holder offering to repurchase the Notes held by such
Holder pursuant to the procedures specified in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control Triggering Event.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The paying agent will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control Triggering
Event, the Indenture will not contain provisions that permit the Holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar transaction.
The Credit Agreement prohibits the Company from purchasing any Notes more
than twelve months prior to the final maturity thereof, and also provides that
certain change of control events with respect to the Company will constitute a
default thereunder. See "Description of the Credit Agreement." Any future credit
agreements or other agreements relating to Senior and Senior Subordinated Debt
to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control Triggering Event occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek the
consent of its lenders to the purchase of Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Company does not obtain
such a consent or refinance such borrowings, the Company will remain prohibited
from purchasing Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture which would, in
turn, constitute a default under the Credit Agreement.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental Indenture
in form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
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<PAGE>
conveyance or other disposition shall have been made will have Consolidated Net
Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of the principal of or premium, if any,
on the Notes; (iii) failure by the Company to comply with the provisions
described under the caption "-- Repurchase at the Option of Holders"; (iv)
failure by the Company for 60 days after notice to comply with any of its other
agreements in the Indenture or the Notes; (v) any default occurs under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Significant Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Significant Subsidiaries), whether such
Indebtedness or Guarantee exists on the date of the Indenture or is thereafter
created, which default (a) constitutes a Payment Default or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or that has been so accelerated, aggregates $25.0 million or more; (vi)
failure by the Company or any of its Significant Subsidiaries to pay final
judgments aggregating in excess of $25.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Significant Subsidiaries
and (viii) failure by the Company to comply with the provisions described under
the caption "-- Exchange Rights."
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee on behalf of the Holders of all of the
Notes, may waive any existing Default or Event of Default and its consequence
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
A "Default" is defined to mean any event that is or with the passage of time
or the giving of notice or both would be an Event of Default and a "Payment
Default" is defined to mean any failure to pay any scheduled installment of
interest or principal on any Indebtedness within the grace period provided for
such payment in the documentation governing such Indebtedness.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the Federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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<PAGE>
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
The registered Holder of a Note will be treated as the owner of its for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for such
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any
Note, (iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) make any change in the Indenture regarding the exchange rights other
than to reduce the Exchange Price or increase the Exchange Rate, (v) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount thereof and a
waiver of the payment default that resulted from such acceleration), (vi) make
any Note payable in money other than that stated in the Notes, (vii) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, or interest on the Notes, (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereof by the Company's independent certified public accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the Commission
for public availability and make such information available to securities
analysts and prospective investors upon request.
CONCERNING THE TRUSTEE
The Indenture will contain certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property
35
<PAGE>
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if the Trustee acquires
any conflicting interest it must eliminate such conflict within 90 days, apply
to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will not be under
any obligation to exercise any of its rights or powers under the Indenture at
the request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth are certain defined terms used in the Indenture. Reference is made
to the Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participants, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Subsidiaries taken as a whole to any Person or group (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a
Person or group who, prior to such transaction, held a majority of the voting
power of the voting stock of the Company, (ii) the acquisition by any Person or
group (as defined above) of a direct or indirect interest in more than 50% of
the voting power of the voting stock of the Company, by way of merger or
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred, in which case a holder's ability
to obtain the benefit of a Change of Control Offer may be impaired. In addition,
no assurances can be given that the Company will be able to acquire Notes
tendered upon the occurrence of a Change of Control Triggering Event.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change
of Control and a Rating Decline.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such
36
<PAGE>
date plus (ii) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock), less all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made in accordance with GAAP as a result of the acquisition of
such business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person, and
excluding the cumulative effect of a change in accounting principles, all as
determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CREDIT FACILITY" means that certain Credit Agreement by and among the
Company and Morgan Guaranty Trust Company of New York and the other banks that
are party thereto, providing for $1.8 billion in aggregate principal amount of
senior term debt and up to $500.0 million in aggregate principal amount of
senior revolving debt, including any related notes, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, extended, renewed, refunded, replaced or refinanced, in whole
or in part, from time to time.
"DESIGNATED SENIOR AND SENIOR SUBORDINATED DEBT" means (i) so long as any
Obligations are outstanding under the Credit Facility, such Obligations and (ii)
thereafter, any other Senior and Senior Subordinated Debt the principal amount
of which is $100.0 million or more and that has been designated by the Company
as "Designated Senior and Senior Subordinated Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts
or currency swap agreements and (iii) other agreements or arrangements designed
to protect such Person against fluctuations in interest rates or currency
values.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such person of any indebtedness of any other Person.
37
<PAGE>
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset given to
secure Indebtedness, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction with respect to any such lien, pledge, charge or security
interest).
"MARKET PRICE" means as of any time of determination the average of the
Sales Prices of the Vencor Common Stock (or other securities held by the Escrow
Agent) for the five Business Day period (appropriately adjusted to take into
account the occurrence during such period of certain events that would result in
an adjustment of the Exchange Rate with respect to the Vencor Common Stock)
commencing on the first Business Day after delivery by the Company or the Escrow
Agent of notice to the Holders that the Company has elected to pay cash in lieu
of delivering shares of Vencor Common Stock (or other property deliverable upon
such exchange) in exchange for any Notes. Because the Market Price is determined
after delivery of the exchange notice, Holders of Notes bear the market risk
with respect to the value of Vencor Common Stock (or other property deliverable
upon such exchange) from the date of delivery of such notice until the date of
determination of such Market Price. The period between the date of delivery by a
holder of a notice of exchange and the date of determination of the Market Price
may not exceed seven Business Days.
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both shall not make a rating of the Notes publicly available, a nationally
recognized securities rating agency or agencies, as the case may be, selected by
the Company, which shall be substituted for S&P or Moody's or both, as the case
may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining whether
the rating of the Notes has decreased by one or more gradations, gradations
within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or the
equivalent gradations for another Rating Agency) shall be taken into account
(e.g., with respect to S&P, a decline in rating from BB+ to BB, as well as from
BB- to B+, will constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) the first public notice of the occurrence of a Change
of Control or of the intention by the Company to effect a Change of Control.
"RATING DECLINE" means the occurrence on or within 90 days after the date of
the first public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control (which period shall be
extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Notes are rated by either Moody's or S&P on the Rating Date as
Investment Grade, a decrease in the rating of the Notes by both Rating Agencies
to a rating that is below Investment Grade, or (b) in the event the Notes are
rated below Investment Grade by both Rating Agencies on the Rating Date, a
decrease in the rating of the Notes by either Rating Agency by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"SENIOR AND SENIOR SUBORDINATED DEBT" means any Indebtedness of the Company,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Notes and all Obligations with respect to any such Indebtedness. Notwithstanding
anything to the contrary in the foregoing, Senior and Senior Subordinated Debt
will not include (w) any liability for Federal, state, local or other taxes owed
or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates or (y) any trade payables.
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"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"S&P" means Standard & Poor's Corporation and its successors.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person (or any
combination thereof).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
39
<PAGE>
DESCRIPTION OF THE CREDIT AGREEMENT
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), Bank of
America N.T.&S.A., The Bank of New York and Bankers Trust Company (collectively,
the "Arranging Agents") and a syndicate of other lenders (the "Lenders") provide
the Company with the $2.3 billion credit agreement (the "Credit Agreement")
expiring in 2001 consisting of (i) the six and a half year amortizing senior
term debt (the "Senior Term Debt") originally in the aggregate principal amount
of $1.8 billion, and (ii) the six and a half year $500.0 million senior
revolving debt (the "Senior Revolving Debt"), with a letter of credit option not
to exceed $100.0 million. The Arranging Agents also provide a separate letter of
credit facility to the Company in an aggregate principal amount of approximately
$91.0 million, upon terms substantially similar to the Credit Agreement (the
"Metrocrest Letter of Credit Facility"). The Metrocrest Letter of Credit
Facility replaced a previous letter of credit facility established in connection
with certain bonds issued by Metrocrest Hospital Authority as part of the
financing of two hospitals operated by subsidiaries of the Company. The Notes
will be subordinated to the Company's obligations under the Credit Agreement and
the Metrocrest Letter of Credit Facility.
INTEREST RATE. Loans under the Credit Agreement bear interest, at the
option of the Company, at either (i) a base rate equal to the higher of the rate
announced from time to time by Morgan Guaranty as its prime rate or the daily
federal funds rate plus 50 basis points plus, in each case, an interest margin
ranging from zero to 50 basis points based on the ratios of the Company's
consolidated net earnings before interest, taxes, depreciation and amortization
("EBITDA") to interest expense and the ratio of the Company's consolidated total
debt to EBITDA or (ii) the London interbank offered rate (as adjusted for
certain reserve requirements) for 1-, 2-, 3- or 6-month periods plus an interest
margin ranging from 50 to 150 basis points based on the respective levels of the
same ratios. Commitment fees also will be payable to each Lender based on the
unused amount of such Lender's commitment to make loans at rates ranging from
18.75 basis points to 50 basis points as determined by reference to the same
ratios.
SECURITY. The Company's obligations under the Credit Agreement are secured
by a first priority lien on (i) the capital stock of the Company's present and
future direct subsidiaries, (ii) all indebtedness owed to the Company by its
subsidiaries and (iii) one of the Company's subsidiary's equity investment in
Westminster Health Care Holdings PLC ("Westminster").
MANDATORY PAYMENTS. The Company must make quarterly mandatory payments on
the Senior Term Debt in each fiscal year in the annual amounts set forth below:
<TABLE>
<CAPTION>
(DOLLARS IN
YEAR ENDED MAY 31, MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
1996..................................................................... $ 135.0(1)
1997..................................................................... 180.0
1998..................................................................... 225.0
1999..................................................................... 315.0
2000..................................................................... 360.0
2001..................................................................... 405.0
August 31, 2001.......................................................... 20.0(2)
<FN>
- ------------------------
(1) After $45.0 million installment paid on August 31, 1995.
(2) After $115.0 million of prepayments from the proceeds of the sale of
certain assets.
</TABLE>
Additional prepayments will be required from the proceeds of certain events,
including the sale of certain assets and offerings of equity securities. The
Credit Agreement also requires the repayment of Senior Revolving Debt (without a
corresponding reduction in revolving loan commitments) with a portion of
proceeds of a sale or other disposition of the equity investments in Hillhaven
or Westminster or of the international subsidiaries, up to an aggregate of
$200.0 million; thereafter, all of the proceeds of such sales must be applied to
prepay the installments of the Senior Term Debt. All mandatory prepayments of
term loans shall be applied in inverse order of maturity until the installments
due August 31, 2001, and in fiscal year 2001 are paid in full and then to the
remaining installments on a pro rata basis.
40
<PAGE>
COVENANTS. The Credit Agreement includes various affirmative, negative and
financial covenants, including, without limitation, (i) restrictions on
disposition of assets and the making of acquisitions and other investments, (ii)
prohibitions on the prepayment, redemption or defeasance of the Notes,
subordinated indebtedness and certain other indebtedness, (iii) limitations on
debt incurrence, lien incurrence, dividends and stock repurchases, (iv)
limitations on mergers and changes of business and (v) a minimum consolidated
net worth requirement, a minimum fixed charge coverage ratio and a maximum
leverage ratio.
EVENTS OF DEFAULT. Events of default under the Credit Agreement include
various events of default customary for such type of agreement including,
without limitation, events of default for a change in control of the Company and
the cessation of any lien on any of the collateral under the Credit Agreement as
a perfected first priority lien.
41
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is for general information only for original
purchasers of the Notes and is based on the Federal income tax law now in
effect, which is subject to change, possibly retroactively. This summary does
not discuss all aspects of Federal income taxation that may be relevant to
particular noteholders in light of their individual investment circumstances,
such as persons holding Notes as a hedge or as part of a straddle, or to certain
types of noteholders subject to special tax rules (E.G., financial institutions,
insurance companies, tax-exempt organizations, and foreign persons), nor does it
discuss any aspects of state, local or foreign tax law consequences. This
summary assumes that investors will hold their Notes as "capital assets"
(generally, property held for investment) under the Internal Revenue Code of
1986, as amended. Each prospective investor is urged to consult his tax advisor
regarding the specific Federal, state, local, and foreign income and other tax
consequences of the acquisition, holding, exchanging, or otherwise disposing of
Notes.
GENERAL. There is no precise legal authority that addresses the Federal
income tax treatment of exchangeable debt instruments with characteristics
similar to the Notes. The Internal Revenue Service, however, is currently
reviewing the proposed original issue discount regulations applicable to
"contingent payment" debt instruments, which, when issued in final form, may
address the tax treatment of exchangeable debt instruments with characteristics
similar to the Notes. The Company believes that the following discussion
describes the most appropriate tax treatment of the Notes based on the legal
authorities that are presently available. Prospective investors should note that
there are possible alternative treatments that may have different results for
investors, including some that may be less favorable. In addition, final
original issue discount regulations may require different treatment and results.
Accordingly, each prospective investor should consult his tax advisor regarding
the potential alternative tax treatments of the Notes.
The Notes should be treated, for Federal income tax purposes, as a unit
composed of a debt component (I.E., the stated interest payments and the
principal amount due at maturity) (the "Debt Component") and an option component
(I.E., the exchange feature) (the "Option Component"). The issue price of the
Notes will be apportioned to each of these components in accordance with their
relative fair market value on the date of issuance. For this purpose, the
Company has determined that for each $1,000.00 principal amount of Notes,
$ will be apportioned to the Debt Component and $ will be apportioned
to the Option Component. This issue price allocation will likely be binding upon
a holder of a Note, for Federal income tax purposes, unless such holder adopts a
different allocation that is explicitly disclosed on his Federal income tax
return timely filed for the year in which the Note is acquired.
ORIGINAL ISSUE DISCOUNT. The Debt Component will be treated as issued with
original issue discount, for Federal income tax purposes, in an amount equal to
the excess of the principal amount due at maturity over the issue price of the
Debt Component. Holders will be required to include original issue discount in
ordinary income over the period that they hold the Notes in advance of the
receipt of the cash attributable thereto. The amount of original issue discount
to be included in income will be determined using a constant yield method, which
will result in a greater portion of such discount being included in income in
the later part of the term of the Notes. Any amount included in income as
original issue discount will increase both the adjusted issue price of, and a
holder's tax basis in, the Debt Component.
SALE. A holder will recognize a gain or loss upon a sale or other taxable
disposition of a Note (other than pursuant to the holder's exercise of the right
to exchange the Note for Vencor Common Stock (the "Exchange Right") as discussed
below) in an amount equal to the difference between the amount realized from the
disposition and the holder's aggregate adjusted tax basis in the Note (I.E., the
holder's aggregate adjusted tax basis in the Debt Component and the Option
Component). Such gain or loss should be a capital a gain or loss, and will be
long-term if the Note has been held for more than one year. It is possible,
however, that the contingent payment original issue discount regulations, when
finalized, may require that all or a portion of such gain be treated as
additional interest income subject to tax as ordinary income.
EXCHANGE OF NOTES FOR STOCK. The exchange of a Note for Vencor Common Stock
pursuant to the Exchange Right should be treated, for Federal income tax
purposes, as a taxable disposition of the Note and, accordingly, a holder should
recognize a gain or loss on the consummation of the exchange in an amount
42
<PAGE>
equal to the difference between the fair market value of the Vencor Common Stock
received and the holder's aggregate adjusted tax basis in the Note (as described
above). Such gain or loss should be a capital gain or loss, which will be
long-term if the Note has been held for more than one year. The adjusted tax
basis in the Vencor Stock received pursuant to the exchange will be equal to the
fair market value of the Vencor Stock at the time of the exchange and the
holding period for such stock will commence the day following the date of
exchange.
EXCHANGE OF NOTES FOR CASH. If the holder tenders a Note to the Company
pursuant to the Exchange Right and the Company elects to settle the exchange
with cash rather than with the Vencor Stock, a holder will recognize gain or
loss in an amount equal to the difference between the amount of cash received in
the exchange and the holder's aggregate adjusted tax basis in the Note (as
described above). Although not free from doubt, (i) a portion of the gain equal
to the difference between the aggregate adjusted issue price of the Debt
Component and the face amount of the Note should be treated as additional
interest income and (ii) any gain in excess thereof should be treated as capital
gain which will be long-term if the Note has been held for more than one year.
It is possible, however, that the contingent payment original issue discount
regulations, when finalized, may require that all or a portion of such gain be
treated as additional interest income subject to tax as ordinary income.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch" and, together with DLJ, the "Underwriters"),
each of the Underwriters has severally agreed to purchase from the Company, and
the Company has agreed to sell to each of the Underwriters, $ aggregate
principal amount of Notes set forth opposite its name below, at the public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ------------------------------------------------------------------------------ --------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................
--------------
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent, including the approval
of certain legal matters by counsel. The Company has agreed to indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or to contribute to payments that the Underwriters may
be required to make in respect thereof. The nature of the Underwriters'
obligations is such that the Underwriters are committed to purchase all of the
Notes if any of the Notes are purchased by them.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed % of the principal amount of the Notes. The
Underwriters may reallow discounts not in excess of % of the principal amount
of the Notes to certain other dealers. After the initial public offering of the
Notes, the offering price and other selling terms may be changed by the
Underwriters.
The Underwriters may not make any sales or series of sales of Notes with an
aggregate principal amount exceeding $ (convertible into Vencor Common Stock
representing more than 2.5% of the voting power of the outstanding Vencor Common
Stock) to any person or related groups of persons who would immediately
thereafter own or have the right to acquire more than 5% of the voting power of
the outstanding Vencor Common Stock.
Application will be made to have the Notes approved for listing on the NYSE.
Nevertheless, the Notes are new issues of securities, have no established
trading market and may not be widely distributed. The Company has been advised
by the Underwriters that, following the completion of this Offering, the
Underwriters presently intend to make a market in the Notes as permitted by
applicable laws and regulations. The Underwriters, however, are under no
obligation to do so and may discontinue any market making activities at any time
at the sole discretion of the Underwriters. No assurance can be given as to the
liquidity of any trading market for the Notes.
DLJ has provided and is currently retained to provide certain investment
banking services to the Company for which it has received and is entitled to
receive usual and customary fees. DLJ acted as financial advisor to the Company
in connection with the Merger and the related transactions and with respect to
the Company's investment in Hillhaven, for which it received usual and customary
fees. In addition DLJ was the lead manager of the Senior Notes Offering.
44
<PAGE>
LEGAL MATTERS
Certain legal matters as to the validity of the Notes offered hereby will be
passed upon for the Company by Scott M. Brown, Senior Vice President and General
Counsel of the Company and Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Davis Polk & Wardwell. With respect to
certain matters governed by Nevada law, Scott M. Brown, Skadden, Arps, Slate,
Meagher & Flom and Davis Polk & Wardwell will rely on the opinion of Woodburn
and Wedge, Reno, Nevada.
EXPERTS
The consolidated financial statements and schedule of Tenet Healthcare
Corporation as of May 31, 1995 and 1994, and for each of the years in the
three-year period ended May 31, 1995, have been incorporated by reference herein
and in the Registration Statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the consolidated
financial statements refers to a change in the method of accounting for income
taxes in 1994.
The consolidated financial statements of American Medical Holdings, Inc. and
American Medical International, Inc. incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended August 31, 1994,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 10
Use of Proceeds................................ 17
Historical and Pro Forma Capitalization........ 17
Ratio of Earnings to Fixed Charges............. 17
Pro Forma Financial Information................ 18
Vencor......................................... 25
Relationship Between the Company and Vencor.... 25
Price Range of Vencor Common Stock and
Dividends..................................... 26
Description of Notes........................... 27
Description of the Credit Agreement............ 40
Certain Federal Income Tax Consequences........ 42
Underwriting................................... 44
Legal Matters.................................. 45
Experts........................................ 45
</TABLE>
[LOGO]
TENET HEALTHCARE CORPORATION
$
% EXCHANGEABLE SUBORDINATED NOTES DUE 2007
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee and the NASD filing fee. The Company will bear
all of such expenses.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 106,897
NASD filing fee................................................... 31,500
Rating Agency Fee................................................. 100,000
Blue sky fees and expenses........................................ 30,000
Printing and engraving expenses................................... 200,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 50,000
Trustee fees...................................................... 15,000
Miscellaneous..................................................... 16,603
---------
Total......................................................... $ 800,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law ("Nevada Law") provides
generally and in pertinent part that a Nevada corporation may indemnify its
directors and officers against expenses, judgments, fines, and settlements
actually and reasonably incurred by them in connection with any civil suit or
action, except actions by or in the right of the corporation, or any
administrative or investigative proceeding if, in connection with the matters in
issue, they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and in connection
with any criminal suit or proceeding, if in connection with the matters in
issue, they had no reasonable cause to believe their conduct was unlawful.
Section 78.751 further provides that, in connection with the defense or
settlement of any action by or in the right of the corporation, a Nevada
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in, or not
opposed to, the best interest of the corporation. Section 78.751 further permits
a Nevada corporation to grant its directors and officers additional rights of
indemnification through by-law provisions and otherwise.
Article X of the Restated Articles of Incorporation, as amended, of the
Registrant and Article IX of the Restated By-Laws, as amended, of the Registrant
provide that the Registrant shall indemnify its directors and officers to the
fullest extent permitted by Nevada Law. The Registrant has entered into
indemnification agreements with each of its directors and executive officers.
Such indemnification agreements are intended to provide a contractual right to
indemnification, to the maximum extent permitted by law, for expenses (including
attorneys' fees), judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by the person to be indemnified in connection
with any proceeding (including, to the extent permitted by applicable law, any
derivative action) to which they are, or are threatened to be made, a party by
reason of their status in such positions. Such indemnification agreements do not
change the basic legal standards for indemnification set forth under Nevada Law
or the Restated Articles of Incorporation, as amended, of the Registrant. Such
agreements are intended to be in furtherance, and not in limitation of, the
general right to indemnification provided in the Registrant's Restated Articles
of Incorporation, as amended.
Section 78.037 of the Nevada Law provides that the articles of incorporation
may contain a provision eliminating or limiting the personal liability of a
director or officer to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director provided that such provision shall
not eliminate
II-1
<PAGE>
or limit the liability of a director or officer (i) for acts or omissions which
involve intentional misconduct or a knowing violation of law, or (ii) under
Section 78.300 of the Nevada Law (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock).
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement between the Company and the Underwriters
4.1* Form of Indenture between the Company and Bank of New York, as Trustee, relating
to the Notes (including the form of certificate representing the Notes)
4.2* Form of Escrow Agreement between the Company and Bank of New York, as Escrow
Agent, relating to the Vencor Common Stock
5.1* Opinion of Scott M. Brown, Esq.
11.1 Statement of Computation of Per Share Earnings for the three fiscal years ended
May 31, 1995 (incorporated by reference to Exhibit 11 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995)
11.2 Statement of Computation of Per Share Earnings for the quarters ended August 31,
1994 and 1995 (incorporated by reference to Exhibit 11 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1995)
11.3 Statement of Computation of Pro Forma Per Share Earnings for the fiscal year
ended May 31, 1995 and the quarters ended August 31, 1994 and 1995
12.1 Statement of Computation of Ratios of Earnings to Fixed Charges
12.2 Statement of Computation of Pro Forma Ratios of Earnings to Fixed Charges
23.1* Consent of Scott M. Brown, Esq. (to be included in the opinion filed as Exhibit
5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Price Waterhouse LLP
24.1 Power of Attorney (included on page II-4)
25.1* Statement of Eligibility of Bank of New York, as Trustee with respect to the
Notes
<FN>
- ------------------------
* To be filed by amendment.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the
II-2
<PAGE>
Prospectus, to deliver, or cause to be delivered to each person to whom the
Prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim financial
information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, the Nevada Law, the
Restated Articles of Incorporation, and the Restated Bylaws, as amended, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, State of California on October 17,
1995.
TENET HEALTHCARE CORPORATION
By: /s/ JEFFREY C. BARBAKOW
--------------------------------------
Jeffrey C. Barbakow
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey C. Barbakow, Raymond L. Mathiasen and
Scott M. Brown, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign and file (i) any and
all amendments (including post-effective amendments) to this Registration
Statement, with all exhibits thereto, and other documents in connection
therewith, and (ii) a Registration Statement, and any and all amendments
thereto, relating to the offering covered hereby filed pursuant to Rule 462(b)
under the Securities Act of 1933, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- -------------------------------- ----------------------
<C> <S> <C>
/s/ JEFFREY C. BARBAKOW Chairman of the Board of October 17, 1995
---------------------------------------- Directors and Chief Executive
Jeffrey C. Barbakow Officer (Principal Executive
ATTORNEY-IN-FACT Officer)
/s/ MICHAEL H. FOCHT, SR. President, Chief Operating October 17, 1995
---------------------------------------- Officer and Director
Michael H. Focht, Sr.
/s/ RAYMOND L. MATHIASEN Senior Vice President and Chief October 17, 1995
---------------------------------------- Financial Officer (Principal
Raymond L. Mathiasen Financial and Accounting
ATTORNEY-IN-FACT Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- -------------------------------- ----------------------
<C> <S> <C>
/s/ BERNICE B. BRATTER Director October 17, 1995
----------------------------------------
Bernice B. Bratter
/s/ JOHN T. CASEY Director October 17, 1995
----------------------------------------
John T. Casey
/s/ MAURICE J. DEWALD Director October 17, 1995
----------------------------------------
Maurice J. DeWald
/s/ PETER DE WETTER Director October 17, 1995
----------------------------------------
Peter de Wetter
/s/ EDWARD EGBERT, M.D. Director October 17, 1995
----------------------------------------
Edward Egbert, M.D.
/s/ RAYMOND A. HAY Director October 17, 1995
----------------------------------------
Raymond A. Hay
/s/ LESTER B. KORN Director October 17, 1995
----------------------------------------
Lester B. Korn
/s/ JAMES P. LIVINGSTON Director October 17, 1995
----------------------------------------
James P. Livingston
/s/ ROBERT W. O'LEARY Director October 17, 1995
----------------------------------------
Robert W. O'Leary
/s/ THOMAS J. PRITZKER Director October 17, 1995
----------------------------------------
Thomas J. Pritzker
/s/ RICHARD S. SCHWEIKER Director October 17, 1995
----------------------------------------
Richard S. Schweiker
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement between the Company and the Underwriters.............................
4.1* Form of Indenture between the Company and Bank of New York, as Trustee, relating to the Notes
(including the form of certificate representing the Notes).........................................
4.2* Form of Escrow Agreement between the Company and Bank of New York, as Escrow Agent, relating to the
Vencor Common Stock................................................................................
5.1* Opinion of Scott M. Brown, Esq. ....................................................................
11.1 Statement of Computation of Per Share Earnings for the three fiscal years ended May 31, 1995
(incorporated by reference to Exhibit 11 to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995)...........................................................................
11.2 Statement of Computation of Per Share Earnings for the quarters ended August 31, 1994 and 1995
(incorporated by reference to Exhibit 11 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1995)..............................................................
11.3 Statement of Computation of Pro Forma Per Share Earnings for the fiscal year ended May 31, 1995 and
the quarters ended August 31, 1994 and 1995........................................................
12.1 Statement of Computation of Ratios of Earnings to Fixed Charges.....................................
12.2 Statement of Computation of Pro Forma Ratios of Earnings to Fixed Charges...........................
23.1* Consent of Scott M. Brown, Esq. (to be included in the opinion filed as Exhibit 5.1)................
23.2 Consent of KPMG Peat Marwick LLP....................................................................
23.3 Consent of Price Waterhouse LLP.....................................................................
24.1 Power of Attorney (included on page II-4)...........................................................
25.1* Statement of Eligibility of Bank of New York, as Trustee with respect to the Notes..................
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 11.3
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PRO FORMA PER SHARE EARNINGS*
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED AUGUST 31,
YEAR ENDED ----------------------
MAY 31, 1995 1994 1995
------------ ---------- ----------
<S> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period.................................. 166,081 166,081 199,938
Shares issued in connection with the Merger................................ 33,157 33,157 --
Shares issued upon exercise of stock options............................... 311 93 54
Dilutive effect of outstanding stock options............................... 2,067 2,287 1,898
------------ ---------- ----------
Weighted average number of shares and share equivalents outstanding........ 201,616 201,618 201,890
------------ ---------- ----------
------------ ---------- ----------
Income from continuing operations.......................................... $ 217,200 $ 52,500 $ 57,400
------------ ---------- ----------
------------ ---------- ----------
Earnings per share from continuing operations before cumulative effect of a
change in accounting principle............................................ $ 1.08 $ 0.26 $ 0.28
------------ ---------- ----------
------------ ---------- ----------
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in primary calculation.............. 201,616 201,618 201,890
Additional dilutive effect of stock options................................ 203 335 417
Assumed conversion of dilutive convertible debentures...................... 13,119 11,357 13,530
------------ ---------- ----------
Fully diluted weighted average number of shares............................ 214,938 213,310 215,837
------------ ---------- ----------
------------ ---------- ----------
Income from continuing operations used in primary calculation.............. $ 217,200 $ 52,500 $ 57,400
Adjustments for interest expense, contractual allowances and income
taxes..................................................................... 7,547 1,470 1,787
------------ ---------- ----------
Adjusted income from continuing operations used in fully diluted
calculation............................................................... $ 224,747 $ 53,970 $ 59,187
------------ ---------- ----------
------------ ---------- ----------
Earnings per share from continuing operations before cumulative effect of a
change in accounting principle............................................ $ 1.05 $ 0.25 $ 0.27
------------ ---------- ----------
------------ ---------- ----------
<FN>
- ------------------------
*All shares in these tables are weighted on the basis of the number of days the
shares were outstanding or assumed to be outstanding during each period.
</TABLE>
<PAGE>
EXHIBIT 12.1
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE YEARS ENDED MAY 31, AUGUST 31,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS FROM CONTINUING OPERATIONS
Income before income taxes.................... $ 245.1 $ 359.2 $ 418.6 $ 359.9 $ 329.4 $ 107.0 $ 228.9
Less:
Equity in earnings of unconsolidated
affiliates................................. 5.3 6.7 12.5 23.8 28.4 6.3 6.9
Add:
Cash dividends received..................... -- -- -- .2 8.3 .9 1.1
Portion of rents representative of
interest................................... 31.8 35.5 35.8 30.7 35.0 6.7 13.5
Interest, net of capitalized portion........ 123.9 89.4 75.3 70.0 138.1 17.7 77.2
Amortization of previously capitalized
interest................................... 3.0 3.4 3.6 3.8 4.0 .9 1.0
-------- -------- -------- -------- -------- -------- --------
Earnings, as adjusted......................... $ 398.5 $ 480.8 $ 520.8 $ 440.8 $ 486.4 $ 126.9 $ 314.8
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
FIXED CHARGES:
Interest, net of capitalized portion.......... $ 123.9 $ 89.4 $ 75.3 $ 70.0 $ 138.1 $ 17.7 $ 77.2
Capitalized interest.......................... 16.9 11.0 9.0 3.7 6.2 1.1 2.0
Portion of rents representative of interest... 31.8 35.5 35.8 30.7 35.0 6.7 13.5
-------- -------- -------- -------- -------- -------- --------
Total fixed charges....................... $ 172.6 $ 135.9 $ 120.1 $ 104.4 $ 179.3 $ 25.5 $ 92.7
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
RATIO OF EARNINGS TO
FIXED CHARGES................................ 2.3x 3.5x 4.3x 4.2x 2.7x 5.0x 3.4x
</TABLE>
<PAGE>
EXHIBIT 12.2
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE
YEAR ENDED ENDED AUGUST 31,
MAY 31, --------------------
1995 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
EARNINGS FROM CONTINUING OPERATIONS
Income before income taxes.............. $ 390.0 $ 95.0 $ 103.9
Less:
Equity in earnings of unconsolidated
affiliates........................... 11.8 2.9 2.9
Add:
Cash dividends received............... 8.3 .9 1.1
Portion of rents representative of
interest............................. 58.5 10.9 13.4
Interest, net of capitalized
portion.............................. 320.0 79.1 77.5
Amortization of previously capitalized
interest............................. 4.0 .9 1.0
---------- --------- ---------
Earnings, as adjusted................... $ 769.0 $ 183.9 $ 194.0
---------- --------- ---------
---------- --------- ---------
FIXED CHARGES:
Interest expense, net of capitalized
portion................................ $ 320.0 $ 79.1 $ 77.5
Capitalized interest.................... 7.9 2.6 3.3
Portion of rents representative of
interest............................... 58.5 10.9 13.4
---------- --------- ---------
Total fixed charges................. $ 386.4 $ 92.6 $ 94.2
---------- --------- ---------
---------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES...... 2.0x 2.0x 2.1x
</TABLE>
<PAGE>
EXHIBIT 23.2
AUDITORS' CONSENT
The Board of Directors
Tenet Healthcare Corporation
We consent to the use of our reports dated July 25, 1995 incorporated by
reference in the Registration Statement on Form S-3 of Tenet Healthcare
Corporation, relating to the consolidated balance sheets of Tenet Healthcare
Corporation and subsidiaries as of May 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended May 31, 1995, and the related
schedule, and to the reference to our firm under the heading "Experts" in the
prospectus. Our report on the 1994 consolidated financial statements refers to a
change in the method of accounting for income taxes.
KPMG PEAT MARWICK LLP
Los Angeles, California
October 13, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Tenet Healthcare
Corporation of our reports dated October 20, 1994 appearing on pages F-2 and S-1
of American Medical Holdings, Inc.'s and American Medical International, Inc.'s
Annual Report on Form 10-K for the year ended August 31, 1994. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
October 13, 1995
