<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1995
REGISTRATION NO. 33-62591
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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 AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE(1) PRICE(1)(2) FEE(3)
<S> <C> <C> <C> <C>
% Senior Notes due 2003................. $300,000,000 100% $300,000,000 $103,449
<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.
(3) A registration fee in the amount of $103,449 was paid to the Securities and
Exchange Commission with the initial filing of this Registration Statement
on September 13, 1995.
</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 SEPTEMBER 26, 1995
PROSPECTUS
, 1995 [LOGO]
TENET HEALTHCARE CORPORATION
$300,000,000 % SENIOR NOTES DUE 2003
--------------
The Senior Notes (the "Notes") are being offered (the "Offering") by Tenet
Healthcare Corporation (the "Company"). Interest on the Notes will be payable
semi-annually on June 1 and December 1 of each year, commencing December 1,
1995. The Notes will not be redeemable by the Company prior to maturity. In
addition, upon the occurrence of a Change of Control Triggering Event (as
defined herein), each holder of Notes may require the Company to repurchase such
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of repurchase. The Notes have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange under the symbol
"THC 03."
The Notes will be general unsecured obligations of the Company ranking
senior to all subordinated indebtedness of the Company and PARI PASSU in right
of payment with all other indebtedness of the Company. As of May 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 indebtedness
of the Company would have been approximately $2.7 billion, of which
approximately $2.0 billion would have been secured indebtedness of Tenet. 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 $1.5 billion at May 31, 1995
(excluding trade payables of $303.4 million at May 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 October ,
1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
<PAGE>
[INSERT MAP]
THE INSIDE FRONT COVER OF THIS PROSPECTUS CONTAINS A MAP OF THE UNITED
STATES WITH EACH OF THE LOCATIONS IN WHICH TENET HAS HOSPITALS INDICATED BY A
COLORED SYMBOL. THE MAP INDICATES (BY SHADING SUCH STATES) THAT TENET HAS
HOSPITALS LOCATED IN ALABAMA, ARKANSAS, CALIFORNIA, FLORIDA, GEORGIA, INDIANA,
LOUISIANA, MISSOURI, NEBRASKA, NORTH CAROLINA, SOUTH CAROLINA, TENNESSEE AND
TEXAS. THE MAP ALSO CONTAINS THREE DETAILED INSERTS WHICH ENLARGE THE SOUTHERN
CALIFORNIA, NEW ORLEANS AND SOUTH FLORIDA AREAS AND DEPICT THE LOCATION OF
TENET'S HOSPITALS THEREIN.
<PAGE>
73 DOMESTIC GENERAL HOSPITALS WITH 16,646 BEDS
The following table sets forth certain information relating to the domestic
general hospitals operated by Tenet at August 31, 1995, grouped by geographic
area and by state. Excluded from the table below are 11 general hospitals
operated by Tenet in Australia, Spain and Malaysia, with a total of 1,043
licensed beds at August 31, 1995. Also excluded are five rehabilitation
hospitals, seven long-term care facilities, five psychiatric facilities and
various ancillary facilities operated by Tenet at August 31, 1995.
<TABLE>
<CAPTION>
LICENSED
FACILITY LOCATION BEDS
----------------------------------- -------------------- --------
<C> <S> <C> <C>
CALIFORNIA--GREATER LOS ANGELES
Encino Hospital Encino 151
Garden Grove Hospital and Med. Ctr. Garden Grove 167
Irvine Medical Center Irvine 176
Lakewood Regional Medical Center Lakewood 175
Los Alamitos Medical Center Los Alamitos 173
Century City Hospital Los Angeles 190
USC University Hospital Los Angeles 261
Garfield Medical Center Monterey Park 223
Medical Center of North Hollywood North Hollywood 163
Placentia Linda Community Hospital Placentia 114
South Bay Hospital Redondo Beach 201
San Dimas Community Hospital San Dimas 99
Tarzana Regional Medical Center Tarzana 233
OTHER CALIFORNIA
John F. Kennedy Memorial Hospital Indio 130
Community Hospital & Rehabilitation
Center of Los Gatos Los Gatos 175
Doctors Hospital of Manteca Manteca 73
Doctors Medical Center of Modesto Modesto 433
Doctors Hospital of Pinole Pinole 137
Redding Medical Center Redding 185
Sierra Vista Regional Medical
Center San Luis Obispo 195
Alvarado Hospital Medical Center San Diego 231
San Ramon Regional Medical Center San Ramon 123
Twin Cities Community Hospital Templeton 84
SOUTH FLORIDA
West Boca Medical Center Boca Raton 185
Delray Community Hospital Delray Beach 211
North Ridge Medical Center Ft. Lauderdale 395
Palmetto General Hospital Hialeah 360
Hollywood Medical Center Hollywood 334
Palm Beach Gardens Medical Center Palm Bch Gardens 204
GREATER TAMPA/ST. PETERSBURG, FLORIDA AREA
Seven Rivers Community Hospital Crystal River 128
Palms of Pasadena Hospital St. Petersburg 310
Memorial Hospital of Tampa Tampa 174
Town and Country Hospital Tampa 201
TENNESSEE
University Medical Center Lebanon 260
Saint Francis Hospital Memphis 890
John W. Harton Regional Med. Center Tullahoma 137
<CAPTION>
LICENSED
FACILITY LOCATION BEDS
----------------------------------- -------------------- --------
<C> <S> <C> <C>
TEXAS
Brownsville Medical Center Brownsville 165
Trinity Medical Center Carrollton 149
Doctors Hospital Dallas 268
RHD Memorial Medical Center Dallas 190
Providence Memorial Hospital (1) El Paso 436
Sierra Medical Center El Paso 365
Park Plaza Houston 468
Twelve Oaks Hospital Houston 336
Nacogdoches Medical Center Nacogdoches 150
Mid-Jefferson Hospital Nederland 138
Odessa Regional Hospital Odessa 100
Park Place Hospital Port Arthur 223
LOUISIANA--GREATER NEW ORLEANS
Meadowcrest Hospital Gretna 200
Kenner Regional Medical Center Kenner 300
Doctors Hospital of Jefferson Metairie 138
Jo Ellen Smith Medical Center New Orleans 164
Mercy+Baptist Medical Center--
Mid-City (2) New Orleans 272 (2)
Uptown (2) New Orleans 487 (2)
St. Charles General Hospital New Orleans 173
Northshore Regional Medical Center Slidell 174
MISSOURI
Columbia Regional Hospital Columbia 301
Kirksville Osteopathic Medical
Center Kirksville 119
Lucy Lee Hospital Poplar Bluff 201
Lutheran Medical Center St. Louis 408
SEVEN ADDITIONAL STATES
Brookwood Medical Center Birmingham, AL 586
National Park Medical Center Hot Springs, AK 166
St. Mary's Regional Hospital Russelville, AK 170
Central Arkansas Hospital Searcy, AK 169
Spalding Regional Hospital Griffin, GA 160
North Fulton Regional Hospital Roswell, GA 167
Culver Union Hospital Crawfordsville, IN 120
Saint Joseph Hospital Omaha, NE 374
Frye Regional Medical Center Hickory, NC 355
Central Carolina Hospital Sanford, NC 137
Hilton Head Hospital Hilton Head, SC 68
East Cooper Community Hospital Mt. Pleasant, SC 100
Piedmont Medical Center Rock Hill, SC 268
<FN>
- ----------------------------------
(1) The Company anticipates that the acquisition of Providence Memorial
Hospital will be consummated in late September 1995.
(2) Mercy+Baptist Medical Center was acquired in August 1995. This two-hospital
system operates under a single license authorizing an aggregate of 759
licensed beds.
</TABLE>
<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. Current Report on Form 8-K dated July 6, 1995;
3. The portions of Tenet's Proxy Statement for the Annual Meeting of
Shareholders to be held on September 27, 1995, that have been incorporated
by reference into the Tenet 10-K;
4. 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;
5. 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; and
6. AMH's and AMI's Quarterly Reports on Form 10-Q for the quarterly
periods ended November 30, 1994 and February 28, 1995.
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.
<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 May 31, 1995,
Tenet operated 70 domestic general hospitals, with a total of 15,451 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 70 general hospitals and related healthcare facilities at May 31,
1995, 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"). See "Management's Discussion and Analysis--The Merger."
At May 31, 1995, Tenet also operated six rehabilitation hospitals (the
"Campus Rehabilitation Facilities"), seven long-term care facilities (the
"Campus Long-Term Care Facilities") and five psychiatric facilities (the "Campus
Psychiatric Facilities") located on the same campus as, or nearby, Tenet's
general hospitals and various ancillary healthcare operations. See
"Business-Domestic General Hospitals."
At May 31, 1995, Tenet operated 13 general hospitals in Australia, Malaysia,
Singapore and Spain with a total of 1,693 licensed beds. Tenet has 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
"Business--International Operations."
At May 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
("NYSE") that operated 287 long-term care facilities, 57 pharmacies and 19
retirement housing communities in the United States at May 31, 1995, (ii) an
approximately 42% interest in Westminster Health Care Holdings PLC
("Westminster"), 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 May 31, 1995, (iii) an approximately 23%
voting interest in Total Renal Care, Inc. ("TRC"), which operated 57
free-standing kidney dialysis units in 10 states at May 31, 1995, and (iv) an
approximately 23% interest in Health Care Property Partners ("HCPP"), a
partnership originally formed by the Company and Health Care Property Investors,
Inc. See "Business-Investments." On September 27, 1995, the shareholders of
Hillhaven and Vencor, Inc. ("Vencor") are scheduled to vote on a proposed
transaction pursuant to which Hillhaven would become a wholly owned subsidiary
of Vencor. If the proposed transaction is approved, each Hillhaven common share
will be exchanged for $32.25 in value of Vencor common stock (subject to
adjustment under certain circumstances depending upon the market price of Vencor
stock). Tenet owns 8,878,147 shares of Hillhaven common stock. In addition, as
part of the proposed transaction, the Company will receive cash consideration of
approximately $91.3 million for its Hillhaven Series C Preferred Stock (as
defined below) and Hillhaven Series D Preferred Stock (as defined below), plus
accrued and unpaid dividends. 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.
5
<PAGE>
RECENT DEVELOPMENTS
GENERAL HOSPITAL ACQUISITIONS AND DEVELOPMENTS
In August 1995, Tenet acquired for approximately $220.5 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. The Company utilized a portion of
its Senior Revolving Debt to finance this acquisition. In May 1995, the Company
announced that it had reached an agreement in principle to purchase for
approximately $115.0 million the Providence Memorial Hospital ("Providence"), a
436-bed not-for-profit general hospital located in El Paso, Texas. The Company
expects to utilize a portion of its Senior Revolving Debt to finance this
acquisition, which is scheduled to close in late September 1995.
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 below).
See Note 18 to the Consolidated Financial Statements.
On July 5, 1995, Tenet entered into a definitive agreement with Parkway to
sell Tenet's approximately 52% interest in Australian Medical Enterprises, Ltd.
("AME"). On August 22, 1995, Health Care of Australia, an Australian company not
affiliated with Parkway, announced a bid for all of AME's shares. On September
22, 1995, the shareholders of AME (other than Tenet, which was not permitted to
vote) voted to reject the Parkway bid. Tenet expects to complete the sale of its
interest in AME to Health Care of Australia or to another party 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 and to sell to its partner
its 30% interest in the Subang Jaya Medical Centre in Malaysia prior to the end
of the second quarter of fiscal 1996. Tenet expects to receive aggregate cash
consideration of approximately $94.0 million from the sale of its holdings in
Australia, Malaysia and Thailand.
HILLHAVEN/VENCOR MERGER
On April 24, 1995, Vencor and Hillhaven announced that they had entered into
an agreement pursuant to which Vencor would acquire Hillhaven. The shareholders
of Hillhaven and Vencor are scheduled to vote on this transaction on September
27, 1995. If the proposed transaction is approved, each Hillhaven common share
will be exchanged for $32.25 in value of Vencor common stock (subject to
adjustment under certain circumstances depending upon the market price of
Vencor's stock). The Company owns 8,878,147 shares of common stock of Hillhaven.
In addition, as part of the proposed transaction, the Company will receive cash
consideration of approximately $91.3 million for its Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock, plus accrued and unpaid
dividends. See "Business--Investments."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Notes Offered..................... $300.0 million principal amount of % Senior Notes due
2003 (the "Notes").
Maturity Date..................... December 1, 2003.
Interest Payment Dates............ June 1 and December 1, commencing December 1, 1995.
Mandatory Redemption.............. None.
Optional Redemption............... None.
Change of Control................. 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 101%
of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. The terms of the
Company's Credit Agreement prohibit the Company from
purchasing Notes upon the occurrence of a Change of
Control Triggering Event. See "Description of the Credit
Agreement" and "Description of Notes--Repurchase at the
Option of Holders--Change of Control."
Ranking........................... The Notes will be general unsecured obligations of the
Company ranking senior to all subordinated indebtedness
of the Company and will rank PARI PASSU in right of
payment with the Company's other existing and future
indebtedness. As of May 31, 1995, on a pro forma basis
as described above, there would have been approximately
$2.7 billion of senior indebtedness outstanding of which
approximately $2.0 billion was secured indebtedness of
Tenet. See "Historical and Pro Forma Capitalization,"
"Description of Notes--General" and "Description of the
Credit Agreement." In addition, the Notes will be
effectively subordinated to all of the outstanding
indebtedness and other obligations of the Company's
subsidiaries which, at May 31, 1995 on a pro forma basis
as described above would have been approximately $1.5
billion (excluding trade payables of $303.4 million at
May 31, 1995).
Certain Covenants................. The Indenture governing the Notes (the "Indenture") will
contain certain covenants, including, but not limited
to, covenants limiting: (i) the incurrence by the
Company and its subsidiaries of additional indebtedness;
(ii) the payment of dividends on and the redemption of
capital stock by the Company; (iii) the creation of
liens securing indebtedness; (iv) restrictions on the
ability of subsidiaries to pay dividends; (v)
transactions with affiliates; (vi) the sale of assets;
and (vii) the Company's ability to consolidate or merge
with or into, or to transfer all or substantially all of
its assets to, another person. See "Description of
Notes--Certain Covenants."
Use of Proceeds................... The net proceeds to the Company from the sale of the
Notes are estimated to be approximately $291.0 million
(after deducting estimated expenses and underwriting
discounts and commissions). The Company intends to use
all of such net proceeds to repay a portion of the
outstanding amounts of Senior Revolving Debt. See "Use
of Proceeds."
</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 May 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 and the proposed sale, which is subject to
certain conditions, including foreign governmental clearance, of the Company's
holdings in Australia, Malaysia and Thailand; and (viii) 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 does 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 Statement of Operations also does
not give effect to the proposed Hillhaven/Vencor merger. On April 24, 1995,
Vencor and Hillhaven announced that they had entered into an agreement pursuant
to which Vencor would acquire Hillhaven. The shareholders of Hillhaven and
Vencor are scheduled to vote on this transaction on September 27, 1995. If the
proposed transaction is approved, each Hillhaven common share will be exchanged
for $32.25 in value of Vencor common stock (subject to adjustment under certain
circumstances depending upon the market price of Vencor stock). The Company owns
8,878,147 shares of common stock of Hillhaven. In addition, as part of the
proposed transaction, the Company will receive cash consideration of
approximately $91.3 million for its Hillhaven Series C Preferred Stock and
Hillhaven Series D Preferred Stock, plus accrued and unpaid dividends. See
"Business--Investments." The proceeds from any sale of the Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock would be applied to repay
the secured bank loans under the Company's Credit Agreement.
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 and should be read in conjunction
therewith and with "Management's Discussion and Analysis," and the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
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 YEAR
ENDED
MAY 31, 1995
----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues........................................................................ $ 5,406.7
Operating expenses:
Salaries and benefits....................................................................... 2,167.2
Supplies.................................................................................... 779.4
Provision for doubtful accounts............................................................. 298.6
Other operating expenses.................................................................... 1,159.5
Depreciation................................................................................ 239.7
Amortization................................................................................ 77.5
--------
Operating income.............................................................................. 684.8
Interest expense, net of capitalized portion.................................................. (327.5)
Investment earnings........................................................................... 26.1
Equity in earnings of unconsolidated affiliates............................................... 27.7
Minority interest expense..................................................................... (5.9)
--------
Income from continuing operations before income taxes......................................... 405.2
Taxes on income............................................................................... (176.5)
--------
Income from continuing operations............................................................. $ 228.7
--------
--------
Earnings per common share from continuing operations, fully diluted........................... $ 1.10
Weighted average number of shares outstanding (in 000's)...................................... 214,938
Ratio of earnings to fixed charges(1)......................................................... 2.0x
OTHER OPERATING INFORMATION:
EBITDA(2)..................................................................................... $ 1,002.0
EBITDA margin................................................................................. 18.5%
Ratio of EBITDA to net interest expense(3).................................................... 3.3x
Ratio of total debt to EBITDA(4).............................................................. 3.5x
Capital expenditures.......................................................................... $ 325.4
</TABLE>
<TABLE>
<CAPTION>
AS OF
MAY 31, 1995
----------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................................... $ 33.9
Total assets.................................................................................. 8,055.3
Long-term debt, net of current portion........................................................ 3,248.0
Shareholders' equity.......................................................................... 2,045.5
<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 included or 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 interest income of $19.3
million for the fiscal year ended May 31, 1995.
(4) Represents pro forma combined total debt outstanding at May 31, 1995 of
$3,535.2 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.
CERTAIN FINANCING CONSIDERATIONS; LEVERAGE
As of May 31, 1995, Tenet's total indebtedness was $3.6 billion,
constituting 64.2% 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 Indenture will include, among other
things, covenants limiting the 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. See "Description of
Notes--Certain Covenants."
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. See "Management's
Discussion and Analysis--Liquidity and Capital Resources."
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. See "Business--Competition."
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.
10
<PAGE>
LIMITS ON REIMBURSEMENT
Tenet derives a substantial portion of its net operating revenues from
third-party payors, including the Medicare and Medicaid programs. See
"Business--Medicare, Medicaid and Other Revenues." 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 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. See
"Business--Healthcare Regulation and Licensing." 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
11
<PAGE>
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.
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
12
<PAGE>
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. See "Management's Discussion and Analysis--Liquidity and Capital
Resources," "Business--Certain Legal Proceedings" in the Tenet 10-K and Note 8
to the Consolidated Financial Statements.
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 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. See Note 8 to the Consolidated
Financial Statements.
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.
13
<PAGE>
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
The terms of the Credit Agreement prohibit Tenet from repurchasing 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."
The change of control provisions of the Indenture may not, in all instances,
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.
SUBSIDIARY OPERATIONS; 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 and in the Indenture
governing the Notes. 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 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.
NO PRIOR PUBLIC MARKET
Although the Notes have been approved for listing on the NYSE, subject to
official notice of issuance, the Notes are a new issue of securities with no
established trading market. The Company has been advised by the Underwriters (as
defined herein) 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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<PAGE>
USE OF PROCEEDS
The net proceeds to Tenet from the sale of the Notes in this Offering are
estimated to be approximately $291.0 million (after deducting estimated expenses
and underwriting discounts and commissions). Tenet intends to use all of such
net proceeds to repay a portion of the outstanding amounts of Senior Revolving
Debt. The outstanding amounts of Senior Revolving Debt were incurred primarily
to fund recent strategic hospital and other acquisitions. The amounts
outstanding under the Senior Revolving Debt bear interest at a floating rate (a
weighted-average of 7.18% at September 11, 1995) and have a final scheduled
maturity of August 31, 2001.
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Tenet at May 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 MAY 31, 1995
----------------------
PRO FORMA
HISTORICAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Current portion of long-term debt.............................................. $ 252.3 $ 252.3
Short-term borrowings and notes................................................ 34.9 34.9
--------- -----------
Total current debt......................................................... $ 287.2 $ 287.2
--------- -----------
--------- -----------
Long-term debt, net of current portion:
Credit Agreement............................................................. $ 1,759.0 $ 1,433.6
Senior Notes due 2002........................................................ 300.0 300.0
Senior Notes due 2003........................................................ -- 300.0
Other debt (1)............................................................... 314.4 314.4
Senior Subordinated Notes due 2005........................................... 900.0 900.0
--------- -----------
Total long-term debt....................................................... 3,273.4 3,248.0
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................................................... 2,241.3 2,300.7
Less treasury stock, at cost, 18,775,274 shares.............................. (271.6) (271.6)
--------- -----------
Total shareholders' equity................................................. 1,986.1 2,045.5
--------- -----------
Total capitalization......................................................... $ 5,259.5 $ 5,293.5
--------- -----------
--------- -----------
<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. See Note 6 to the Consolidated
Financial Statements.
(2) Does not include 36,867,062 shares of Tenet Common Stock reserved for
issuance upon exchange of Tenet options and conversion of outstanding
securities of Tenet.
</TABLE>
15
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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 May 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 and the proposed sale of the Company's holdings in Australia,
Malaysia and Thailand; and (viii) 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 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 Statement of Operations also does
not give effect to the proposed Hillhaven/Vencor merger. On April 24, 1995,
Vencor and Hillhaven announced that they had entered into an agreement pursuant
to which Vencor would acquire Hillhaven. The shareholders of Hillhaven and
Vencor are scheduled to vote on this transaction on September 27, 1995. If the
proposed transaction is approved, each Hillhaven common share will be exchanged
for $32.25 in value of Vencor common stock (subject to adjustment under certain
circumstances depending upon the market price of Vencor stock). The Company owns
8,878,147 shares of common stock of Hillhaven. In addition, as part of the
proposed transaction, the Company will receive cash consideration of
approximately $91.3 million for its Hillhaven Series C Preferred Stock and
Hillhaven Series D Preferred Stock, plus accrued and unpaid dividends. See
"Business--Investments." The proceeds from any sale of the Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock would be applied to repay
the secured bank loans under the Company's Credit Agreement.
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 and should be read in conjunction
therewith and with "Management's Discussion and Analysis," and the Consolidated
Financial Statements and the related Notes thereto included in this Prospectus.
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.
16
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF MAY 31, 1995
-------------------------------------------------------------------
TENET
GENERAL INTERNATIONAL
HOSPITAL OPERATIONS THE
HISTORICAL ACQUISITIONS DIVESTED OFFERING PRO FORMA
TENET (A) (B) (C) AS ADJUSTED
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 155.0 $ -- $ -- $ -- $ 155.0
Short-term investments, at cost which approximates
market................................................. 138.5 138.5
Accounts and notes receivable, less allowance for
doubtful accounts...................................... 564.5 17.9 582.4
Inventories of supplies, at cost........................ 116.4 5.6 122.0
Deferred income taxes................................... 410.3 (65.6) 344.7
Assets held for sale.................................... 184.1 (158.9) 25.2
Prepaid expenses and other current assets............... 54.8 3.9 58.7
----------- ------ ------------- ----------- -----------
Total current assets.................................. 1,623.6 27.4 (224.5) 1,426.5
Investments and other assets.............................. 362.8 362.8
Property, plant and equipment, net........................ 3,318.5 236.1 3,554.6
Intangible assets, at cost less accumulated
amortization............................................. 2,613.5 88.9 9.0 2,711.4
----------- ------ ------------- ----------- -----------
$ 7,918.4 $ 352.4 $ (224.5) $ 9.0 $ 8,055.3
----------- ------ ------------- ----------- -----------
----------- ------ ------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................... $ 252.3 $ -- $ -- $ -- $ 252.3
Short-term borrowings and notes......................... 34.9 34.9
Accounts payable........................................ 358.8 15.4 374.2
Employee compensation and benefits...................... 162.5 162.5
Reserves related to discontinued operations............. 76.6 76.6
Income taxes payable.................................... 2.0 2.0
Other current liabilities............................... 469.4 19.1 1.6 490.1
----------- ------ ------------- ----------- -----------
Total current liabilities............................. 1,356.5 34.5 1.6 1,392.6
Long-term debt, net of current portion.................... 3,273.4 302.9 (337.3) 300.0 3,248.0
(291.0)
Other long-term liabilities and minority interests........ 1,001.5 15.0 51.8 1,068.3
Deferred income taxes..................................... 300.9 300.9
Shareholders' equity:
Common stock............................................ 16.4 16.4
Other shareholders' equity.............................. 2,241.3 59.4 2,300.7
Less: common stock in treasury, at cost................. (271.6) (271.6)
----------- ------ ------------- ----------- -----------
Total shareholders' equity............................ 1,986.1 -- 59.4 -- 2,045.5
----------- ------ ------------- ----------- -----------
$ 7,918.4 $ 352.4 $ (224.5) $ 9.0 $ 8,055.3
----------- ------ ------------- ----------- -----------
----------- ------ ------------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
17
<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 (D) (E) 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)(f)
Amortization............................... 30.6 29.5 (0.2) 17.3(g)
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)(h)
Investment earnings.......................... 27.5 2.6 -- (3.2)(i)
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 (loss) 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(j)
---------- -------- ----------- ----------- -----------
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(k)
---------- -----------
---------- -----------
Ratio of earnings to fixed charges........... 2.7x
----------
----------
<CAPTION>
TENET
GENERAL INTERNATIONAL
HOSPITAL OPERATIONS
TENET/AMH ACQUISITIONS DIVESTED PRO FORMA PRO FORMA
COMBINED (A) (B) ADJUSTMENTS COMBINED
--------- ------------ ------------- ----------- ---------
<S> <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)(l) 239.7
Amortization............................... 77.2 -- (1.9) 2.2(m) 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(n) (327.5)
24.6(o)
(23.0)(p)
Investment earnings.......................... 26.9 -- (0.8) 26.1
Equity in earnings of unconsolidated
affiliates.................................. 28.3 -- (0.6) 27.7
Minority interest in income of consolidated
subsidiaries................................ (12.3) -- 6.4 (5.9)
Net gain (loss) on disposals of facilities
and long-term investments................... -- -- -- --
--------- ------ ------------- ----------- ---------
Income from continuing operations before
income taxes................................ 394.5 16.8 (26.2) 20.1 405.2
Taxes on income.............................. (172.5) 10.4 (14.4)(q) (176.5)
--------- ------ ------------- ----------- ---------
Income from continuing operations............ $ 222.0 $ 16.8 $ (15.8) $ 5.7 $ 228.7
--------- ------ ------------- ----------- ---------
--------- ------ ------------- ----------- ---------
Earnings per common share from continuing
operations, fully diluted................... $ 1.10
---------
---------
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.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statement of Operations does 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 Unaudited Pro Forma Condensed Combined Statement of Operations also does
not give effect to the proposed Hillhaven/Vencor merger. On April 24, 1995,
Vencor and Hillhaven announced that they had entered into an agreement pursuant
to which Vencor would acquire Hillhaven. The shareholders of Hillhaven and
Vencor are scheduled to vote on this transaction on September 27, 1995. If the
proposed transaction is approved, each Hillhaven common share will be exchanged
for $32.25 in value of Vencor common stock (subject to adjustment under certain
circumstances depending upon the market price of Vencor stock). The Company owns
8,878,147 shares of common stock of Hillhaven. In addition, as part of the
proposed transaction, the Company will receive cash consideration of
approximately $91.3 million for its Hillhaven Series C Preferred Stock and
Hillhaven Series D Preferred Stock, plus accrued and unpaid dividends. See
"Business--Investments." The proceeds from any sale of the Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock would be applied to repay
the secured bank loans under the Company's Credit Agreement.
The adjustments to arrive at the Unaudited Pro Forma Condensed Combined
Financial Statements are as follows:
<TABLE>
<S> <C> <C>
To reflect the acquisitions of certain assets and liabilities of Mercy+Baptist and of
Providence under the purchase method of accounting. The assets acquired and liabilities
assumed in these transactions are recorded at their estimated fair values. The excess of
the aggregate purchase price of $302.9 million (including the purchase of working
capital) over the estimated fair values of the net assets acquired is $88.9 million,
which will be amortized on a straight-line basis over 40 years. The acquisition of
(a) Mercy+Baptist was financed and the acquisition of Providence will be financed using a
portion of the Company's Senior Revolving Debt.
To reflect the divestiture of the Company's Mount Elizabeth Hospital, East Shore
Hospital and related healthcare businesses in Singapore as well as the proposed sale of
the Company's holdings in Australia, Malaysia and Thailand. These holdings are
classified as assets held for sale at May 31, 1995. The Company expects to realize
aggregate net cash consideration of approximately $337.3 million before taxes in
connection with these divestitures, resulting in a net gain of approximately $89.1
million after income taxes and other divestiture costs. 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 and the balance applied to reduce the
amount outstanding under the Company's Senior Revolving Debt. 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
(b) million, respectively. Capital expenditures related to these operations were $50.0
million in fiscal 1995 and $28.7 million in fiscal 1994.
Reflects the consummation of this Offering and the application of the net proceeds
(c) 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
(d) gains on disposals of facilities and long-term investments recorded by Tenet of $29.5
million.
To eliminate non-recurring costs recorded by AMH in connection with the Merger,
(e) principally related to the buy-out of employee stock options, employee benefit costs,
and professional fees.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
(f) 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)
---------
---------
To reflect amortization of the excess of the purchase price of AMH over the fair values
(g) 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
(h) 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 and the Senior Subordinated Notes... $ 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
---------
---------
To reflect an estimated reduction of interest income related to a lower balance of cash
(i) and cash equivalents available for investment.
To reflect income taxes at an assumed rate of 39% on the pro forma adjustments described
(j) in (f), (h) and (i) above. Amortization of goodwill in the Merger is not deductible for
tax purposes.
Represents the additional weighted average common shares that would have been
(k) outstanding upon consummation of the Merger.
To adjust depreciation expense for the year ended May 31, 1995 on the estimated fair
value of the buildings and equipment acquired in the purchase of Mercy+Baptist and to be
acquired in the purchase of Providence, and to conform the estimated useful lives of the
(l) acquired buildings and equipment to those used by Tenet.
To reflect the amortization of the excess of the purchase price of Mercy+Baptist and
(m) 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
(n) 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 the
sale of certain of the Company's international assets, as described in (b) above, to
(o) repay secured bank loans under its Credit Agreement.
To reflect interest expense on borrowings under the Senior Revolving Debt necessary to
(p) finance the acquisitions of Mercy+Baptist and of Providence, and to reflect the
consummation of this Offering.
To reflect income taxes at an assumed rate of 39% on the pro forma adjustments described
(q) in (a), (l), (m), (n), (o) and (p) above.
</TABLE>
20
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables set forth selected historical financial data and other
operating information for Tenet for each of the fiscal years in the five-year
period ended May 31, 1995. The selected financial information for each of the
five annual periods has been derived from the Consolidated Financial Statements,
which have been audited by KPMG Peat Marwick LLP, independent auditors for
Tenet, and from the underlying accounting records. 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.
All information contained in the following tables should be read in
conjunction with "Management's Discussion and Analysis" and with the
Consolidated Financial Statements and related notes included herein. Certain
amounts derived from the consolidated statements of operations have been
reclassified to conform with the presentation below.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------------------
1991 1992 1993(1) 1994(2) 1995
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (3)
Net operating revenues...................................................... $ 2,604.6 $ 2,934.3 $ 3,178.2 $ 2,943.2 $ 3,318.4
Operating expenses:
Salaries and benefits..................................................... 1,157.7 1,328.1 1,464.8 1,293.4 1,366.8
Supplies.................................................................. 252.8 318.9 349.2 339.4 431.5
Provision for doubtful accounts........................................... 133.7 123.1 114.6 107.0 137.5
Other operating expenses.................................................. 596.2 616.5 689.1 666.5 759.2
Depreciation.............................................................. 108.9 122.4 141.8 142.7 164.4
Amortization.............................................................. 16.2 18.4 18.6 18.1 30.6
Restructuring charges (4)................................................. -- 17.9 51.6 77.0 36.9
--------- --------- --------- --------- ---------
Operating income............................................................ 339.1 389.0 348.5 299.1 391.5
Interest, net of capitalized portion........................................ (123.9) (89.4) (75.3) (70.0) (138.1)
Investment earnings......................................................... 29.1 28.7 21.1 27.7 27.5
Equity in earnings of unconsolidated affiliates............................. 5.3 6.7 12.5 23.8 28.4
Minority interest expense................................................... (4.4) (6.8) (10.0) (8.2) (9.4)
Net gain/(loss) on disposals of facilities, long-term investments and
subsidiary's common stock.................................................. (0.1) 31.0 121.8 87.5 29.5
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes....................... 245.1 359.2 418.6 359.9 329.4
Taxes on income............................................................. (100.0) (141.0) (155.0) (144.0) (135.0)
--------- --------- --------- --------- ---------
Income from continuing operations........................................... $ 145.1 $ 218.2 $ 263.6 $ 215.9 $ 194.4
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share from continuing operations, fully diluted......... $ 0.87 $ 1.19 $ 1.49 $ 1.23 $ 1.06
Cash dividends per common share............................................. $ 0.40 $ 0.46 $ 0.48 $ 0.12 --
Ratio of earnings to fixed charges (5)...................................... 2.3x 3.5x 4.3x 4.2x 2.7x
BALANCE SHEET DATA:
Working capital (deficit)................................................... $ 346.0 $ 223.9 $ 155.9 $ (196.3) $ 267.1
Total assets................................................................ 4,060.2 4,236.4 4,173.4 3,697.0 7,918.4
Long-term debt, excluding current portion................................... 1,140.4 1,066.2 892.4 223.1 3,273.4
Shareholders' equity........................................................ 1,762.3 1,674.0 1,752.1 1,319.9 1,986.1
<FN>
- ------------------------------
(1) Results of operations for periods prior to April 1993 include, on a
consolidated basis, the results of Westminster, the ownership of which was
reduced from approximately 90% to approximately 42% in April 1993 through a
public offering of Westminster common stock.
(2) Results of operations for the periods presented include the results,
through the respective dates of sale, of 29 inpatient rehabilitation
hospitals and 45 related satellite outpatient clinics sold in fiscal 1994,
23 long-term care facilities sold to Hillhaven in fiscal 1994 and TRC, in
which Tenet sold an approximately 75% interest in August 1994.
(3) Results of operations for all periods presented exclude Tenet's psychiatric
division, which was discontinued as of November 30, 1993, but include other
divested businesses through the date of their divestiture that were not
classified as discontinued operations.
(4) The restructuring charge for 1995 primarily consists of severance payments
and outplacement services for involuntarily terminated former NME employees
and other related costs in connection with the relocation of substantially
all of the Company's hospital support activities located in Southern
California and Florida to Dallas, Texas in connection with the Merger. The
restructuring charge for 1994 relates to a plan initiated by Tenet in April
1994 to significantly decrease overhead costs by reducing corporate and
division staffing levels and selling the corporate headquarters building.
In fiscal 1992 and fiscal 1993, the restructuring charges related to the
combination of Tenet's rehabilitation hospital division into its general
hospital division, a corporate overhead reduction program begun in April
1993, and severance costs incurred in connection with a change in senior
executive management.
(5) 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.
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE MERGER
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired AMH for $1.5 billion in cash and 33.2 million shares of the Company's
common stock valued at $488 million. In connection with the Merger, the Company
also repaid $1.8 billion of AMH and Tenet debt. The Merger and debt retirements
were financed by the Credit Agreement and the public issuance of $1.2 billion in
new debt securities.
Prior to the Merger, the Company operated 33 domestic general hospitals with
6,620 licensed beds in six states, seven skilled nursing facilities, six
rehabilitation hospitals and four psychiatric hospitals located on or near
general hospital campuses. Through its international hospital division, the
Company operated 13 general hospitals in Australia, Malaysia, Singapore and
Spain with a total of 1,693 licensed beds. With the Merger, the Company acquired
37 domestic general hospitals with 8,831 beds, bringing its domestic general
hospital complement to 70 hospitals with 15,451 licensed beds in thirteen
states. The acquisition also included a psychiatric hospital, ancillary
facilities at or nearby many of AMH's hospitals, including outpatient surgery
centers, rehabilitation units, long-term-care facilities, home healthcare
programs, and ambulatory, occupational and rural healthcare clinics.
Management believes that the transaction has strengthened the Company in its
existing markets and enhanced its ability to deliver quality, cost-effective
healthcare services in new markets. The consolidation of the two companies is
expected to result in certain cost savings, currently estimated to amount to
approximately $60.0 million beginning in the fiscal year ending May 31, 1996.
The $60.0 million estimate is before any severance or other costs of
implementing certain efficiencies. These savings are expected to be realized
through the elimination of duplicate corporate overhead expenses, reduced
supplies expense through the incorporation of the acquired facilities into the
Company's existing group purchasing program, and improved collection of the
acquired AMH facilities' accounts receivable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is derived principally from the cash proceeds of
operating activities, anticipated disposals of assets and investments, and
realization of tax benefits associated with losses on sales of facilities and
expenditures related to the discontinued psychiatric hospital businesses. This
liquidity, along with the availability of credit under the Credit Agreement, is
believed to be adequate to meet debt service requirements and to finance planned
capital expenditures, acquisitions and other known operating needs, including
resolution of the unusual legal proceedings referred to herein.
The Company's strategy includes the pursuit of growth through joint
ventures, including the development of integrated healthcare systems in certain
strategic markets, hospital acquisitions and physician practice acquisitions.
All or portions of this growth may be financed through available credit under
the Credit Agreement or, depending on capital market conditions, the sale of
additional debt or equity securities or other bank borrowings. The Company's
unused borrowing capacity under the Credit Agreement was $326.0 million as of
May 31, 1995.
During 1995 net cash provided by operating activities was $420.0 million
before expenditures of $427.5 million related to restructuring charges and the
discontinued psychiatric hospital business. Corresponding figures for 1994 were
$465.9 million and $318.6 million, respectively. In 1993 they were $494.0
million and $96.0 million, respectively.
Management believes that patient volumes, cash flows and operating results
at the Company's principal healthcare businesses, particularly those owned and
operated by the Company prior to the Merger, have been adversely affected by the
legal proceedings and investigations related primarily to the Company's former
psychiatric business. See Note 8B to the Consolidated Financial Statements. The
most significant of these matters were resolved last year. The Company has
recorded reserves for the remaining legal proceedings not yet settled as of May
31, 1995, and an estimate of the legal fees related to these matters to be
22
<PAGE>
incurred subsequently, totaling approximately $75.7 million, of which $59.6
million is expected to be paid within one year. These reserves represent
management's estimates of the net costs of the disposition of these matters.
There can be no assurance, however, that the ultimate liability will not exceed
such estimates.
Proceeds from the sales of facilities, investments and other assets were
$172.0 million during 1995, compared with $569.0 million during 1994 and $69.8
million in 1993. In June 1995, the Company sold two hospitals and related
businesses in Singapore for $243.3 million. In addition, the buyer assumed
approximately $78.3 million in debt. See Note 18 to the Consolidated Financial
Statements. The net proceeds were used to pay off secured bank loans under the
Company's Credit Agreement. During fiscal 1996 the Company expects to receive
approximately $91.3 million from the sale of its Hillhaven Series C Preferred
Stock and Series D Preferred Stock, plus accrued and unpaid dividends, and
approximately $94.0 million from the sale of its holdings in Australia, Malaysia
and Thailand. In addition, the Company is continuing to evaluate other
opportunities to monetize other investments and certain other assets.
The Company's cash and cash equivalents at May 31, 1995 were $155.0 million,
a decrease of $158.2 million over May 31, 1994. The decrease includes the
effects of expenditures amounting to $379.8 million during fiscal 1995 relating
to the resolution of unusual legal proceedings and government investigations
related to the discontinued psychiatric business. Working capital at May 31,
1995 was $267.1 million, compared with a working capital deficit of $196.3
million at May 31, 1994 and working capital of $155.9 million at May 31, 1993.
The principal reason for the decline in working capital in 1994 was the fiscal
1994 increase in the current portion of long-term debt to $544.5 million due to
notes maturing in April 1995 and a $392.6 million increase in current reserves
for discontinued operations and restructuring charges.
Cash payments for property and equipment were $263.6 million in 1995,
compared with $184.8 million in 1994 and $319 million in 1993. Capital
expenditures for the Company, before any significant acquisitions of facilities,
are expected to be approximately $400 million per year for each of the next
three years. The estimated cost to complete major approved construction projects
is approximately $157.5 million, all of which is related to expansion,
improvement and equipping domestic hospital facilities, and a significant
portion of which is expected to be spent over the next three years. In August
1995, the Company acquired Mercy+Baptist and the Company anticipates that it
will close the acquisition of Providence in late September 1995. The aggregate
cash consideration for these transactions is expected to be approximately $347.0
million. The Company intends to continue to invest in existing and new
facilities.
The Credit Agreement and debt securities have affirmative, negative and
financial covenants with which the Company must comply. These covenants include,
among other requirements, limitations on borrowings and guarantees, liens,
investments, dividends and assets sales, and covenants regarding maintenance of
specified levels of net worth, debt ratios and fixed-charge ratios.
RESULTS OF OPERATIONS
Income from continuing operations before income taxes was $329.4 million in
1995, compared with $359.9 million and $418.6 million in 1994 and 1993,
respectively. The most significant transactions affecting the results of
continuing operations were (i) the Merger; (ii) the financing of the Merger,
which will add more than $250 million annually in interest expense; and (iii) a
series of divestitures during fiscal 1993, 1994 and 1995, including the sale of
all but six of the Company's rehabilitation hospitals and related outpatient
clinics in January and March of 1994, the sales of majority interests in two
non-hospital subsidiaries, and the
23
<PAGE>
sale to Hillhaven of all but seven of the Company's long-term care facilities,
all of which had been leased to Hillhaven. Other unusual pretax items relating
to restructuring charges and gains or losses on asset sales are shown below:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Gain (loss) on sales of facilities and long-term investments.................... $ 92.8 $ 87.5 $ (2.5)
Gains on sales of subsidiaries' common stock.................................... 29.0 -- 32.0
Restructuring charges........................................................... (51.6) (77.0) (36.9)
--------- --------- ---------
Net unusual pretax items (after tax--$0.30 fully diluted per share in 1993,
$0.04 in 1994 and $0.03 in 1995)............................................... $ 70.2 $ 10.5 $ (7.4)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Excluding the unusual items as shown in the table above, income from
continuing operations before income taxes would have been $348.4 million in
1993, $349.4 million in 1994 and $336.8 million in 1995.
The following is a summary of continuing operations for the past three
fiscal years:
<TABLE>
<CAPTION>
1993 1994 1995 1993 1994 1995
--------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS) (PERCENTAGE OF NET
OPERATING REVENUES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues:
Domestic general hospitals...................... $ 2,112.9 $ 2,133.3 $ 2,776.8 66.5% 72.5% 83.7%
Other domestic operations (1)................... 271.9 275.3 310.6 8.5 9.3 9.3
International operations........................ 162.4 175.4 214.4 5.1 6.0 6.5
Divested operations (2)......................... 631.0 359.2 16.6 19.9 12.2 0.5
--------- --------- --------- --------- --------- ---------
Net operating revenues............................ 3,178.2 2,943.2 3,318.4 100.0 100.0 100.0
--------- --------- --------- --------- --------- ---------
Operating expenses:
Salaries and benefits........................... (1,464.8) (1,293.4) (1,366.8) 46.1 43.9 41.2
Supplies........................................ (349.2) (339.4) (431.5) 11.0 11.5 13.0
Provision for doubtful accounts................. (114.6) (107.0) (137.5) 3.6 3.6 4.1
Other operating expenses........................ (689.1) (666.5) (759.2) 21.7 22.7 22.9
Depreciation.................................... (141.8) (142.7) (164.4) 4.4 4.9 5.0
Amortization.................................... (18.6) (18.1) (30.6) 0.6 0.6 0.9
Restructuring charges........................... (51.6) (77.0) (36.9) 1.6 2.6 1.1
--------- --------- --------- --------- --------- ---------
Operating income.................................. $ 348.5 $ 299.1 $ 391.5 11.0% 10.2% 11.8%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
EBITDA (3)........................................ $ 560.5 $ 536.9 $ 623.4
EBITDA margin (3)................................. 17.6% 18.2% 18.8%
Capital expenditures.............................. $ 318.6 $ 184.8 $ 263.6
<FN>
- ------------------------
(1) Net operating revenues of other domestic operations consist primarily of
revenues from (i) the Company's rehabilitation hospitals, long-term-care
facilities and psychiatric hospitals that are located on or near the same
campuses as the Company's general hospitals; (ii) healthcare joint ventures
operated by the Company; (iii) subsidiaries of the Company offering health
maintenance organizations, preferred provider organizations and indemnity
products; and (iv) revenues earned by the Company in consideration of the
guarantees of certain indebtedness and leases of Hillhaven and other third
parties.
(2) Net operating revenues of divested operations consist of revenues from (i)
TRC prior to the August 1994 sale of the Company's approximately 75% equity
interest; (ii) 29 rehabilitation hospitals and 45 related satellite
outpatient clinics prior to their sales in January and March of 1994; (iii)
85 long-term care facilities prior to their sales to Hillhaven in fiscal
1993 and 1994; and (iv) Westminster prior to the April 1993 public offering
of common stock that reduced the Company's equity interest in Westminster
from approximately 90% to approximately 42%.
(3) EBITDA represents operating income before depreciation, amortization and
restructuring charges. 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.
</TABLE>
24
<PAGE>
Net operating revenues were $3.3 billion in 1995, compared with $2.9 billion
in 1994 and $3.2 billion in 1993. The current year includes revenues
attributable to facilities acquired in the Merger for the three months ended May
31, 1995. The prior two years include revenues of $359.9 million and $631.0
million, respectively, from the sold rehabilitation hospitals and the other
divestitures mentioned above through the date of divestiture.
Operating income increased 30.9% to $391.5 million in 1995 from $299.1
million in 1994 and $348.5 million in 1993. The operating income margin
increased to 11.8% from 10.2% in 1994 and 11.0% in 1993. The increase in the
operating margin is primarily due to effective cost-control programs in the
hospitals and the sale of the rehabilitation hospitals that, as a whole, had
lower margins than the general hospitals.
Net operating revenues from the Company's domestic general hospital
operations increased 33% to $2.8 billion in 1995, compared with $2.1 billion in
both 1994 and 1993. Excluding net operating revenues from the facilities
acquired in the Merger, net operating revenues for the Company's domestic
general hospitals would have remained relatively flat as less intensive services
continue to shift from an inpatient to an outpatient basis or to alternative
healthcare delivery services because of technological improvements and continued
pressures by payors to reduce admissions and lengths of stay.
The Company continues to experience an increase in Medicare revenues as a
percentage of total patient revenues. The Medicare program accounted for
approximately 39% of the net patient revenues of the domestic general hospitals
in 1995 and 36% and 34% in 1994 and 1993, respectively. Historically, rates paid
under Medicare's prospective payment system for inpatient services have
increased, but such increases have been less than cost increases. Payments for
Medicare outpatient services are presently cost reimbursed, but there are
pending certain proposed regulations that would convert reimbursement to a
prospective payment system. Medicaid programs in certain states in which the
Company operates also are undergoing changes that will result in reduced
payments to hospitals. Pressures to control healthcare costs have resulted in an
increase in the percentage of managed care payors. The Company anticipates that
its managed care business will increase in the future.
The patient volumes and net operating revenues of the Company's domestic
general hospitals are subject to seasonal variations caused by a number of
factors, including but not necessarily limited to, seasonal cycles of illness,
climate and weather conditions, vacation patterns of both hospital patients and
admitting physicians, and other factors relating to the timing of elective
hospital procedures.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
1994 TO
1993 1994 1995 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Domestic general hospital operating data:
Number of hospitals (at end of period).............. 35 35 70 35
Licensed beds (at end of period).................... 6,818 6,873 15,622 127.3%
Net inpatient revenues (in millions)................ $ 1,529.5 $ 1,568.4 $ 1,937.9 23.6%
Net outpatient revenues (in millions)............... $ 534.7 $ 557.2 $ 786.3 41.1%
Admissions.......................................... 210,669 207,868 267,868 28.9%
Equivalent admissions............................... 274,216 271,004 358,664 32.3%
Average length of stay.............................. 5.6 5.6 5.6 --
Patient days........................................ 1,187,181 1,154,030 1,507,865 30.7%
Equivalent patient days............................. 1,537,913 1,493,314 1,997,508 33.8%
Net inpatient revenues per patient day.............. $ 1,288 $ 1,359 $ 1,285 (5.4%)
Utilization of licensed beds........................ 47.8% 46.8% 46.4% (0.4%)*
Outpatient visits................................... 1,473,294 1,472,258 2,293,586 55.8%
<FN>
- ------------------------
* The % change is the difference between the 1995 and 1994 percentages shown.
</TABLE>
25
<PAGE>
The general hospital industry in the United States and the Company's general
hospitals continue to have significant unused capacity, and thus there is
substantial competition for patients. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative healthcare delivery services for
less acutely ill patients. Increased competition, admission constraints and
payor pressures are expected to continue. Another factor impacting operating
results is the slow recovery of the California economy from a recent recession.
At May 31, 1995, 26% of the Company's domestic general hospital beds were in
California.
Allowances and discounts are expected to continue to rise because of
increasing cost controls by government and group health payors and because the
percentage of business from managed care programs (and related discounts)
continues to grow. The Company has been implementing various cost-control
programs focused on reducing operating costs. The Company's general hospitals
have been improving operating margins in a very competitive environment, due in
large part to enhanced cost controls and efficiencies being achieved throughout
the Company.
Net operating revenues from the Company's other domestic operations
increased 12.8% to $310.6 million in 1995, compared with $275.3 million in 1994
and $271.9 million in 1993. This increase primarily reflects continued growth of
National Health Plans, the Company's HMO and insurance subsidiary, to
approximately 57,000 HMO members at May 31, 1995, compared with approximately
40,000 members at May 31, 1994.
Net operating revenues from the Company's international operations increased
22.2% to $214.4 million in 1995, compared with $175.4 million in 1994 and $162.4
million in 1993. This increase is principally attributable to a 17.4% increase
in net operating revenues of Australian Medical Enterprises, Ltd. and a 13.8%
increase in the net operating revenues of the Company's two hospitals in
Singapore. In addition, Centro Medico Teknon in Barcelona, Spain was opened in
February 1994 and became a wholly owned subsidiary in June 1994 when the Company
acquired its partner's 50% interest.
On June 28, 1995, the Company sold the two hospitals it owned and operated
in Singapore and has announced agreements to sell its holdings in Malaysia,
Thailand and Australia. See Note 18 to the Consolidated Financial Statements.
Net operating revenues and operating profits from the facilities sold and to be
sold were $203.4 million and $37.0 million, respectively, in the year ended May
31, 1995.
Operating expenses, which include salaries and benefits, supplies, provision
for doubtful accounts, depreciation and amortization, restructuring charges and
other operating expenses, were $2.9 billion in 1995, $2.6 billion in 1994 and
$2.8 billion in 1993. Operating expenses for the current year include three
months of operating expenses from the facilities acquired in the Merger.
Prior-year periods include the operating expenses of the divested operations, as
discussed above, and to that extent, the current year and prior-year periods are
not comparable.
Salaries and benefits expense as a percentage of net operating revenues was
41.2% in 1995, 43.9% in 1994 and 46.1% in 1993. The improvement in 1995 is
primarily attributable to the Merger, and in 1994 to the divested operations and
a reduction in corporate and divisional staffing levels.
Supplies expense as a percentage of net operating revenues was 13.0% in
1995, 11.5% in 1994 and 11.0% in 1993. Most of this change in 1995 is due to the
facilities acquired in the Merger. The prior-year change was largely due to the
sales of the rehabilitation hospitals, which were less supplies-intensive than
are general hospitals.
The provision for doubtful accounts as a percentage of net operating
revenues was 4.1% in 1995 and 3.6% in both 1994 and 1993. The increase is
primarily attributable to the facilities acquired in the Merger. Excluding the
net operating revenues and operating expenses of the AMH facilities, the
provision for doubtful accounts as a percentage of net operating revenues would
have been 3.7% in 1995. The Company has been able to control the provision for
doubtful accounts through continued improvement of follow-up collection systems,
through investment in an electronic claims processing network and through the
continued consolidation of hospital business office functions.
26
<PAGE>
Other operating expenses as a percentage of net operating revenues were
22.9% in 1995, 22.7% in 1994 and 21.7% in 1993.
Depreciation and amortization expense as a percentage of net operating
revenues were 5.9% in 1995, 5.5% in 1994 and 5.0% in 1993. The increase in 1995
is primarily due to the Merger. Goodwill amortization is expected to be at least
$62.5 million annually, based on the amount of goodwill related to the Merger
recorded as of May 31, 1995.
Interest expense, net of capitalized interest, was $138.1 million in 1995,
compared with $70.0 million in 1994 and $75.3 million in 1993. All of the
increase between 1994 and 1995 was due to the acquisition of AMH and the $3.5
billion of new notes and bank loans used to finance the acquisition and retire
debt in connection with the Merger.
Investment earnings were $27.5 million in 1995, $27.7 million in 1994 and
$21.1 million in 1993, and were derived primarily from notes receivable and
investments in short-term debt securities.
Equity in earnings of unconsolidated affiliates was $28.4 million in 1995,
$23.8 million in 1994 and $12.5 million in 1993. The increases are due to an
increase in the Company's ownership of Hillhaven from approximately 14% to
approximately 33% during fiscal 1994. By the end of fiscal 1995, the Company's
ownership had been reduced to approximately 26% as a result of the issuance by
Hillhaven of additional stock in connection with acquisitions. See Note 14 to
the Consolidated Financial Statements.
Minority interest in income of consolidated subsidiaries represents outside
shareholders' interests in consolidated, but not wholly owned, subsidiaries of
the Company, and, at May 31, 1995, consists primarily of the approximately 48%
minority shareholders' interest in AME Minority interest expense was $9.4
million in 1995, $8.2 million in 1994 and $10.0 million in 1993.
Taxes on income as a percentage of pretax income from continuing operations
were 41% in 1995, 40% in 1994 and 37% in 1993. The Company expects the effective
tax rate to increase further in 1996, primarily due to the additional
amortization of goodwill resulting from the Merger. Such amortization expense is
a noncash charge but provides no income tax benefits.
The Company believes that inflation does not have a significant impact on
its earnings, except when Medicare and Medicaid rate increases are inadequate in
relation to rising costs and when other payors also implement programs to
control their healthcare costs.
The information contained in this section should be reviewed in conjunction
with the Unaudited Pro Forma Condensed Combined Financial Statements and related
Notes.
BUSINESS OUTLOOK
Because of intense national, state and private industry efforts to reform
the healthcare delivery and payment systems in this country, the healthcare
industry as a whole faces increased uncertainty. While the Company is unable to
predict which, if any, proposals for healthcare reform will be adopted, it
continues to monitor their progress and analyze their potential impacts in order
to formulate its future business strategies.
The challenge facing the Company and the healthcare industry is to continue
to provide quality patient care in an environment of rising costs, strong
competition for patients, and a general reduction of reimbursement by both
private and government payors.
27
<PAGE>
BUSINESS
GENERAL
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 May 31, 1995,
Tenet operated 70 domestic general hospitals, with a total of 15,451 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 70 general hospitals and related healthcare facilities at May 31,
1995, through its acquisition of 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. See "Management's Discussion and Analysis--The
Merger".
At May 31, 1995, Tenet also operated the Campus Rehabilitation Facilities,
the Campus Long-Term Care Facilities and the Campus Psychiatric Facilities,
located on the same campus as, or nearby, Tenet's general hospitals and various
ancillary healthcare operations. See "--Domestic General Hospitals."
At May 31, 1995, Tenet operated 13 general hospitals in Australia, Malaysia,
Singapore and Spain, with a total of 1,693 licensed beds. Tenet has 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 "--International
Operations."
At May 31, 1995, Tenet held investments in the following other healthcare
companies: (i) an approximately 26% voting interest in Hillhaven, a publicly
traded company listed on the NYSE that operated 287 long-term care facilities,
57 pharmacies and 19 retirement housing communities in the United States at May
31, 1995, (ii) an approximately 42% interest in Westminster, 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 May 31, 1995, (iii) an approximately 23% voting interest in TRC which
operated 57 free-standing kidney dialysis units in 10 states at May 31, 1995,
and (iv) an approximately 23% interest in HCPP, a partnership originally formed
by the Company and Health Care Property Investors, Inc. See "--Investments." On
September 27, 1995, the shareholders of Hillhaven and Vencor are scheduled to
vote on a proposed transaction pursuant to which Hillhaven would become a wholly
owned subsidiary of Vencor. If the proposed transaction is approved, each
Hillhaven common share will be exchanged for $32.25 in value of Vencor common
stock (subject to adjustment under certain circumstances depending upon the
market price of Vencor stock). Tenet owns 8,878,147 shares of Hillhaven common
stock. In addition, as part of the proposed transaction, the Company will
receive cash consideration of approximately $91.3 million for its Hillhaven
Series C Preferred Stock and Hillhaven Series D Preferred Stock, plus accrued
and unpaid dividends. See "Recent Developments."
BUSINESS STRATEGY
The Company's strategic objective is to provide quality, cost-effective
healthcare services in selected geographic areas. Tenet believes that
competition among healthcare providers occurs primarily at the local level.
Accordingly, the Company tailors its local strategies to address the specific
competitive characteristics of each geographic area in which it operates,
including the number of facilities operated by Tenet, the nature and structure
of physician practices and physician groups, the extent of managed care
penetration, the number and size of competitors and the demographic
characteristics of the area. Key elements of the Company's strategy are:
- to develop integrated healthcare delivery systems by coordinating the
operations and services of the Company's facilities with other hospitals
and ancillary care providers and through alliances with physicians and
physician groups;
- to reduce costs through enhanced operating efficiencies while improving
the quality of care provided;
- to develop and maintain its strong relationships with physicians and
generally to foster a physician-friendly culture;
28
<PAGE>
- to enter into discounted fee for service arrangements, capitated contracts
and other managed care contracts with third party payors; and
- to acquire hospitals, groups of hospitals, other healthcare businesses,
ancillary healthcare providers, physician practices and physician practice
assets where appropriate to accelerate the development of quality,
cost-effective integrated healthcare delivery systems.
DOMESTIC GENERAL HOSPITALS
All of Tenet's general hospital and other healthcare operations are
conducted through NME Hospitals, Inc., AMH and various other subsidiaries and
affiliates. At May 31, 1995, Tenet's subsidiaries and affiliates operated 70
general hospitals (15,451 beds) serving primarily urban areas in 13 states. Of
those hospitals, 54 are owned (including one owned facility that is on leased
land) and 16 are owned by and leased from others (including two leased from
HCPP).
In August 1995, Tenet acquired for approximately $220.5 million in cash
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. The Company utilized a portion of its Senior Revolving Debt
to finance this acquisition. In May 1995, the Company announced that it had
reached an agreement in principle to purchase for approximately $115.0 million
Providence, a 436-bed not-for-profit general hospital located in El Paso, Texas.
The Company expects to utilize a portion of its Senior Revolving Debt to finance
this acquisition, which is scheduled to close in late September 1995.
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.
Each of Tenet's general hospitals offers acute care services and generally
offers fully equipped operating and recovery rooms, radiology services,
intensive care and coronary care nursing units, pharmacies, clinical
laboratories, respiratory therapy services, physical therapy services and
outpatient facilities. A number of the hospitals also offer tertiary care
services such as open heart surgery, neonatal intensive care, neurosciences,
orthopedics services and oncology services and two of the hospitals, USC
University Hospital and Sierra Medical Center, offer quarternary care in such
areas as heart, lung, liver and kidney transplants and gamma knife brain
surgery. With the exception of one general hospital that has not sought to be
accredited, each of the Company's facilities that is eligible for accreditation
is fully accredited by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), the Commission on Accreditation of Rehabilitation
Facilities ("CARF") (in the case of the Campus Rehabilitation Hospitals) or
another appropriate accreditation agency, which accreditation generally is
required for participation in government payment programs.
Technological developments permitting more procedures to be performed on an
outpatient basis, in conjunction with pressures to contain healthcare costs,
have led to a shift from inpatient care to ambulatory or outpatient care. Tenet
has responded to this trend by enhancing its hospitals' outpatient service
capabilities, including (i) establishing freestanding outpatient surgery centers
at or near certain of its hospital facilities, (ii) reconfiguring certain
hospitals to more effectively accommodate outpatient treatment, by, among other
things, providing more convenient registration procedures and dedicated
entrances, and (iii) restructuring existing surgical capacity to allow a greater
number and range of procedures to be performed on an outpatient basis. Tenet's
facilities will continue to emphasize those outpatient services that can be
provided on a cost-effective basis and which the Company believes will
experience increased demand.
In addition, inpatient care is continuing to move from acute care to
sub-acute care. Tenet has been proactive in the development of a variety of
sub-acute inpatient services to utilize a portion of its unused capacity,
thereby retaining a larger share of overall healthcare expenditures. By offering
cost-effective
29
<PAGE>
ancillary services in appropriate circumstances, Tenet is able to provide a
continuum of care where the demand for such services exists. For example, in
certain hospitals the Company has developed transitional care units and
pediatric, rehabilitation and long-term care sub-acute units. Such units utilize
less intensive staffing levels to provide the range of services sought by payors
with a lower cost structure.
GEOGRAPHIC AREA DISCUSSION
The following discussion summarizes the Company's strategy in three selected
geographic areas.
SOUTHERN CALIFORNIA. The southern California area is a highly competitive
environment characterized by a high degree of managed care penetration. Los
Angeles County and Orange County had a combined population of over 11.3 million
people as of 1990 according to the United States Bureau of the Census. As
managed care penetration continues to increase in southern California, providers
increasingly are forming integrated healthcare delivery systems to contract with
payors.
Based upon the characteristics of the southern California area, Tenet's
strategy is to develop an integrated healthcare delivery system comprised of its
network of hospitals, together with physicians and physician groups and
ancillary healthcare providers where appropriate in order to compete more
effectively
for managed care contracts. Tenet's hospitals cover a wide geographic area of
Southern California, from the San Fernando Valley to Orange County. In the
greater Los Angeles area, Tenet operates ten primary care general hospitals, two
tertiary care general hospitals and one tertiary/quartenary care general
hospital, USC University Hospital. The Company's integrated healthcare delivery
system serving the southern California area, when fully developed, will offer
payors both wide geographic coverage and access to advanced tertiary and
quartenary care. To facilitate the integration of these hospitals into a single
contracting entity, the Company intends to join with physicians and IPA's at
each of these hospitals to form a PHO through which the physicians and the Tenet
hospitals can jointly enter into managed care contracts.
The table below sets forth, on a pro forma combined basis, certain selected
historical operating statistics for those hospitals operated by Tenet in the
greater Los Angeles area.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------
1993 (1)(2) 1994 (1)(2) 1995 (2)
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of hospitals (at end of period)............................. 13 13 13
Licensed beds (at end of period)................................... 2,343 2,326 2,224
Net operating revenues............................................. $ 723,789 $ 777,473 $ 764,197
Admissions......................................................... 72,422 75,409 73,874
Equivalent admissions.............................................. 92,989 96,466 94,926
Patient days....................................................... 375,034 397,534 392,323
Equivalent patient days............................................ 476,614 502,847 499,293
Total outpatient visits............................................ 404,857 413,000 452,250
<FN>
- ------------------------
(1) Financial and operating data for Tenet's fiscal years ended May 31, 1993
and 1994, has been combined with financial and operating data for each of
AMH's fiscal years ended August 31 of such year.
(2) The results of operations of Ontario Community Hospital and Doctors
Hospital of Montclair, which facilities were sold in June 1994, are
excluded from this data.
</TABLE>
SOUTH FLORIDA. The south Florida area, comprised of Palm Beach, Broward and
Dade counties, had a population of approximately 4.1 million people as of 1990,
according to the United States Bureau of the Census, and is a highly competitive
environment with a high degree of managed care penetration. Tenet operates six
general hospitals in south Florida, providing coverage from northern Palm Beach
County through northern Dade county. Tenet has combined these six general
hospitals, one physical rehabilitation hospital, one psychiatric facility, two
skilled nursing facilities, over 50 owned or managed physician practices and
outpatient surgery, diagnostic, workers' compensation, occupational therapy and
health and fitness centers into the Tenet South Florida HealthSystem, an
integrated healthcare delivery system. The full range of services offered by the
Tenet South Florida HealthSystem throughout south Florida makes it an attractive
provider for managed care payors. The Company expects its hospitals, three of
which have open heart
30
<PAGE>
surgery programs and one of which provides Level III neonatal intensive care
services, to benefit from business generated by those contracts. To further
enhance its ability to enter into managed care contracts, the Company has joined
with physicians and independent physician associations ("IPAs") to form
physician hospital organizations ("PHOs") that can bid on managed care
contracts. Furthermore, the Company has established a management services
organization ("MSO") that provides management and administrative services to
these IPAs and other physicians and physician groups in south Florida.
In August 1995, the Company entered into an agreement with the Cleveland
Clinic Florida, an extension of the Cleveland Clinic Foundation of Cleveland,
Ohio, for the development of a hospital in western Broward County that will
replace the Cleveland Clinic Florida's existing hospital in eastern Broward
County. The proposed project would inlcude a 150-bed general hopsital, to be
named the Cleveland Clinic Florida Hospital, in which Tenet will own a 50%
interest. The hospital will be part of a health care campus that will include an
outpatient clinic, medical office building, research facilities, medical library
and facilities for graduate medical education, which will be owned and operated
by the Cleveland Clinic Florida. Tenet will manage the operational aspects of
the hospital and the Cleveland Clinic Florida will oversee all aspects of
clinical care. The project currently is awaiting approval from governmental
authorities.
The table below sets forth, on a pro forma combined basis, certain selected
historical operating statistics for those facilities operated by Tenet in south
Florida.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------------------------
1993 (1) 1994 (1) 1995
------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of hospitals (at end of year)................... 6 6 6
Licensed beds (at end of year)......................... 1,689 1,689 1,689
Net operating revenues................................. $ 513,537 $ 562,749 $ 567,267
Admissions............................................. 49,709 52,140 54,167
Equivalent admissions.................................. 64,262 69,671 74,254
Patient days........................................... 299,493 294,072 295,291
Equivalent patient days................................ 385,197 389,986 400,206
Total outpatient procedures............................ 287,811(2) 557,308(2)(3) 791,534(2)
<FN>
- ------------------------
(1) For purposes of the above, financial and operating data for each of Tenet's
fiscal years ended May 31 of the respective years has been combined with
financial and operating data for each of AMH's fiscal years ended August 31
of such year.
(2) Includes visits by home health agencies.
(3) In fiscal 1994, AMH acquired a home health agency.
</TABLE>
GREATER NEW ORLEANS, LOUISIANA AREA. The New Orleans metropolitan
statistical area had a population of approximately 1.3 million people as of 1990
according to the United States Bureau of the Census. Management believes that
although the level of managed care penetration in New Orleans historically has
been relatively low, it recently has increased significantly and will continue
to increase in this area over the next several years. The Company currently
operates eight general hospitals in the greater New Orleans, Louisiana area,
including two hospitals on the east bank of the Mississippi River, two on the
west bank of the Mississippi River, one hospital in Kenner, Louisiana, one
hospital located across Lake Pontchartrain in Slidell, Louisiana, and the two
Mercy+Baptist Medical Center hospitals, located in the Uptown and Mid-City
areas. The Mercy+Baptist Medical Center hospitals, acquired by Tenet in August
1995, complement Tenet's system by expanding the scope of tertiary care services
offered, including radiation therapy, neonatal and cardiology services, and
improving the coverage of patients located in the Uptown and Mid-City areas.
Tenet's hospitals have joined with certain physicians and IPAs to form an
integrated healthcare delivery system to negotiate managed care contracts in
this area. In negotiating for managed care and other contracts in this area, the
Company believes it will benefit significantly from its well-positioned and
geographically diverse base of hospitals and the strong support of physicians.
31
<PAGE>
The Company competes in the greater New Orleans area principally against
tax-exempt hospitals. This area presently is experiencing aggressive campaigns
to acquire primary care physician groups. Because the development of a large,
stable primary care network is essential for the effective management of
capitated risk, the Company recently has developed an MSO for the purposes of
pursuing the acquisition of physician practices and providing administrative and
management services to physicians' group practices in this geographic area. The
acquisition of physician practices will enable the Company to expand its base of
affiliated physicians. The integration of these practices also should allow the
Company more effectively to compete for managed care contracts and to manage
such contracts more effectively. As the level of managed care penetration
increases and participating or acquired physician practices are more fully
integrated into the Company's management systems, the Company's MSO will be
prepared with the systems and expertise necessary to provide single-source
contracting, utilization review and clinical outcomes management. Tenet
currently owns or manages the practices of over 83 physicians in the greater New
Orleans area, most of whom are primary care physicians.
The table below sets forth, on a pro forma combined basis, certain selected
historical operating statistics for those facilities operated by Tenet in the
greater New Orleans area.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------------
1993 (1) 1994 (1) 1995
-------------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of hospitals (at end of period)...................... 5 6 6
Licensed beds (at end of period)............................ 1,011 1,149 1,149
Net operating revenues...................................... $ 233,453 $ 231,084 $ 264,109
Admissions.................................................. 23,097 22,905 25,507
Equivalent admissions....................................... 29,409 29,476 32,930
Patient days................................................ 143,554 136,266 148,012
Equivalent patient days..................................... 180,008 172,946 189,275
Total outpatient procedures................................. 135,324 142,629 163,456
<FN>
- ------------------------
(1) For purposes of the above, financial and operating data for each of Tenet's
fiscal years ended May 31 of the respective years has been combined with
financial and operating data for each of AMH's fiscal years ended August 31
of such year. Included in the above are the results of operations of
Doctors Hospital of Jefferson, which facility was acquired by the Company
in March 1994.
</TABLE>
The following discussion summarizes the Company's strategy in four selected
geographic areas where integrated healthcare delivery systems have been
developed around a single Tenet hospital.
MODESTO, CALIFORNIA. The Company's Doctors Medical Center of Modesto is a
433-bed tertiary care general hospital serving a large regional, predominantly
rural, area consisting primarily of Stanislaus County and the San Joaquin
Valley. The hospital offers a wide range of services ranging from primary
medical and surgical procedures to complex cardiology, oncology, neurosciences
and sophisticated orthopedics programs. The hospital has a large open heart
surgery program and one of the largest women's and children's centers in
California's central valley, including Level III neonatal intensive care
services. Tenet has developed a full range of services in the central valley,
all of which benefit from and complement the services offered by Doctors Medical
Center. For example, Tenet's Doctors Hospital of Manteca, a 73-bed primary care
hospital, is located approximately 18 miles north of the Modesto hospital and
serves as an important primary care referral source for the Doctors Medical
Center. Tenet also has developed a 100-bed rehabilitation hospital, two urgent
care centers and, through a joint venture with local physicians, an outpatient
surgery center in this area.
As is true with all of its hospitals, Tenet believes its relationships with
the physicians who practice at its Modesto hospital are essential to the
hospital's success. An important factor in the success of the Modesto hospital
is the presence of Tenet's National Health Plans, which operates an HMO and
offers other health plans and insurance products throughout the central valley.
National Health Plans manages physicians group practices throughout the central
valley and has fostered the development of an IPA by local physicians. The HMO,
which managed the healthcare needs of approximately 58,200 members at August 1,
1995, has entered into capitated and other managed care contracts with Doctors
Medical Center and with other
32
<PAGE>
healthcare facilities operated by Tenet. The Company believes that its
experience in the Modesto area will allow it to duplicate this type of
comprehensive integrated healthcare expertise in other areas as appropriate,
either through HMO's owned and operated by Tenet or through contractual or
strategic relationships with other managed care companies.
BIRMINGHAM, ALABAMA. Tenet's Brookwood Medical Center, a 586-bed tertiary
care general hospital located in Birmingham, Alabama, offers a full range of
services in an area with a significant and growing managed care presence.
Brookwood is the largest single provider for major managed care programs in the
greater Birmingham area. Tenet believes that Brookwood has strong clinical
programs and physician relationships. Brookwood also has implemented
comprehensive programs to reengineer resource utilization, case management, and
the provision of patient care. These programs have helped Brookwood reduce its
operating costs, and enhanced its ability to compete effectively for managed
care contracts. The hospital's major programs include neurosurgery, a
freestanding women's comprehensive care center, gastrointestinal, orthopedics,
comprehensive cancer care, ophthalmology and cardiac care. Brookwood has
developed a geographically diverse primary care physician referral base through
the employment of over 37 primary care physicians and the ownership of 19
community-based clinics. Management expects to continue to expand upon this
strong primary care physician base. Brookwood also is a shareholder of Alabama
Health Services, Inc. ("AHS"), a corporation jointly owned with two tax-exempt
hospitals in the Birmingham area. AHS was formed for the purpose of developing
vehicles for managed care contracting and integrated ownership of healthcare
facilities and services. Tenet intends to work with the shareholders of AHS to
develop a state-wide system to more effectively compete in the managed care
arena. 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.
HICKORY, NORTH CAROLINA. The development of relationships with primary care
physicians also is critical in areas such as Hickory, North Carolina, where
Tenet operates Frye Regional Medical Center, a 355-bed tertiary care general
hospital serving a wide area of western North Carolina. Frye Regional Medical
Center offers a full range of services, including neurosurgery and
cardiovascular surgery programs. The hospital also employs physicians or manages
physician practices in the surrounding communities. Through outreach programs,
specialists affiliated with the hospital provide specialty services on a
rotational basis in these areas. As a result, the hospital has been successful
in attracting increased referrals for its tertiary care services. Tenet believes
it has also been successful in attracting physicians into the area by providing
a physician-friendly environment with sophisticated equipment and attractive
facilities. These initiatives have contributed significantly to the hospital's
success in obtaining referrals from surrounding communities, thereby increasing
cash flow. In response to the increase in managed care penetration, the hospital
has joined with physicians to form a PHO that has entered into contracts with
certain employers and managed care providers in the market. It is anticipated
that the majority of the hospital's existing direct contracts with large,
self-insured employers and insurance companies will be converted over time into
contracts with the PHO covering both hospital and physician services rather than
remaining as contracts with only the hospital. Tenet has taken these and other
measures in advance of significant managed care penetration in order to position
the hospital to compete effectively as managed care penetration increases.
EL PASO, TEXAS. Tenet currently owns one general hospital in El Paso,
Texas, the 365-bed Sierra Medical Center. Sierra offers a full range of tertiary
care services, including renal transplant, open heart surgery, gamma knife brain
surgery, high risk obstetrics and a Level II emergency department. Also on the
Sierra campus is Tenet's Rio Vista Rehabilitation Hospital, which is the only
rehabilitation hospital in the region accredited by both the JCAHO and CARF. Rio
Vista is licensed for 100 beds and is a multi-program rehabilitation hospital
with satellite clinics in southern New Mexico.
El Paso County had a population of approximately 650,000 people in 1990
according to the United States Bureau of the Census. Sierra's network also
serves the contiguous populations of southern New Mexico and Juarez, Mexico.
Sierra is a party to managed care contracts covering over 200,000 lives and is
affiliated with the area's largest PHO, with over 350 primary and speciality
care physicians. Sierra's and Rio Vista's wide range of services and
relationships with their medical staff have allowed the Sierra Health Network to
become one of the most well-developed managed care networks in the area.
33
<PAGE>
Tenet plans to expand its El Paso network through its acquisition of
Providence, a 436-bed not-for-profit general hospital that also is licensed for
a 30-bed rehabilitation hosptial and a 30-bed skilled nursing facility. The
transaction is expected to close in late September 1995. Providence offers a
wide range of tertiary care services, including women's and pediatric services,
and has developed a network of primary care clinics throughout the city.
Providence operates a Level III neonatal unit with full perinatal services and,
like Sierra, a Level II emergency department. Providence also is active in
managed care development and operates the Providence Physicians Health Network.
Both Sierra and Providence are affiliated with the Texas Tech Health Sciences
Center, which is the medical school affiliated with Texas Tech University.
Following the acquisition of Providence, Tenet's El Paso facilities will provide
802 acute care and pediatric beds as well as 164 rehabilitation, skilled nursing
and sub-acute beds.
HMO, PPO AND INDEMNITY OPERATIONS
Through various subsidiaries, Tenet offers HMO, PPO and indemnity products
in California. Plans offered include National HMO, a federally qualified HMO
serving 57,409 members, as of September 1, 1995, including 53,267 on a
capitated, or fixed premium per member, basis; Assured Investors Life Company,
an insurance company that provided healthcare indemnity insurance to 16,120
persons and managed 7,666 members of other HMO's on a capitated basis, as of
September 1, 1995; and Preferred Medical Systems, a PPO serving 18,000 members,
as of September 1, 1995.
OTHER DOMESTIC OPERATIONS
At May 31, 1995, Tenet's subsidiaries operated the Campus Rehabilitation
Hospitals, which are located in California, Florida, Louisiana and Texas, Campus
Long-Term Care Facilities, which are located in California, Florida, Louisiana
and Texas (and which are managed by Hillhaven) and Campus Psychiatric
Facilities, which are located in California, Louisiana, Florida and Nebraska. In
the first quarter of fiscal 1996, the Company combined the operations of one
Campus Rehabilitation Facility with the operations of a nearby general hospital.
In addition, Tenet's subsidiaries operated various ancillary healthcare
operations, including outpatient surgery centers, home healthcare programs,
ambulatory, occupational and rural healthcare clinics, a health maintenance
organization, a preferred provider organization and a managed care insurance
company.
INTERNATIONAL OPERATIONS
At May 31, 1995, the Company's subsidiaries (i) operated two hospitals in
Singapore (650 beds), (ii) owned a 52% interest in AME, a publicly traded
Australian healthcare company that operated nine hospitals (634 beds) and a
pathology business, (iii) operated the tertiary care Centro Medico Teknon
hospital (184 beds) in Barcelona, Spain, which opened in February, 1994, (iv)
managed one hospital (225 beds) (in which it owns a 30% interest) in Kuala
Lumpur, Malaysia, (v) owned a 40% interest in a joint venture that is developing
the new 554-bed tertiary care Bumrungrad Medical Center in Bangkok, Thailand,
expected to be completed during the first quarter of fiscal 1997, and (vi) owned
a 90% interest in a joint venture with a local community organization that is
developing a 56-bed hospital in Cham, Canton Zug, Switzerland, expected to open
in the second quarter of fiscal 1997, a project acquired in connection with the
Merger.
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 on June 28, 1995. The
aggregate 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.
On July 5, 1995, Tenet entered into a definitive agreement with Parkway to
sell Tenet's approximately 52% interest in AME. On August 22, 1995, Health Care
of Australia, an Australian company not affiliated with Parkway, announced a bid
for all of AME's shares. On September 22, 1995, the shareholders of AME (other
than Tenet, which was not permitted to vote) voted to reject the Parkway bid.
Tenet expects to complete the sale of its interest in AME to Health Care of
Australia or to another party prior to the end of the second quarter of fiscal
1996. Tenet also expects to sell its 40% interest in the Bumrungrad Medical
34
<PAGE>
Center in Thailand and to sell to its partner its 30% interest in the Subang
Jaya Medical Centre in Malaysia prior to the end of the second quarter of fiscal
1996. Tenet expects to receive aggregate cash consideration of approximately
$94.0 million from the sale of its holdings in Australia, Malaysia and Thailand.
INVESTMENTS
The Company owns 8,878,147 shares, or an approximately 26% voting interest,
of Hillhaven, a Nevada corporation listed on the NYSE under the symbol "HIL". In
addition, at September 11, 1995, the Company held 35,000 shares of Hillhaven's
cumulative non-voting 8 1/4% Series C Preferred Stock (the "Hillhaven Series C
Preferred Stock"), with an aggregate liquidation preference of $35.0 million,
and 66,444 shares of Hillhaven's cumulative non-voting 6 1/2% payable-in-kind
Series D Preferred Stock (the "Hillhaven Series D Preferred Stock"), with an
aggregate liquidation preference of approximately $66.4 million. At May 31,
1995, Hillhaven operated 287 long-term care facilities, 57 pharmacies and 19
retirement housing communities in the United States.
On April 24, 1995, Vencor and Hillhaven announced that they had entered into
an agreement pursuant to which Vencor would acquire Hillhaven. The shareholders
of Hillhaven and Vencor are scheduled to vote on this transaction on September
27, 1995. If the proposed transaction is approved, each Hillhaven common share
will be exchanged for $32.25 in value of Vencor common stock (subject to
adjustment under certain circumstances depending upon the market price of Vencor
stock). The Company owns 8,878,147 shares of common stock of Hillhaven. In
addition, as part of the proposed transaction, the Company will receive cash
consideration of approximately $91.3 million for its Hillhaven Series C
Preferred Stock and Hillhaven Series D Preferred Stock. plus accrued and unpaid
dividends. The Company has agreed to certain restrictions on its ability to
dispose of any Vencor common stock it acquires in this transaction.
The Company owns 26,874,998 shares, or approximately 42%, of the outstanding
common stock of Westminster, a United Kingdom company listed on the London Stock
Exchange under the symbol "WHC". Westminster, which operated 69 nursing homes
and conducted other healthcare operations at May 31, 1995, currently is the
second largest long-term care provider in the United Kingdom.
The Company also owns 4,500,000 shares of common stock, or an approximately
23% voting interest, of TRC, a leading dialysis services provider in the United
States. TRC operated 57 freestanding kidney dialysis units in 10 states at May
31, 1995.
Additionally, the Company owns approximately 23% of HCPP, a partnership
originally formed by the Company and Health Care Property Investors, Inc. for
the purpose of acquiring from and leasing back to the Company 21 long-term care
facilities, two general hospitals and one psychiatric facility. Since that time,
the Company has assigned to Hillhaven and other third parties its leasehold
interests in the 21 long-term care facilities and the psychiatric hospital, but
remains contingently liable for the lease payments on those facilities. The
Company continues to lease the two general hospitals from HCPP. HCPP does not
own any properties other than those originally purchased from the Company.
PROPERTIES
Tenet's principal executive offices are located in an approximately 310,000
square foot office building owned by Tenet and located at 2700 Colorado Avenue,
Santa Monica, California. The Company has announced that it intends to sell its
corporate headquarters building in Santa Monica. Following the Merger, all of
Tenet's hospital support services were moved to leased space in its operations
center in Dallas, Texas, leaving only the corporate headquarters in Santa
Monica. The Company has announced that it has leased new space for its corporate
headquarters in Santa Barbara, California, and expects to move to that new space
during the third quarter of fiscal 1996. At May 31, 1995, Tenet and its
operating subsidiaries also were leasing other office space in Fairfax,
Virginia; Tampa, Florida; Irving, Texas; and Costa Mesa, Los Angeles, Modesto,
Santa Ana and Santa Monica, California.
As of May 31, 1995, Tenet's subsidiaries operated domestically 65 medical
office buildings, including 22 that are leased from others, most of which are
adjacent to Tenet's general hospitals. These buildings are occupied by
approximately 1,700 physicians.
35
<PAGE>
COMPETITION
Tenet's general hospitals, rehabilitation hospitals, long-term care
facilities and psychiatric facilities operate in competitive environments. A
facility's competitive position within the geographic area in which it operates
is affected by such competitive factors as the quality of care provided,
including the number, quality and specialties of the physicians, nurses and
other healthcare professionals on staff, its reputation, the number of
competitive facilities, the state of its physical plant, the quality and the
state of the art of its medical equipment, its location and its charges for
services. Tax-exempt competitors may have certain financial advantages such as
endowments, charitable contributions, tax-exempt financing and exemption from
sales, property and income taxes not available to Tenet facilities. The length
of time a facility has been a part of the community and the availability of
other healthcare alternatives also are competitive factors.
An expanding factor in the competitive position of Tenet's facilities is the
ability of Tenet to obtain managed care contracts with payors that contract with
healthcare providers on a discounted or capitated basis in exchange for sending
some or all of their members/employees to those providers. Under capitated
contracts, hospitals receive specific fixed periodic payments based on the
number of members of the health maintenance organization or preferred provider
organization, regardless of the actual costs incurred and services provided. The
importance of obtaining managed care contracts has increased over the years as
employers and others attempt to control rising healthcare costs. Tenet evaluates
changing circumstances on an ongoing basis and positions itself to compete in
the managed care market. Tenet's facilities have been actively pursuing and
entering into managed care contracts.
The Company, and the healthcare industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with strong competition
for patients and pressure on reimbursement rates by both private and government
payors. National and state efforts to reform the United States healthcare system
may further impact reimbursement rates. Changes in medical technology, existing
and future legislation, regulations and interpretations and competitive
contracting for provider services by payors may require changes in the Company's
facilities, equipment, personnel, rates and/or services in the future.
The general hospital industry and the Company's general hospitals continue
to have significant unused capacity, and thus there is substantial competition
for patients. Inpatient utilization, average lengths of stay and average
occupancy continue to be negatively affected by payor-required pre-admission
authorization and utilization review and payor pressure to maximize outpatient
and alternative healthcare delivery services for less acutely ill patients.
Increased competition, admissions constraints and payor pressures are expected
to continue. There continue to be increases in inpatient acuity and intensity of
services as less intensive services shift from an inpatient to an outpatient
basis or to alternative healthcare delivery services because of technological
improvements and as cost controls by payors become greater. Allowances and
discounts are expected to continue to rise, and to cause decreases in revenues,
because of increasing cost controls by government and private payors and because
of the increasing percentage of business negotiated with purchasers of group
healthcare services. To meet these challenges, the Company (i) has expanded many
of its general hospitals' facilities to include outpatient centers, (ii) offers
discounts to private payor groups, (iii) enters into capitation contracts in
some service areas, (iv) upgrades facilities and equipment and (v) offers new
programs and services.
The Company also is responding to these changes by forming integrated
healthcare delivery systems. Components of these systems include encouraging
physicians practicing at its hospitals to form IPAs, having the Company join
with those IPAs, physicians and physician group practices to form PHOs to
contract with managed care and other payors and forming MSOs to (i) purchase
physician practices or their assets, as appropriate, (ii) provide management and
administrative services to physicians, physician group practices and IPAs and
(iii) enter into managed care contracts both on behalf of those groups and, in
certain circumstances, on behalf of PHOs.
In large part, hospital revenues depend on the physicians on staff who admit
or refer patients to the hospital. Physicians refer patients to hospitals on the
basis of the quality of services provided by the hospital to patients and their
physicians, the hospital's location, the quality of the medical staff affiliated
with the hospital and the quality of the hospital's facilities, equipment and
employees. The Company attracts
36
<PAGE>
physicians to its hospitals by equipping its hospitals with sophisticated
equipment, providing physicians with a large degree of independence in
conducting their hospital practices and sponsoring training programs to educate
physicians on advanced medical procedures. While physicians may terminate their
association with a hospital at any time, Tenet believes that by striving to
maintain and improve the level of care at its hospitals and by maintaining high
ethical and professional standards, it will retain qualified physicians with a
variety of specialties. A hospital's revenues also may be affected by the
ability of its management to negotiate favorable group health service contracts
with payors. The number of persons and the patient mix represented by such group
contracts impact the hospital's operating results.
As a result, in part, of the changes in the industry, there has been
significant consolidation in the hospital industry over the past decade and many
hospitals have closed. Tenet's management believes that continuing
cost-containment pressures will lead to a continued increase in managed care and
further consolidation in the hospital industry.
MEDICARE, MEDICAID AND OTHER REVENUES
Tenet receives payments for patient care from private insurance carriers,
Federal Medicare programs for elderly and disabled patients, health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), state
Medicaid programs for indigent and cash grant patients, the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), employers and patients
directly. In general, Medicare payments for general hospital outpatient
services, psychiatric care and physical rehabilitation are based on the lower of
charges and allowable costs, subject to certain limits. General hospital
inpatient services are reimbursed under Medicare based on a prospective payment
system ("PPS"), discussed below. Payments from state Medicaid programs are based
on reasonable costs or are at fixed rates. Substantially all Medicare and
Medicaid payments are below retail rates for Tenet facilities. Payments from
other sources usually are based on the hospital's established charges, a
percentage discount or all-inclusive per diem rates.
The approximate percentages of Tenet's net patient revenue by payment
sources for Tenet's general hospitals are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------------------------
1991 1992 1993 1994 1995(1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Medicare.......................................... 31.8% 32.1% 33.9% 35.9% 38.9%
Medicaid.......................................... 6.0 6.4 7.5 8.5 7.2
Private and Other................................. 62.2 61.5 58.6 55.6 53.9
----- ----- ----- ----- -----
Totals............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<FN>
- ------------------------
(1) Fiscal year 1995 includes twelve months of results for general hospitals
owned by Tenet prior to the Merger and three months of results for the
general hospitals acquired by Tenet in connection with the Merger.
</TABLE>
The following table presents the percentage of net patient revenues of the
general hospitals acquired by Tenet in connection with the Merger for AMH's
fiscal years 1992, 1993 and 1994 under each of the following programs:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Medicare................................................................ 32.3% 32.6% 36.2%
Medicaid................................................................ 4.8 6.2 7.5
Private and Other....................................................... 62.9 61.2 56.3
----- ----- -----
Totals.................................................................. 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
Medicare payments for general hospital inpatient care are based on PPS that
generally has been applicable to Tenet's facilities since 1984. Under PPS, a
general hospital receives for each Medicare patient a fixed amount for operating
costs based on each Medicare patient's assigned diagnostic related group
37
<PAGE>
("DRG"). DRG payments do not consider a specific hospital's costs, but are
adjusted for area wage differentials. DRG payments exclude the reimbursement of
(a) capital costs, including depreciation, interest relating to capital
expenditures, property tax and lease expenses and (b) outpatient services.
Medicare reimburses general hospitals' capital costs separately from DRG
payments. Beginning in 1992, a prospective payment system for Medicare
reimbursement of general hospitals' inpatient capital costs ("PSS-CC"),
described in the following paragraph, generally became effective with respect to
the Company's general hospitals. The Omnibus Budget Reconciliation Act of 1990
("OBRA '90") provides that through September 30, 1995, the total annual
estimated aggregate payment to all PPS hospitals for capital costs under the
PPS-CC is to be 10% less than the estimated aggregate amount that would be paid
if all such hospitals were to be reimbursed for 100% of their actual capital
costs. This reduction to PPS-CC is set to expire on September 30, 1995. The
expiration of this section of OBRA '90 should, in theory, reset the total
capital payments to 100% of aggregate capital costs. Congress, however, is in
the process of establishing the healthcare budget for future periods, which
budget may include a reduction rather than an increase in the PPS-CC. Until this
process is completed, the final increase or decrease, if any, to PPS-CC will not
be known.
The PPS-CC applies an estimated national average of Medicare capital costs
per patient discharge (the "Federal Rate") in making payments to each individual
hospital based on its actual number of patient discharges. The Federal Rate is
based on national 1989 capital costs and patient discharges and has been and
will be updated annually to reflect estimated increases in capital costs per
patient discharges. In addition, the Federal Rate actually applied to each
hospital is adjusted based on various factors such as that hospital's case mix
and geographic location.
Rules adopted by the HCFA provide that the PPS-CC will be phased in over a
10-year transition period, during which many hospitals' actual capital costs
will be given less consideration, and the Federal Rate will be given more
consideration, each year. The Company's general hospitals will receive a major
portion of their reimbursement in the early years of the transition period based
on their own capital costs. The impact in later years will depend on the
Company's need for new capital as compared to the updated Federal Rate.
Outpatient services provided at general hospitals, physical rehabilitation
hospitals and psychiatric facilities generally are reimbursed by Medicare at the
lower of customary charges or 94.2% of actual cost. Notwithstanding the
foregoing, Congress has established additional limits on the reimbursement of
the following outpatient services: (i) clinical laboratory services, which are
reimbursed based on a fee schedule and (ii) ambulatory surgery procedures and
certain imaging and other diagnostic procedures, which are reimbursed based on a
blend of the hospital's specific cost and the rate paid by Medicare to
non-hospital providers for such services.
For several years the percentage increases to the DRG rates have been lower
than the percentage increases in the cost of goods and services purchased by
general hospitals. The index used by HCFA to adjust the DRG rates gives
consideration to the cost of goods and services purchased by hospitals as well
as non-hospitals (the "Market Basket"). The increase in the Market Basket for
the year beginning October 1, 1995, currently is projected to be 3.5%. Based on
the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93"), the DRG rates for
urban hospitals will be adjusted by the annual Market Basket percentage change:
(1) minus 2.5%, effective October 1, 1994, (2) minus 2.0%, effective October 1,
1995, (3) minus .5%, effective October 1, 1996, and (4) without reduction,
effective October 1, 1997 and each year thereafter, unless altered by subsequent
legislation (which legislation Tenet believes has become more likely in light of
the stated desire of both the current Administration and Congress to balance the
budget). Substantially all of the Tenet hospitals are urban hospitals for
purposes of DRG rates.
Hospitals and hospital units exempt from the PPS, such as qualified
psychiatric facilities and physical rehabilitation hospitals, are reimbursed by
Medicare on a cost-based system wherein target rates for each facility are used
in applying various limitations and incentives. Tenet's exempt facilities
received a Market Basket increase of 3.7% in target rates effective for cost
reporting periods commencing in Federal fiscal year 1995. Based on OBRA '93, the
target rates for Tenet's hospitals exempt from the PPS are scheduled to be
adjusted in cost reporting years 1995, 1996 and 1997 by the applicable annual
Market Basket percentage change minus 1%. Proposals have been made that would
change the method of payment for services
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provided at these facilities to a prospective payment system. OBRA '90 requires
the HHS to develop a proposal to modify the current target rate system or to
replace it with a prospective payment system. It is not known if any such
proposals will be implemented.
OBRA '93 provided for certain budget targets for the next four years which,
if not met, may result in adjustments in payment rates. Both Congress and the
current Administration have proposed healthcare budgets which reduce Federal
payments to hospitals and other providers. The Company anticipates that payments
to hospitals will be reduced as a result of future legislation but is unable to
predict what the amount of the final reduction will be.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payments to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made for such adjustments.
Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than
ultimately required.
HEALTHCARE REFORM, REGULATION AND LICENSING
CERTAIN BACKGROUND INFORMATION. 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.
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. 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.
Tennessee has implemented a revision to its Medicaid program that covers its
Medicaid and uninsured population through a managed care program. California has
created a voluntary health insurance purchasing cooperative that seeks to make
healthcare coverage more affordable for businesses with five to 50 employees
and, effective January 1, 1995, began changing the payment system for
participants in its Medicaid program in certain counties from fee-for-service
arrangements to managed care plans. Florida has enacted a program creating a
system of local purchasing cooperatives and has proposed other changes that have
not yet been enacted. Louisiana and Texas are considering wider use of managed
care for their Medicaid populations. These proposals also may attempt to include
coverage for some people who presently are uninsured. A number of other states
are considering the enactment of managed care initiatives designed to provide
universal low-cost coverage. Florida has adopted, and other states are
considering adopting, legislation imposing a tax on revenues of hospitals to
help finance or expand those states' Medicaid systems.
CERTIFICATE OF NEED REQUIREMENTS. Some states require state approval for
construction and expansion of healthcare facilities, including findings of need
for additional or expanded healthcare facilities or services. 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
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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.
ANTIFRAUD AND SELF-REFERRAL REGULATIONS. 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, 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 HHS has issued regulations that describe Safe Harbors. Tenet believes
its business arrangements comply in all material respects with applicable law
and substantially 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 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. The Company
systematically reviews all of its operations to ensure that it complies with the
Social Security Act and similar state statutes.
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.
ENVIRONMENTAL REGULATIONS. The Company's healthcare operations generate
medical waste that must be disposed of in compliance with Federal, state and
local environmental laws, rules and regulations. The Company's operations are
also subject to compliance with various other environmental laws, rules and
regulations. Such compliance does not, and the Company anticipates that such
compliance will not, materially affect the Company's capital expenditures,
earnings or competitive position.
HEALTHCARE FACILITY LICENSING REQUIREMENTS. Tenet's healthcare facilities
are subject to extensive Federal, state and local legislation and regulation. In
order to maintain their operating licenses, healthcare facilities must comply
with strict standards concerning medical care, equipment and hygiene. Various
licenses and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment. Tenet's
healthcare facilities hold all required governmental approvals, licenses and
permits. With the exception of one general hospital that has not sought to be
accredited, each of Tenet's facilities that is eligible for accreditation is
fully accredited by the JCAHO, the Commission on Accreditation of Rehabilitation
Facilities (in the case of the Campus Rehabilitation Hospitals) or another
appropriate accreditation agency, which accreditation generally is required for
participation in government-sponsored provider programs.
Tenet's healthcare facilities are subject to and comply with various forms
of utilization review. In addition, under the Medicare PPS, each state must have
a PRO to carry out a federally mandated system of review of Medicare patient
admissions, treatments and discharges in general hospitals. Medical and surgical
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services and practices are extensively supervised by committees of staff doctors
at each healthcare facility, are overseen by each healthcare facility's local
governing board, comprised of healthcare professionals, community members and
hospital representatives, and are reviewed by Tenet's quality assurance
personnel. The local governing boards also help maintain standards for quality
care, develop long-range plans, establish, review and enforce practices and
procedures and approve the credentials and disciplining of medical staff
members.
COMPLIANCE PROGRAM
As previously reported in the Company's Annual Reports on Form 10-K for the
fiscal years ended May 31, 1993 and 1994, various government agencies have
conducted investigations concerning whether Tenet and certain of its
subsidiaries engaged in improper practices. As a result of negotiations between
the Company and the Civil and Criminal Divisions of the DOJ and HHS the Company
entered into various agreements on June 29, 1994, which brought to a close all
open investigations of the Company, its subsidiaries and its facilities as they
existed on June 29, 1994 by the federal government and its agencies. As a result
of those agreements, on July 12, 1994, the United States District Court for the
District of Columbia accepted a plea by a subsidiary operating the Company's
psychiatric hospitals, to an information charging a six-count violation of 42
U.S.C. Section1320-7(b)(2)(A) (paying remuneration to induce referrals) and a
one-count violation of 18 U.S.C. Section371 (conspiracy to make such payments).
In addition, the Company agreed to pay $362,700,000 to the federal government.
The court also accepted a plea agreement pursuant to which another subsidiary
pled guilty to an information charging a one-count violation of 18 U.S.C.
Section666 (making illegal payments concerning programs receiving federal
funds), which related to a single general hospital. The count relates to
activities that occurred while an individual convicted of defrauding the
hospital was its chief executive. On July 12, 1994, the Company, without
admitting or denying liability, consented to the entry, by the United States
District Court for the District of Columbia, of a civil injunctive order in
response to a complaint by the Securities and Exchange Commission. The complaint
alleged that the Company failed to comply with anti-fraud and recordkeeping
requirements of the federal securities laws concerning the manner in which the
Company recorded the revenues from the activities that were the subject of the
federal government settlement referred to above. In the order, the Company is
directed to comply with such requirements of the federal securities laws. In
May, 1994, the Company also agreed with 27 states and the District of Columbia
to pay an additional $16.3 million to settle potential claims arising from
matters involved in the federal investigations. The 27 states and the District
of Columbia are all of the areas in which the Company's subsidiaries operated
psychiatric facilities.
One component of the Company's settlement with Federal agencies is the
adoption of a corporate compliance program under which the Company has agreed,
among other things, to: complete the disposition of its psychiatric division
facilities (with the exception of the four campus psychiatric facilities owned
by the Company prior to the Merger), no later than November 30, 1995, not own or
operate other psychiatric facilities (defined for the purposes of the agreement
to include residential treatment centers and substance abuse facilities) for
five years from the date of completion of the disposition of its psychiatric
division facilities and divest any psychiatric facilities acquired incidental to
a corporate transaction within 180 days of such acquisition. In addition, the
Company has agreed to implement certain oversight procedures and to continue its
ethics training program and ethics telephone hotline. Should the oversight
procedures or hotline reveal, after investigation by the Company, credible
evidence of violations of criminal, or potential 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.
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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"). 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 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 the "Company"
refers to Tenet Healthcare Corporation and not to any of its Subsidiaries or
International Subsidiaries, and the term "Subsidiaries" excludes the
International Subsidiaries (as defined herein).
The Notes will be general unsecured obligations of the Company ranking
senior to all subordinated Indebtedness of the Company, and pari passu in right
of payment with all other existing and future Indebtedness of the Company.
Borrowings under the Credit Agreement are secured by a first priority Lien on
the Capital Stock of the Company's present and future direct Subsidiaries (other
than certain Subsidiaries that do not have material assets), all intercompany
Indebtedness owed to the Company and one of the Company's Subsidiary's equity
investment in Westminster and will have priority as to such collateral over the
Notes. The intercompany Indebtedness owed to the Company by the Company's
Subsidiaries was approximately $1.1 billion at May 31, 1995. Approximately $900
million in principal amount of outstanding indebtedness of Tenet will by its
terms be subordinated to the Notes. On a pro forma basis, as of May 31, 1995,
Senior Debt of the Company would have been approximately $2.7 billion, of which
approximately $2.0 billion would have been secured indebtedness of Tenet. 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 May 31, 1995, the
outstanding Indebtedness and other obligations of the Company's Subsidiaries was
approximately $1.5 billion, excluding trade payables of $303.4 million at May
31, 1995, and intercompany Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be unsecured senior obligations of the Company limited in
aggregate principal amount to $300.0 million and will mature on December 1,
2003. 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
June 1 and December 1 of each year, commencing on December 1, 1995, to Holders
of record on the immediately preceding May 15 and November 15, 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
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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.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the option of the Company prior to their
maturity.
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
CHANGE OF CONTROL
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 Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% 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, 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 Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control 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.
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ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or
the Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (as conclusively determined
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) except in the case of a sale of Specified Assets,
at least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; PROVIDED that for purposes of this provision,
(x) the amount of (A) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto), of the Company
or any Subsidiary (other than, in the case of an Asset Sale by the Company,
liabilities that are by their terms subordinated to the Notes) that are assumed
by the transferee of any such assets and (B) any securities or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into cash (or as to
which the Company or such Subsidiary has received at or prior to the
consummation of the Asset Sale a commitment (which may be subject to customary
conditions) from a nationally recognized investment, merchant or commercial bank
to convert into cash within 90 days of the consummation of such Asset Sale and
which are thereafter actually converted into cash within such 90-day period)
will be deemed to be cash (but shall not be deemed to be Net Proceeds for
purposes of the following provisions until reduced to cash); and (y) the fair
market value of any Non-Cash Consideration received by the Company or a
Subsidiary in any Asset Sale shall be deemed to be cash (but shall not be deemed
to be Net Proceeds for purposes of the following provisions until reduced to
cash) to the extent that the aggregate fair market value (as conclusively
determined by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at
the time received and without giving effect to any subsequent changes in value)
held by the Company immediately after consummation of such Asset Sale does not
exceed 10% of the Company's Stockholders' Equity as of the date of such
consummation.
Pursuant to the Indenture, within 365 days after the receipt of any Net
Proceeds from an Asset Sale, the Company may apply such Net Proceeds (w) to
purchase one or more Hospitals or Related Businesses and/or a controlling
interest in the Capital Stock of a Person owning one or more Hospitals and/or
one or more Related Businesses, (x) to make a capital expenditure or to acquire
other tangible assets, in each case, that are used or useful in any business in
which the Company is permitted to be engaged pursuant to the covenant described
below under the caption "--Certain Covenants--Line of Business," (y) to
permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary or
(z) to permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto), except that up to an aggregate of $200.0
million of Net Proceeds from Asset Sales may be applied after the date of the
Indenture to reduce Senior Revolving Debt without a corresponding reduction in
commitments with respect thereto. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million,
the Company will be required to make an offer to all Holders of Notes and
holders of any other Indebtedness of the Company ranking on a parity with the
Notes from time to time outstanding with similar provisions requiring the
Company to make an offer to purchase or to redeem such Indebtedness with the
proceeds from any asset sales, PRO RATA in proportion to the respective
principal amounts of Notes and such other Indebtedness then outstanding (a
"Senior Asset Sale Offer") to purchase the maximum principal amount of the Notes
and such other Indebtedness that may be purchased out of the Excess Proceeds, at
an offer price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase, in accordance with
the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes and such other Indebtedness tendered pursuant to a Senior Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Notes and such other Indebtedness surrendered by holders
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thereof exceeds the amount of Excess Proceeds, the Notes and such other
Indebtedness will be purchased on a PRO RATA basis. Upon completion of a Senior
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (other than (w) Physician Joint Venture
Distributions, (x) dividends or distributions payable in Qualified Equity
Interests of the Company, (y) dividends or distributions payable to the Company
or any Subsidiary of the Company, and (z) dividends or distributions by any
Subsidiary of the Company payable to all holders of a class of Equity Interests
of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes issued under
such Indenture, except at the original final maturity date thereof or pursuant
to the Refinancing; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment (the amount of any such Restricted Payment, if
other than cash, shall be the fair market value (as conclusively evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee within 60 days prior to the date of such Restricted
Payment) of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the most recently ended four full fiscal quarter
period for which internal financial statements are available immediately
preceding the date of such Restricted Payment, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant in the Indenture described below under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after March
1, 1995 (excluding Restricted Payments permitted by clauses (u), (v), (w)
and (x) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after March 1, 1995 to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), PLUS (ii) 100% of the aggregate net cash proceeds received by
the Company from the issue or sale (other than to a Subsidiary of the
Company) since March 1, 1995 of Qualified Equity Interests of the Company
or of debt securities of the Company or any of its Subsidiaries that have
been converted into or exchanged for such Qualified Equity Interests of
the Company, PLUS (iii) $20.0 million.
If no Default or Event of Default has occurred and is continuing, or would
occur as a consequence thereof, the foregoing provisions will not prohibit the
following Restricted Payments: (t) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (u) the
payment of cash dividends on any series of Disqualified Stock issued after the
date of the Indenture in an aggregate amount not to exceed the cash received by
the Company since the date of the Indenture upon issuance of such Disqualified
Stock; (v) the repurchase of the Performance Investment Plan investment options
from the holders thereof; (w) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company or any
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Subsidiary in exchange for, or out of the net cash proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Qualified Equity Interests of the Company; PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (x) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or in exchange for or out of the net cash
proceeds from the substantially concurrent sale (other than to a Subsidiary of
the Company) of Qualified Equity Interests of the Company; PROVIDED, that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (y) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; PROVIDED that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $5.0 million in any twelve-month period; and (z) the making and
consummation of (A) an offer to purchase or redeem the Company's 10 1/8% Senior
Subordinated Notes due 2005 (the "Senior Subordinated Notes") in accordance with
the provisions of the Senior Subordinated Notes indenture with any Excess
Proceeds that remain after consummation of a Senior Asset Sale Offer, within 120
days of the consummation of such Senior Asset Sale Offer, or (B) a Change of
Control Offer with respect to the Senior Subordinated Notes in accordance with
the provisions of the Senior Subordinated Notes indenture.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") after the
date of the Indenture any Indebtedness (including Acquired Debt) and that the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the
Company may incur Indebtedness (including Acquired Debt) and the Company may
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least (x) 2.25 to 1 if such incurrence or issuance occurs on or
before March 31, 1996, or (y) 2.5 to 1 if such incurrence or issuance occurs at
any time thereafter, in each case determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period. Indebtedness
consisting of reimbursement obligations in respect of a letter of credit will be
deemed to be incurred when the letter of credit is first issued. The Company
will not permit any of the International Subsidiaries to incur any Indebtedness
other than Non-Recourse Debt.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Senior Term Debt pursuant to the
Credit Agreement in an aggregate principal amount at any time outstanding
not to exceed an amount equal to $1.8 billion less the aggregate amount of
all repayments, optional or mandatory, of the principal of any Senior Term
Debt (other than repayments that are immediately reborrowed) that have been
made since March 1, 1995;
(ii) the incurrence by the Company of Senior Revolving Debt and letters
of credit pursuant to the Credit Agreement in an aggregate principal amount
at any time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential reimbursement obligation of
the Company with respect thereto) not to exceed an amount equal to $500.0
million less the aggregate
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amount of all Net Proceeds of Asset Sales applied to permanently reduce the
commitments with respect to such Indebtedness pursuant to the covenant
described above under the caption "--Asset Sales" after March 1, 1995;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred (including,
without limitation, Existing Indebtedness);
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(vii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate or currency risk
with respect to any fixed or floating rate Indebtedness that is permitted by
the Indenture to be outstanding or any receivable or liability the payment
of which is determined by reference to a foreign currency; PROVIDED that the
notional principal amount of any such Hedging Obligation does not exceed the
principal amount of the Indebtedness to which such Hedging Obligation
relates;
(viii) the incurrence by the Company or any of its Subsidiaries of
Physician Support Obligations;
(ix) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by performance bonds, standby letters of credit or
appeal bonds, in each case to the extent incurred in the ordinary course of
business of the Company or such Subsidiary;
(x) the incurrence by any Subsidiary of the Company of Indebtedness, the
aggregate principal amount of which, together with all other Indebtedness of
the Company's Subsidiaries at the time outstanding (excluding the Existing
Indebtedness until repaid or refinanced and excluding Physician Support
Obligations), does not exceed the greater of (1) 10% of the Company's
Stockholders' Equity as of the date of incurrence or (2) $10.0 million;
PROVIDED that, in the case of clause (1) only, the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date on which such Indebtedness is incurred would have been at least (x)
2.25 to 1 if such incurrence occurs on or before March 31, 1996, or (y) 2.5
to 1 if such incurrence occurs at any time thereafter, in each case
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if such Indebtedness had been incurred at the
beginning of such four-quarter period; and
(xi) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any time outstanding not to exceed $250.0
million.
LIENS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (except Permitted Liens) on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom unless all payments due under the Indenture
and the Notes are secured on an equal and ratable basis with the Obligations so
secured until such time as such Obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any
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other interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Indenture, (c)
applicable law, (d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition or in violation of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of the Indenture
except to the extent that such Consolidated Cash Flow would be permitted to be
dividends to the Company without the prior consent or approval of any third
party, (e) customary non-assignment provisions in leases entered into in the
ordinary course of business, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, or (h) the Credit Agreement and related documentation as the
same is in effect on the date of the Indenture and as amended or replaced from
time to time, provided that no such amendment or replacement is more restrictive
as to the matters enumerated above than the Credit Agreement and related
documentation as in effect on the date of the Indenture.
LINE OF BUSINESS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, engage to any material extent in any business other
than the ownership, operation and management of Hospitals and Related
Businesses.
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,
conveyance or other disposition shall have been made (A) 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 and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant in the Indenture described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make any contract, agreement, understanding, loan, advance or Guarantee
with, or for
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the benefit of, any Affiliate (each of the foregoing, an "--Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that could
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $15.0 million, an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; PROVIDED that (x)
transactions or payments pursuant to any employment arrangements or employee or
director benefit plans entered into by the Company or any of its Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Subsidiary, (y) transactions between or among the Company and/or
its Subsidiaries and (z) transactions permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments," in each
case, shall not be deemed to be Affiliate Transactions.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES
The Indenture will provide that the Company will not permit any Subsidiary,
directly or indirectly, to Guarantee or secure the payment of any other
Indebtedness of the Company or any of its Subsidiaries (except Indebtedness of a
Subsidiary of such Subsidiary or Physician Support Obligations) unless such
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for the Guarantee of the payment of the Notes by such
Subsidiary, which Guarantee shall be senior to or PARI PASSU with such
Subsidiary's Guarantee of or pledge to secure such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon the sale or other disposition, by way of merger or
otherwise, to any Person not an Affiliate of the Company, of all of the
Company's stock in, or all or substantially all the assets of, such Subsidiary,
which sale or other disposition is made in compliance with, and the Net Proceeds
therefrom are applied in accordance with, the applicable provisions of the
Indenture. The form of such supplemental Indenture will be attached as an
exhibit to the Indenture. The foregoing provisions will not be applicable to any
one or more Guarantees of up to $10.0 million in aggregate principal amount of
Indebtedness of the Company at any time outstanding.
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 thereon by the Company's certified independent 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.
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 captions "--Change of Control," "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (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
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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; and (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries.
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 consequences
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.
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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such outstanding Notes
on the stated maturity; (ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such outstanding Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States confirming that the Holders of such outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound (other than a breach, violation or default resulting from
the borrowing of funds to be applied to such deposit); (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of such Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been complied
with.
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 it 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) waive a Default
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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), (v) make
any Note payable in money other than that stated in the Notes, (vi) 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, (vii) 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 any
supplemental indenture described above under the caption "--Limitation on
Issuances of Guarantees of Indebtedness by Subsidiaries," 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.
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 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 below 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.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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.
"AMI" means American Medical International, Inc., a Delaware corporation.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than in the ordinary course of business consistent with past practices (PROVIDED
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"-- Change of Control" and/or the provisions described above under the caption
"-- Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (ii) the issuance or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $25.0
million or (b) for net proceeds in excess of $25.0 million. Notwithstanding the
foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a
Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity
Interests by a Subsidiary to the Company or to another Subsidiary, (c) a
Restricted Payment that is permitted by the covenant described above under the
caption "--Restricted Payments" and (d) a Hospital Swap will not be deemed to be
an Asset Sale.
"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, participations, 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.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period PLUS (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), PLUS (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent such
provision for taxes was included in computing such Consolidated Net Income, PLUS
(iii) the Fixed Charges of such Person and its Subsidiaries for such period, to
the extent that such Fixed Charges were deducted in computing such Consolidated
Net Income, plus (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) of such Person and its Subsidiaries
for such period to the extent that such depreciation and amortization were
deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary
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without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
refinancing of the Tenet and AMH Indebtedness in connection with the Merger;
PROVIDED that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"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 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 Agreement" means that certain Credit Agreement, dated as of February
28, 1995, by and among the Company and Morgan Guaranty Trust Company of New
York, Bank of America N.T. & S.A., The Bank of New York, N.A., Bankers Trust
Company, N.A. and the other banks that are parties 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 as of August 31, 1995, and as
further amended, modified, extended, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"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.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid, including all
reimbursement obligations with respect to letters of credit outstanding as of
the date of the Indenture (other than letters of credit issued pursuant to the
Credit Agreement).
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, and (ii) the Consolidated Cash Flow and
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"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.
"Hospital" means a hospital, outpatient clinic, long-term care facility or
other facility that is used or useful in the provision of healthcare services.
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"Hospital Swap" means an exchange of assets by the Company or a Subsidiary
of the Company for one or more Hospitals and/or one or more Related Businesses
or for the Capital Stock of any Person owning one or more Hospitals and/or one
or more Related Businesses.
"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.
"International Subsidiaries" means International-NME, Inc., NME (Australia)
Pty. Limited and each of such Person's respective Subsidiaries.
"Investment Grade" means a rating of BBB- or higher by S&P or Baa3 or higher
by Moody's or the equivalent of such ratings by S&P or Moody's. In the event
that the Company shall select any other Rating Agency, the equivalent of such
ratings by such Rating Agency shall be used.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; PROVIDED that an acquisition of assets, Equity
Interests or other securities by the Company for consideration consisting of
common equity securities of the Company shall not be deemed to be an Investment.
"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).
"Moody's" means Moody's Investors Services, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
Permitted Non-Cash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any other
expenses incurred or to be incurred by the Company or a Subsidiary as a direct
result of the sale of such assets (including, without limitation, severance,
relocation, lease termination and other similar expenses), taxes actually paid
or payable as a result thereof, amounts required to be
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applied to the repayment of Indebtedness (other than Senior Term Debt or Senior
Revolving Debt) secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"Non-Cash Consideration" means any non-cash consideration received by the
Company or a Subsidiary of the Company in connection with an Asset Sale and any
non-cash consideration received by the Company or any of its Subsidiaries upon
disposition thereof.
"Non-Recourse Debt" means Indebtedness of an International Subsidiary (i) as
to which neither the Company nor any of its Subsidiaries (other than the
International Subsidiaries) (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness of
the Company or any of its Subsidiaries), or (b) is directly or indirectly liable
(as a guarantor or otherwise) and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an International Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Subsidiaries (other than the International Subsidiaries) to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity (except any such provisions set forth in
Existing Indebtedness until the same is repaid or refinanced).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Payment Default" means 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.
"Permitted Collateral" means, collectively, (i) all Capital Stock and other
Equity Interests of the Company's present and future direct Subsidiaries, (ii)
all intercompany Indebtedness owed to the Company, and (iii) all Capital Stock
and other Equity Interests in Westminster owned by the Company or its
Subsidiaries.
"Permitted Liens" means (i) Liens on Permitted Collateral securing Senior
Term Debt of the Company under the Credit Agreement in an aggregate principal
amount at any time outstanding not to exceed an amount equal to $1.8 billion
less the aggregate amount of all repayments, optional or mandatory, of the
principal of any Senior Term Debt (other than repayments that are immediately
reborrowed) that have been made since March 1, 1995; (ii) Liens on Permitted
Collateral securing Senior Revolving Debt and letters of credit of the Company
incurred pursuant to the Credit Agreement in an aggregate principal amount at
any time outstanding (with letters of credit being deemed to have a principal
amount equal to the maximum potential reimbursement obligation of the Company
with respect thereto) not to exceed an amount equal to $500.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce commitments with respect to such Indebtedness pursuant to the covenant
described above under the caption "--Certain Covenants--Asset Sales" since March
1, 1995; (iii) Liens in favor of the Company; (iv) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Subsidiary of the Company or becomes a Subsidiary of the Company;
PROVIDED that such Liens were in existence prior to the contemplation of such
merger, consolidation or acquisition and do not extend to any assets other than
those of the Person merged into or consolidated with the Company or that becomes
a Subsidiary of the Company; (v) Liens on property existing at the time of
acquisition thereof by the Company or any Subsidiary of the Company, PROVIDED
that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens existing on the date of
the Indenture, including, without limitation, Liens on Permitted Collateral
securing reimbursement obligations under the Metrocrest Letter of Credit
Facility (as defined below); (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) other Liens
on assets of the Company or any Subsidiary of the Company
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securing Indebtedness that is permitted by the terms of the Indenture to be
outstanding having an aggregate principal amount at any one time outstanding not
to exceed 10% of the Stockholders' Equity of the Company; and (x) Liens to
secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness
that was secured by a Lien permitted under the Indenture and that was incurred
in accordance with the provisions of the Indenture; provided that such Liens do
not extend to or cover any property or assets of the Company or any Subsidiary
other than assets or property securing the Indebtedness so refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used solely to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries; PROVIDED that, except in
the case of Indebtedness of the Company issued in exchange for, or the net
proceeds of which are used solely to extend, refinance, renew, replace, defease
or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount
of such Permitted Refinancing Indebtedness does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of any premiums paid and reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Physician Joint Venture Distributions" means distributions made by the
Company or any of its Subsidiaries to any physician, pharmacist or other allied
healthcare professional in connection with the unwinding, liquidation or other
termination of any joint venture or similar arrangement between any such Person
and the Company or any of its Subsidiaries.
"Physician Support Obligations" means any obligation or Guarantee incurred
in the ordinary course of business by the Company or a Subsidiary of the Company
in connection with any advance, loan or payment to, or on behalf of or for the
benefit of any physician, pharmacist or other allied healthcare professional for
the purpose of recruiting, redirecting or retaining the physician, pharmacist or
other allied healthcare professional to provide service to patients in the
service area of any Hospital or Related Business owned or operated by the
Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for
services provided by physicians, pharmacists or other allied healthcare
professionals to any Hospital or Related Business owned or operated by the
Company or any of its Subsidiaries.
"Qualified Equity Interests" shall mean all Equity Interests of the Company
other than Disqualified Stock of the Company.
"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 a rating from BB+ to BB, as well as
from BB- to B+, will constitute a decrease of one gradation).
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"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).
"Related Business" means a healthcare business affiliated or associated with
a Hospital or any business related or ancillary to the provision of healthcare
services or the operation of a Hospital.
"Restricted Investment" means an Investment in any of the International
Subsidiaries.
"Senior Revolving Debt" means revolving credit loans outstanding from time
to time under the Credit Agreement.
"Senior Term Debt" means term loans outstanding from time to time under the
Credit Agreement.
"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 Act, as such Regulation is in effect on the date of the
Indenture.
"S&P" means Standard & Poor's Corporation and its successors.
"Specified Assets" means the Company's and its Subsidiaries' interest in The
Hillhaven Corporation and Westminster Healthcare Holdings PLC owned as of the
date of the Indenture and the Capital Stock and assets of the International
Subsidiaries.
"Stockholders' Equity" means, with respect to any Person as of any date, the
stockholders' equity of such Person determined in accordance with GAAP as of the
date of the most recent available internal financial statements of such Person,
and calculated on a pro forma basis to give effect to any acquisition or
disposition by such Person consummated or to be consummated since the date of
such financial statements and on or prior to the date of such calculation.
"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 of the 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 (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof); PROVIDED that no
International Subsidiary shall be deemed to be a "Subsidiary" for any purpose
under the Indenture for so long as such International Subsidiary: (a) has no
Indebtedness other than Existing Indebtedness and Non-Recourse Debt; (b) is not
a party to any agreement, contract, arrangement or understanding with the
Company or any of its other Subsidiaries (other than International Subsidiaries)
except any such agreement, contract, arrangement or understanding that (i) was
in effect on the date of the Indenture, or (ii) meets the requirements of the
covenant described above under the caption "--Certain Covenants--Transactions
with Affiliates"; (c) is a Person with respect to which neither the Company nor
any of its Subsidiaries (other than International Subsidiaries) has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified level of operating results except, in each case,
any such obligation in existence on the date of the Indenture or created
pursuant to the terms of any Investment permitted by the covenant described
above
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under the caption "--Certain Covenants--Restricted Payments"; and (d) has not
Guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Subsidiaries (other than International
Subsidiaries). If, at any time, any International Subsidiary would fail to meet
the foregoing requirements, it shall thereafter be deemed to be a Subsidiary for
all purposes of the Indenture and any Indebtedness of such International
Subsidiary shall be deemed to be incurred by a Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described above under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant).
"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.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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 expiring in 2001 consisting
of (i) the six and a half year amortizing 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, 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
Company's obligations under the Credit Agreement and the Metrocrest Letter of
Credit Facility will rank PARI PASSU with the Notes.
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) and one of the Company's subsidiary's equity investment
in Westminster.
60
<PAGE>
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.
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.
61
<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"), J.P. Morgan Securities Inc. ("J.P.
Morgan"), Merrill Lynch, Pierce, Fenner and Smith Incorporated ("Merrill Lynch")
and Morgan Stanley & Co. Incorporated ("Morgan Stanley" and, together with DLJ,
J.P. Morgan and Merrill Lynch, 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, the respective principal amounts 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........................... $
J.P. Morgan Securities Inc....................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................
Morgan Stanley & Co. Incorporated.............................................
--------------
$ 300,000,000
--------------
--------------
</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 Notes have been approved for listing on the NYSE, subject to official
notice of issuance. 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. In August 1994, DLJ Merchant Banking Partners,
L.P. and certain of its affiliates, each an affiliate of DLJ, acquired
approximately 62.2% of TRC from Tenet and DLJ was paid a customary financial
advisory fee for services rendered to TRC in connection with such acquisition.
DLJ subsequently managed a public debt offering for TRC for which it received
customary fees. DLJ acted as financial advisor to the Company in connection with
the Merger and the related transactions. DLJ has also acted as financial advisor
to the Company with respect to its investment in Hillhaven, for which it will
receive usual and customary fees.
Merrill Lynch has provided and currently is providing certain financial
advisory services to the Company for which it has received and is entitled to
receive usual and customary fees. From time to time in the ordinary course of
their respective businesses, affiliates of J.P. Morgan have engaged any may in
the future engage in commercial banking and investment banking transactions with
the Company, and currently are
62
<PAGE>
providing certain financial advisory services to the Company for which they are
entitled to receive usual and customary fees. Morgan Guaranty, an affiliate of
J.P. Morgan, was an Arranging Agent and lender under the Credit Agreement, for
which it received usual and customary fees.
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 included and incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, included and
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.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
Financial Statements:
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of May 31, 1995 and 1994.................................................. F-3
Consolidated Statements of Operations for the years ended May 31, 1995, 1994 and 1993.................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended May 31, 1995, 1994 and
1993.................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended May 31, 1995, 1994 and 1993.................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Tenet Healthcare Corporation:
We have audited the accompanying 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. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tenet
Healthcare Corporation and subsidiaries as of May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective June 1, 1993.
KPMG PEAT MARWICK LLP
Los Angeles, California
July 25, 1995
F-2
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
--------------------
1995 1994
--------- ---------
(DOLLAR AMOUNTS ARE
EXPRESSED IN
MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 155 $ 313
Short-term investments in debt securities................................................. 139 60
Accounts and notes receivable, less allowance for doubtful accounts
($184 in 1995 and $77 in 1994)........................................................... 565 385
Inventories of supplies, at cost.......................................................... 116 55
Deferred income taxes..................................................................... 410 372
Assets held for sale...................................................................... 184 204
Prepaid expenses and other current assets................................................. 55 55
--------- ---------
Total current assets.................................................................... 1,624 1,444
--------- ---------
Investments and other assets................................................................ 362 382
Property, plant and equipment, net.......................................................... 3,319 1,764
Costs in excess of net assets acquired, less accumulated amortization
($21 in 1995 and $11 in 1994).............................................................. 2,511 61
Other intangible assets, at cost, less accumulated amortization
($37 in 1995 and $43 in 1994).............................................................. 102 46
--------- ---------
$ 7,918 $ 3,697
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................................... $ 252 $ 545
Short-term borrowings and notes........................................................... 35 67
Accounts payable.......................................................................... 359 176
Employee compensation and benefits........................................................ 162 93
Reserves related to discontinued operations............................................... 77 465
Income taxes payable...................................................................... 2 58
Other current liabilities................................................................. 469 236
--------- ---------
Total current liabilities............................................................... 1,356 1,640
--------- ---------
Long-term debt, net of current portion...................................................... 3,273 223
Other long-term liabilities and minority interests.......................................... 1,002 389
Deferred income taxes....................................................................... 301 125
Commitments and contingencies
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares; 218,713,406 shares issued
at May 31, 1995, and 185,587,666 shares at May 31, 1994.................................. 16 14
Additional paid-in capital................................................................ 1,502 1,013
Retained earnings......................................................................... 740 575
Less common stock in treasury, at cost, 18,775,274 shares at May 31, 1995, and 19,507,161
at May 31, 1994.......................................................................... (272) (282)
--------- ---------
Total shareholders' equity.............................................................. 1,986 1,320
--------- ---------
$ 7,918 $ 3,697
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(DOLLAR AMOUNTS, EXCEPT PER
SHARE AMOUNTS, ARE EXPRESSED IN
MILLIONS)
<S> <C> <C> <C>
Net operating revenues................................................... $ 3,318 $ 2,943 $ 3,178
Operating expenses:
Salaries and benefits.................................................. (1,367) (1,293) (1,465)
Supplies............................................................... (432) (339) (349)
Provision for doubtful accounts........................................ (137) (107) (115)
Other operating expenses............................................... (759) (667) (689)
Depreciation........................................................... (164) (143) (141)
Amortization........................................................... (31) (18) (19)
Restructuring charges.................................................. (37) (77) (52)
--------- --------- ---------
Operating income......................................................... 391 299 348
--------- --------- ---------
Interest expense, net of capitalized portion............................. (138) (70) (75)
Investment earnings...................................................... 27 28 21
Equity in earnings of unconsolidated affiliates.......................... 28 23 13
Minority interests in income of consolidated subsidiaries................ (9) (8) (10)
Net gain (loss) on disposals of facilities and long-term investments..... (2) 88 93
Gains on sales of subsidiaries' common stock............................. 32 0 29
--------- --------- ---------
Income from continuing operations before income taxes.................... 329 360 419
Taxes on income.......................................................... (135) (144) (155)
--------- --------- ---------
Income from continuing operations........................................ 194 216 264
Discontinued operations.................................................. (9) (701) (104)
Extraordinary charge from early extinguishment of debt................... (20) 0 0
Cumulative effect of a change in accounting principle.................... 0 60 0
--------- --------- ---------
Net income (loss)........................................................ $ 165 $ (425) $ 160
--------- --------- ---------
--------- --------- ---------
PER-SHARE DATA
Earnings (loss) per share:
Primary:
Continuing operations................................................ $ 1.10 $ 1.29 $ 1.59
Discontinued operations.............................................. (0.06) (4.19) (0.63)
Extraordinary charge................................................. (0.11) 0.00 0.00
Cumulative effect of a change in accounting principle................ 0.00 0.36 0.00
--------- --------- ---------
$ 0.93 $ (2.54) $ 0.96
--------- --------- ---------
--------- --------- ---------
Fully diluted:
Continuing operations................................................ $ 1.06 $ 1.23 $ 1.49
Discontinued operations.............................................. (0.05) (4.10) (0.58)
Extraordinary charge................................................. (0.10) 0.00 0.00
Cumulative effect of a change in accounting principle................ 0.00 0.33 0.00
--------- --------- ---------
$ 0.91 $ (2.54) $ 0.91
--------- --------- ---------
--------- --------- ---------
Weighted average shares and share equivalents outstanding -- primary (in
thousands).............................................................. 176,817 167,024 166,111
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING ISSUED PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS,
SHARE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES, MAY 31, 1992................................... 166,963 $ 14 $ 994 $ 939 $ (273)
Net income............................................. 160
Cash dividends ($0.48 per share)....................... (80)
Purchases of treasury stock............................ (1,034) (15)
Stock options exercised, net of tax benefits........... 36 1
Restricted share cancellations......................... (67) 11 1
----------- --- ----------- ----------- -----
BALANCES, MAY 31, 1993................................... 165,898 14 1,005 1,019 (286)
Net loss............................................... (425)
Cash dividends ($0.12 per share)....................... (19)
Stock options exercised, net of tax benefits........... 293 (1) 4
Restricted share cancellations......................... (110) 9
----------- --- ----------- ----------- -----
BALANCES, MAY 31, 1994................................... 166,081 14 1,013 575 (282)
Net income............................................. 165
Shares issued in connection with merger................ 33,156 2 486
Stock options exercised, net of tax benefits........... 705 (1) 10
Restricted share cancellations......................... (4) 4
----------- --- ----------- ----------- -----
BALANCES, MAY 31, 1995................................... 199,938 $ 16 $ 1,502 $ 740 $ (272)
----------- --- ----------- ----------- -----
----------- --- ----------- ----------- -----
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(DOLLAR AMOUNTS ARE EXPRESSED
IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $ 165 $ (425) $ 160
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 195 198 199
Deferred income taxes............................................... 95 (253) (32)
Gains on sales of facilities and long-term investments.............. (30) (88) (122)
Extraordinary charge from loss on early extinguishment of debt...... 20 0 0
Additions to reserves for discontinued operations and restructuring
charges............................................................ 51 1,175 189
Other items......................................................... (6) (22) 33
Increases (decreases) in cash from changes in operating assets and
liabilities, net of effects from purchases of new businesses:
Accounts and notes receivable, net.................................. (47) (65) 65
Inventories, prepaid expenses and other current assets.............. 1 (21) (43)
Accounts payable, accrued expenses and income taxes payable......... (28) (31) 21
Noncurrent accrued expenses and other liabilities................... 4 (2) 24
--------- --------- ---------
Net cash provided by operating activities, before expenditures for
discontinued operations and restructuring charges.................. 420 466 494
Net expenditures for discontinued operations and restructuring
charges............................................................ (427) (319) (96)
--------- --------- ---------
Net cash provided by (used in) operating activities................. (7) 147 398
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................ (264) (185) (319)
Purchases of new businesses, net of cash acquired..................... (1,429) (5) (3)
Proceeds from sales of facilities, investments and other assets....... 172 569 70
Other items........................................................... 8 7 (47)
--------- --------- ---------
Net cash provided by (used in) investing activities................. (1,513) 386 (299)
--------- --------- ---------
</TABLE>
(CONTINUED)
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(DOLLAR AMOUNTS ARE EXPRESSED
IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of borrowings................................................ $ (1,388) $ (217) $ (93)
Proceeds from borrowings.............................................. 2,997 31 131
Lines of credit....................................................... (255) (151) (10)
Cash dividends paid to shareholders................................... 0 (40) (78)
Purchases of treasury stock........................................... 0 0 (19)
Other items........................................................... 8 16 (3)
--------- --------- ---------
Net cash provided by (used in) financing activities................. 1,362 (361) (72)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................ (158) 172 27
Cash and cash equivalents at beginning of year...................... 313 141 114
--------- --------- ---------
Cash and cash equivalents at end of year............................ $ 155 $ 313 $ 141
--------- --------- ---------
--------- --------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURES:
The Company paid interest (net of amounts capitalized) of $113 million, $62
million and $87 million for the years ended May 31, 1995, 1994 and 1993,
respectively. Income taxes paid during the same years amounted to $45 million,
$30 million and $125 million, respectively. Notes received in connection with
the sales of facilities were $92 million in the year ended May 31, 1993.
The fair value of the assets acquired in connection with the AMH merger was
approximately $4.6 billion, including goodwill of approximately $2.5 billion.
Liabilities assumed were approximately $2.6 billion.
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tenet
Healthcare Corporation, previously known as National Medical Enterprises, Inc.
("NME") and its wholly owned and majority-owned subsidiaries (the "Company").
Significant investments in other affiliated companies are accounted for by the
equity method. Significant intercompany accounts and transactions are eliminated
in consolidation. The results of operations of American Medical Holdings, Inc.
and its subsidiaries ("AMH") are included in the accompanying consolidated
financial statements of the Company since the acquisition of AMH on March 1,
1995. (See Note 2.)
The consolidated statements of operations for the years ended May 31, 1994
and 1993 have been reclassified to make them comparable with the financial
presentation for the current period in which the Company's equity in earnings of
unconsolidated affiliates and the minority interests in income of consolidated
subsidiaries are shown as separate line items. These items had been included
previously in net operating revenues and in other operating expenses,
respectively.
B. NET OPERATING REVENUES
The Company owns and operates general hospitals and related healthcare
facilities in the United States and overseas. (See Note 18.) Its net operating
revenues consist primarily of net patient service revenues, which are based on
the hospitals' established billing rates less allowances and discounts
principally for patients covered by Medicare, Medicaid and other contractual
programs. These allowances and discounts were $3.4 billion, $2.7 billion and
$2.6 billion for the years ended May 31, 1995, 1994 and 1993, respectively.
Payments under these programs are based on either predetermined rates or the
costs of services. Settlements for retrospectively determined rates are
estimated in the period the related services are rendered and are adjusted in
future periods as final settlements are determined. Management believes that
adequate provision has been made for adjustments that may result from final
determination of amounts earned under these programs. These contractual
allowances and discounts are deducted from accounts receivable in the
accompanying consolidated balance sheets. Approximately 40% of fiscal 1995 and
1994 consolidated net operating revenues is from participation of the Company's
hospitals in Medicare and Medicaid programs. In 1993 it was approximately 37%.
The Company provides care to patients who meet certain financial or economic
criteria without charge or at amounts substantially less than its established
rates. Because the Company does not pursue collection of amounts determined to
qualify as charity care, they are not reported as gross revenue and are not
included in deductions from revenue or in operating and administrative expenses.
C. CASH EQUIVALENTS
The Company treats highly liquid investments with an original maturity of
three months or less as cash equivalents.
D. INVESTMENTS IN DEBT SECURITIES
On June 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under this new standard, investments are classified as
available-for-sale, held-to-maturity or as part of a trading portfolio. Debt
securities expected to be held to maturity as a result of management's intent
and ability to do so are carried at amortized cost. Debt securities for which
the Company does not have the intent or ability to hold to maturity are
classified as available-for-sale. Securities available for sale are carried at
fair value and their unrealized gains and losses, net of tax, are reported as an
adjustment to shareholders' equity. Realized gains or losses are included in net
income on the specific identification method. Gains and losses, both realized
and unrealized, were immaterial for all years presented.
F-8
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. PROPERTY, PLANT AND EQUIPMENT
The Company uses the straight-line method of depreciation for buildings,
improvements and equipment over their estimated useful lives as follows:
buildings and improvements--generally 25 to 50 years; equipment--3 to 15 years.
F. INTANGIBLE ASSETS
Preopening costs are amortized over one year. Deferred financing costs are
amortized over the lives of the related loans. The straight-line method is used
to amortize most intangible assets. Costs in excess of the fair value of the net
assets of purchased businesses (goodwill) generally are amortized over 40 years.
These latter costs are reviewed for impairment whenever events or changes in
circumstances indicate that they may not be recoverable. If such an event
occurred, the Company would prepare projections of future undiscounted cash
flows from related operations for the remaining amortization period. If such
projections indicated that the costs would not be recoverable, the carrying
value of such costs would be reduced by the estimated excess of such value over
projected discounted net cash flows.
G. LEASES
Capital leases are recorded at the beginning of the lease term as assets and
liabilities at the lower of the present value of the minimum lease payments or
the fair value of the assets, and such assets are amortized over the shorter of
the lease term or their useful life.
H. INTEREST RATE SWAP AGREEMENTS
The differentials to be paid or received under interest rate swap agreements
are accrued as the interest rates change and are recognized over the lives of
the agreements as adjustments to interest expense. (See Note 17.)
I. SALES OF COMMON STOCK OF SUBSIDIARIES
At the time a subsidiary sells existing or newly issued common stock to
unrelated parties at a price in excess of its book value, the Company's policy
is to record a gain reflecting its share of the change in the subsidiary's
shareholders' equity resulting from the sale. (See Note 15.)
J. TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. All balance sheet accounts have been translated at
fiscal year-end exchange rates. Income statement amounts have been translated at
the average exchange rate for the year. Translation gains or losses are recorded
as an adjustment to shareholders' equity, as cumulative translation adjustments,
until such time as the Company disposes of some or all of its foreign-
currency-denominated net assets, at which time any translation gain or loss
would be realized and credited or charged to earnings. Exchange gains and losses
on forward exchange contracts designated as hedges of foreign net investments
are also reported as an adjustment to shareholders' equity. Currency translation
adjustments, the effect of transaction gains and losses and exchange gains and
losses on forward exchange contracts are insignificant for all years presented
herewith. (See Notes 17 and 18.)
2. AMH MERGER
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired all the outstanding common stock of AMH for $1.5 billion in cash and
33,156,614 shares of the Company's common stock valued at $488.0 million. AMH,
through its wholly owned subsidiary, American Medical International, Inc. and
its subsidiaries ("AMI"), operates general hospitals and related healthcare
facilities in 13 states.
In connection with the merger, the Company repaid $1.2 billion of AMI debt
and $554.9 million of its own debt, including $222.0 million of loans under its
April 13, 1994 revolving credit agreement, $96.6 million of unsecured
medium-term notes, $93.0 million of 12 1/8% unsecured notes and $143.3 million
of secured
F-9
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. AMH MERGER (CONTINUED)
loans. The loss on the early extinguishment of this debt was $19.8 million,
which has been recorded as an extraordinary charge for the year ended May 31,
1995, net of income tax benefits of $12.1 million. The Company financed the
merger and debt-refinancing transactions through a new $2.3 billion credit
facility and the public issuance of $1.2 billion in debt securities.
The total purchase price has been allocated to the assets and liabilities of
AMH based on their estimated fair values. At May 31, 1995, the total purchase
price exceeded the fair value of the net assets acquired by approximately $2.5
billion. Deferred financing costs on the new debt were $52.0 million and are
being amortized to interest expense using the interest method over the
respective lives of the new credit facility and public debt securities, which
range from 6 1/2 to 10 years.
The following supplemental pro forma information is unaudited and assumes
that the merger combination occurred as of the beginning of each period
presented. The amounts reflect pro forma adjustments for interest on new and
refinanced debt, depreciation on revalued property, plant and equipment, and the
amortization of goodwill.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED MAY 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
Net operating revenues..................................................... $ 5,256.7 $ 5,324.9
Income from continuing operations before extraordinary charge.............. $ 220.1 $ 271.8
Income from continuing operations after extraordinary charge............... $ 200.3 $ 252.0
Fully diluted earnings per share from continuing operations before
extraordinary charge...................................................... $ 1.06 $ 1.30
</TABLE>
The supplemental pro forma information shown above does not purport to
present the results of operations of the Company 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. In
addition, such information does not reflect certain cost savings that management
believes may be realized following the merger.
3. DISCONTINUED OPERATIONS--PSYCHIATRIC HOSPITAL BUSINESS
At November 30, 1993, the Company decided to discontinue its psychiatric
hospital business and adopted a plan to dispose of its psychiatric hospitals and
substance abuse recovery facilities. The consolidated statements of operations
reflect the operating results of the discontinued business separately from
continuing operations. Except for an additional $16 million of estimated
litigation costs recorded in the fourth quarter of fiscal 1995 (less income tax
benefits of $7 million), operating results and gains or losses on disposals of
facilities for the discontinued business for periods subsequent to November 30,
1993, have been charged to a reserve for estimated losses during the phase-out
period.
Net operating revenues for the discontinued operations for fiscal 1994 and
1993 were $476 million and $571 million, respectively. Losses from operations
during the two years were $266 million and $160 million, respectively, before
income tax benefits of $111 million and $56 million. The Company recognized a
charge for estimated losses upon disposal amounting to $414 million, including
$379 million of costs to settle federal and state investigations and other
unusual legal costs related to the psychiatric hospital business in fiscal 1994,
along with $433 million of estimated operating losses during the phase-out
period, less tax benefits of $301 million. At May 31, 1995, substantially all of
the assets of the discontinued operations have been sold.
The reserves related to discontinued operations in the accompanying
consolidated balance sheet include $75.7 million for unusual litigation costs
and legal fees relating to matters that have not been resolved as of May 31,
1995. (See Note 8B.)
F-10
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
interest payable approximate fair value because of the short maturity of these
instruments. The carrying values of investments, both short-term and long-term
(excluding investments accounted for by the equity method), long-term
receivables and long-term debt are not materially different from the estimated
fair values of these instruments. The estimated fair values of interest rate
swap agreements and foreign currency contracts also are not material to the
Company's financial position.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Land........................................................................... $ 238 $ 173
Buildings and improvements..................................................... 2,593 1,388
Construction in progress....................................................... 97 59
Equipment...................................................................... 1,215 916
--------- ---------
4,143 2,536
Less accumulated depreciation and amortization................................. 824 772
--------- ---------
Net property, plant and equipment.............................................. $ 3,319 $ 1,764
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND LEASE OBLIGATIONS
A. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Secured loans payable to banks................................................... $ 1,731 $ 13
9 5/8% Senior Notes due 2002, $300 million face value, net of $6.6 million
unamortized discount............................................................ 293 --
10 1/8% Senior Subordinated Notes due 2005, $900 million face value, net of $23.3
million unamortized discount.................................................... 877 --
Convertible floating-rate debentures............................................. 219 219
Unsecured medium-term notes due through 1997..................................... 73 169
13 1/2% Senior Subordinated and 15% Junior Subordinated Notes due 2001 and 2005,
$38.3 million face value, plus $3.7 million unamortized premium................. 42 --
6 1/2% Swiss franc/dollar dual currency debentures due 1997 and 5% Swiss franc
bonds due 1996, $34.8 million face value, net of $0.4 million of unamortized
discount........................................................................ 34 --
Zero-coupon guaranteed bonds due 1997 and 2002, $130.7 million face value, net of
$35.0 million unamortized discount.............................................. 96 --
Notes secured by property, plant and equipment, weighted average interest rate of
approximately 9.6% in 1995 and 9.5% in 1994, payable in installments to 2009.... 104 28
12 1/8% unsecured notes due April 1995........................................... -- 93
Other secured loans payable...................................................... -- 143
Other notes, primarily unsecured, and capital lease obligations.................. 56 103
--------- ---------
3,525 768
Less current portion............................................................. 252 545
--------- ---------
$ 3,273 $ 223
--------- ---------
--------- ---------
</TABLE>
SECURED LOANS PAYABLE--In connection with the merger and refinancing
described in Note 2 above, a syndicate of banks entered into a new credit
facility with the Company consisting of (i) a 6 1/2-year amortizing term loan in
the aggregate principal amount of $1.8 billion and (ii) a 6 1/2-year $500.0
million revolving credit facility, including a letter-of-credit option not to
exceed $100.0 million. The Company's unused borrowing capacity under the new
credit facility was $326.0 million as of May 31, 1995.
Borrowings under the new credit facility are secured by a first-priority
lien on the capital stock of substantially all of the Company's first-tier
subsidiaries, all intercompany indebtedness owed to the Company and its
investment in Westminster Health Care Holdings PLC ("Westminster"). The lenders
have priority as to such collateral over the Company's other indebtedness,
including the new senior notes and senior subordinated notes described below.
The Company's obligations under the new credit facility rank PARI PASSU with the
senior notes and constitute senior debt with respect to the new senior
subordinated notes and any other subordinated debt of the Company.
Loans under the new credit facility bear interest at a base rate equal to
the prime rate announced by Morgan Guaranty Trust Company of New York or, if
higher, the federal funds rate plus 0.50%, plus an interest margin ranging from
zero to 50 basis points, or, at the option of the Company, a London interbank
offered rate ("LIBOR") for one-, two-, three- or six-month periods plus an
interest margin of from 50 to 150 basis points. The Company has agreed to pay to
the lenders a commitment fee on the unused loan
F-12
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
commitment at rates ranging from 18.75 basis points to 50 basis points annually.
The interest margins and loan commitment rates are based on the ratio 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 debt to EBITDA. The weighted average interest rate on loans under
the new credit facility from March 1, 1995 through May 31, 1995 was 7.6%.
The Company must make mandatory quarterly payments on the term loan in each
fiscal year in the following annual amounts (in millions), with the first
installment due on August 31, 1995: 1996 - $180; 1997 - $180; 1998 - $225; 1999
- -$315; 2000 - $360; 2001 - $405; and on August 31, 2002 - $135. Prepayments are
required from the proceeds of certain events, including the sale of certain
assets and a portion of the net after-tax proceeds of a sale, if any, of the
Company's investments in Hillhaven, Westminster or the Company's international
subsidiaries, and additional offerings of certain debt or equity securities. The
installment schedule above does not reflect the application to the August 31,
2002 installment of $115.0 million from the proceeds of the June 28, 1995 sale
of certain international subsidiary assets. (See Note 18.)
In April 1994 the Company entered into a $464.7 million revolving credit and
letter-of-credit agreement with several banks, pledging all of the capital stock
of a wholly owned subsidiary of the Company as security for any indebtedness
under the agreement. The agreement provided for revolving loans of up to $222.0
million, all of which were outstanding at May 31, 1994, and for letters of
credit of $242.7 million to support certain of the Company's obligations
relating to commercial paper and remarketable bond programs. All outstanding
revolving loans under this agreement matured on April 12, 1995 and were repaid
with the proceeds of the new credit facility described above. The weighted
average interest rate on these loans was 6.0% during fiscal 1995 and 5.1% during
fiscal 1994.
Also at May 31, 1994, the Company had $143.3 million of secured loans
outstanding that were used for project financings and were secured by liens on
real property or leasehold interests. These loans also matured and were repaid
on April 12, 1995 with the proceeds of the new credit facility. The weighted
average interest rate on these loans was 5.8% during fiscal 1995, 5.1% during
fiscal 1994 and 4.6% during fiscal 1993.
SENIOR NOTES AND SENIOR SUBORDINATED NOTES--Also in connection with the
merger and refinancing, the Company sold, on March 1, 1995, $300.0 million of
9 5/8% Senior Notes due September 1, 2002 and $900.0 million of 10 1/8% Senior
Subordinated Notes due March 1, 2005. The proceeds to the Company were $1.17
billion, after underwriting discounts and commissions. The senior notes are not
redeemable by the Company prior to maturity. The senior subordinated notes are
redeemable at the option of the Company, in whole or from time to time in part,
at any time after March 1, 2000, at redemption prices ranging from 105.063% in
2000 to 100% in 2003 and thereafter.
The senior notes are general unsecured obligations of the Company ranking
senior to all subordinated indebtedness of the Company, including the senior
subordinated notes, and PARI PASSU in right of payment with all other
indebtedness of the Company, including borrowings under the new credit facility
described above. The senior subordinated notes also are general unsecured
obligations of the Company subordinated in right of payment to all existing and
future senior debt, including the senior notes and borrowings under the new
credit facility.
CONVERTIBLE FLOATING-RATE DEBENTURES--The floating-rate debentures consist
of two components: $208 million of secured loans payable to banks and $11
million (5% of the $219 million debenture face amount) of generally
nontransferable performance investment options purchased by key employees of the
Company. Because the proceeds from the exercise of the investment options are
used by the Company to redeem debt underlying the debentures, these loans,
together with the outstanding balance of the investment
F-13
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
options, are classified as convertible floating-rate debentures. The weighted
average interest rate for the debentures was 6.4% during 1995, 4.8% during 1994
and 3.6% in 1993. The debentures are subject to mandatory redemption in April
1996 and after the occurrence of certain events.
The performance investment options permit the holder to purchase debentures
at 95% of their $105,264 face value. The debentures are convertible into
preferred stock, which, in turn, is convertible into common stock. At May 31,
1995 the investment options were convertible into 13,824,627 shares of common
stock at an exercise price equivalent to $15.83 per share. The Company may
repurchase the investment options without a premium with the consent of the
holder or by paying a redemption premium sufficient to provide the holder a 6%
annual return. Under certain conditions, the investment options are subject to
mandatory redemption at a redemption price including a 6% annual return.
When investment options are exercised, the Company reduces taxable income by
any excess of the fair market value of the stock obtained at the date of
exercise over the principal amount of the debentures redeemed. The resulting tax
benefit increases additional paid-in capital.
UNSECURED MEDIUM-TERM NOTES--These notes had both fixed and floating rates
of interest. The floating-rate notes were repaid during fiscal 1994; $96.6
million of the fixed-rate notes were repaid during fiscal 1995 in connection
with the AMH merger and refinancing. (See Note 2.) The weighted average interest
rates on the notes were 8.3% during 1995, 8.1% during 1994 and 7.3% in 1993.
LOAN COVENANTS--The new credit facility and the indentures governing the
senior notes and the senior subordinated notes have, among other requirements,
limitations on borrowings, liens, investments, capital expenditures, operating
leases, dividends and asset sales, and covenants regarding maintenance of
specified levels of net worth, debt ratios and fixed-charge ratios. The Company
is in compliance with its loan covenants. There are no compensating balance
requirements for any credit line or borrowing.
B. LONG-TERM DEBT MATURITIES AND LEASE OBLIGATIONS
Future long-term debt cash maturities and minimum operating lease payments
are as follows:
<TABLE>
<CAPTION>
LATER
1996 1997 1998 1999 2000 YEARS
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Long-term debt......................................... $ 254 $ 238 $ 326 $ 325 $ 395 $ 2,049
Long-term leases....................................... 165 146 140 129 83 333
</TABLE>
Rental expense under operating leases, including short-term leases, was
approximately $111 million in 1995, $98 million in 1994 and $114 million in
1993.
F-14
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Taxes on income from continuing operations consist of the following amounts:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable:
Federal................................................................. $ 101 $ 159 $ 148
State................................................................... 18 31 30
Foreign................................................................. 9 6 7
--------- --------- ---------
128 196 185
--------- --------- ---------
Deferred:
Federal................................................................. -- (46) (29)
State................................................................... 2 (6) (3)
--------- --------- ---------
2 (52) (32)
--------- --------- ---------
Other..................................................................... 5 -- 2
--------- --------- ---------
$ 135 $ 144 $ 155
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the Company's effective income tax rate and the
statutory federal income tax rate is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ------------------------ -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- ------------
(IN MILLIONS OF DOLLARS AND AS A PERCENT OF PRETAX INCOME)
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory federal rate............ $ 115 35.0% $ 126 35.0% $ 142 34.0%
State income taxes, net of federal income tax
benefit........................................... 14 4.2% 17 4.6% 18 4.3%
Goodwill amortization.............................. 5 1.5% -- -- -- --
Gain on sale of foreign subsidiary's common
stock............................................. -- -- -- -- (10) (2.4%)
Other.............................................. 1 0.3% 1 0.4% 5 1.1%
----- ----- ----- ----- ----- -----
Taxes on income from continuing operations and
effective tax rates............................... $ 135 41.0% $ 144 40.0% $ 155 37.0%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
Effective June 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Among other
provisions, this standard requires deferred tax balances to be determined using
enacted income tax rates for the years in which the taxes actually are paid or
refunds actually are received instead of when the deferrals were initiated. The
Company has recognized $60 million as income in the fiscal year ended May 31,
1994 for the cumulative effect on prior years of adopting this standard based on
tax rates in effect at June 1, 1993.
F-15
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities as of May 31, 1995 and 1994 relate to
the following:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Depreciation and fixed-asset basis differences............... $ -- $ 566 $ -- $ 182
Reserves related to discontinued operations and restructuring
charges..................................................... 81 -- 306 --
Receivables--doubtful accounts and adjustments............... 112 -- 69 --
Cash-basis accounting change................................. -- 16 -- 23
Accruals for insurance risks................................. 81 -- 35 --
Intangible assets............................................ -- 2 -- 7
Other long-term liabilities.................................. 121 -- 20 --
Benefit plans................................................ 99 -- 18 --
Other accrued liabilities.................................... 53 -- 10 --
Investments and other assets................................. 17 -- 9 --
Valuation allowance.......................................... -- -- (7) --
Federal and state net operating loss carryforwards........... 137 -- -- --
Other items.................................................. -- 8 -- 1
----- ----- ----- -----
$ 701 $ 592 $ 460 $ 213
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Management believes that realization of the deferred tax assets at May 31,
1995 will occur as temporary differences, including tax-loss carryforwards,
reverse against future taxable income.
8. CLAIMS AND LAWSUITS
A. 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 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. (See Note 8B.)
In addition to the reserves recorded by the above insurance company, the
Company maintains an unfunded reserve for the self-insured portion of its
professional liability risks, which is based on actuarial estimates. Reserves
for losses and related expenses are estimated using expected loss-reporting
patterns and have been discounted to their present value using a weighted
average discount rate of 9%. Adjustments to the reserves are included in results
of operations.
B. SIGNIFICANT LEGAL PROCEEDINGS--PSYCHIATRIC BUSINESS
The Company has been involved in significant legal proceedings and
investigations of an unusual nature related principally to its psychiatric
business. During the years ended May 31, 1995 and 1994, the Company recorded
provisions to estimate the cost of the ultimate disposition of all these
proceedings and investigations and to estimate the legal fees that it expects to
incur. The Company has settled the most significant of these matters. The
remaining reserves for unusual litigation costs that relate to the matters that
have not been settled as of May 31, 1995 and an estimate of the legal fees to be
incurred subsequent to May 31, 1995
F-16
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CLAIMS AND LAWSUITS (CONTINUED)
total approximately $75.7 million and represent management's estimate of the net
costs of the ultimate disposition of these matters. There can be no assurance,
however, that the ultimate liability will not exceed such estimates.
All of the costs associated with these legal proceedings and investigations
are classified in discontinued operations. (See Note 3.)
SHAREHOLDER LAWSUITS--In October and November 1991 shareholder derivative
actions and federal class-action suits were filed against the Company and
certain of its officers and directors. Those derivative and federal class-action
suits were subsequently consolidated into one derivative and one federal class
action, respectively. The consolidated derivative action, purportedly brought on
behalf of the Company, alleged breach of fiduciary duty and other causes of
action against the directors and certain officers of the Company. The derivative
action was dismissed by the court in May 1993. Plaintiffs appealed the judgment.
As a result of mediation, the parties in the derivative and class-action
suits described above agreed to a global settlement of all plaintiffs' claims.
The settlement, which will require court approval, involves a total payment of
$63.75 million plus interest by or on behalf of the defendants. Of this amount,
Tenet's directors' and officers' liability insurance ("D&O") carriers have
agreed to pay a total of $32.5 million plus interest on behalf of the individual
defendants. In addition, one of the D&O carriers has reimbursed the Company for
$5.5 million in attorneys' fees expended on the litigation. The parties in the
federal class-action litigation have executed a stipulation of settlement, and
on July 3, 1995 the court issued an order preliminarily approving the
settlement. A hearing regarding approval of the settlement is scheduled to take
place on September 18, 1995. The parties in the derivative litigation have
executed a memorandum of understanding regarding the terms of the settlement. A
stipulation of settlement is expected shortly and also will require court
approval.
Two additional federal class actions filed in August 1993 have been
consolidated into one action. The consolidated action alleges violations of
federal securities laws against the Company and certain of its executive
officers. After unsuccessful mediation, the parties agreed in May 1995 to
proceed with the litigation.
PSYCHIATRIC MALPRACTICE CASES--The Company continues to experience a greater
than normal level of litigation relating to its former psychiatric operations.
The majority of lawsuits filed to date contain allegations of fraud and
conspiracy against the Company and certain of its subsidiaries and former
employees. The Company believes that much of this 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 Company's 1994 resolution of governmental
investigations and a corresponding criminal plea agreement. Among the suits
filed during 1995 are 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. The Company expects that additional lawsuits with similar allegations
will be filed from time to time. The Company believes it has meritorious
defenses to these actions and will defend this litigation vigorously. The
reserves for unusual litigation costs at May 31, 1995 related to these cases
primarily represent the estimated costs of such defense.
C. LITIGATION RELATING TO THE AMH MERGER
A total of nine purported class actions (the "Class Actions") have been
filed challenging the merger in Delaware and California. The seven Class Actions
filed in Delaware have been consolidated into one class action, and discovery is
continuing in the case. The two California Class Actions have been stayed
pending the resolution of the Delaware case. Named defendants are AMH and its
former directors and, in some of
F-17
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CLAIMS AND LAWSUITS (CONTINUED)
the cases, the Company. The complaints filed in each of the lawsuits are
substantially similar, are brought by purported stockholders of AMH, and, in
general, allege that the directors of AMH breached their fiduciary duties to the
plaintiffs and other members of the purported class. Plaintiffs allege that the
Company has aided and abetted the AMH directors' alleged breach of their
fiduciary duties. Plaintiffs further allege that the directors of AMH wrongfully
failed to hold an open auction and encourage bona fide bids for AMH and failed
to take action to maximize value for AMH stockholders. Since the merger has been
completed, the plaintiffs seek rescission or rescissory damages, an accounting
of all profits realized and to be realized by the defendants in connection with
the merger, and the imposition of a constructive trust for the benefit of the
plaintiffs and other members of the purported classes pending such an
accounting. Plaintiffs also seek monetary damages of an unspecified amount
together with prejudgment interest and attorneys' and experts' fees. The Company
believes that the complaints are without merit and will defend this litigation
vigorously.
9. PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK
A. PREFERRED STOCK PURCHASE RIGHTS
In 1988 the Company distributed Preferred Stock Purchase Rights to holders
of the Company's common stock and authorized the issuance of additional rights
for common stock issued after that date. The rights expire in December 1998
unless previously exercised or redeemed and do not entitle the holders thereof
to vote as shareholders or receive dividends.
The Company may redeem the rights at $.025 per right at any time up to the
10th business day after a public announcement that a person has acquired 20% or
more of the Company's common stock in a transaction or transactions not approved
by the Board of Directors. The rights are not exercisable until after the date
on which the Company's right to redeem the rights has expired. When exercisable,
each right entitles the holder thereof to purchase from the Company one
two-thousandth of a share of Series A Junior Participating Preferred Stock
("Series A Preferred Stock") at a price of $40.61, subject to adjustment.
Subject to the foregoing, in the event the Company is acquired in a merger
or other business combination transaction in which shares of the Company's
common stock are exchanged for shares of another company or more than 50% of the
Company's assets are sold, each holder of a right generally will be entitled
upon exercise to purchase, for the then-current exercise price of the right,
common stock of the surviving company having a market value equal to two times
the exercise price of the rights. The plan also provides that, in the event of
certain other mergers or business combinations, certain self-dealing
transactions or the acquisition by a person of stock having 30% or more of the
Company's general voting power, each holder of a right generally will be
entitled upon exercise to purchase, for the then-current exercise price of the
right, the number of shares of Series A Preferred Stock having a market value
equal to two times the exercise price of the rights.
B. PREFERRED STOCK
The Series A Junior Participating Preferred Stock for which the Preferred
Stock Purchase Rights may be exchanged is nonredeemable and has a par value of
$0.15 per share. None of the 225,000 authorized shares are outstanding.
The Company has also authorized a Series B Convertible Preferred Stock,
issuable solely upon conversion of the Company's convertible floating-rate
debentures. (See Note 6A.) The par value of the stock is $0.15 per share; its
liquidation and redemption value is $105,264 per share; 2,030 shares are
reserved for future issuance; and no shares are outstanding. Because it is
likely that this preferred stock would be converted immediately to common stock,
all references in Note 6A are to common stock rather than preferred stock.
F-18
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK BENEFIT PLANS
Under the Company's 1983 and 1991 stock incentive plans, stock options and
incentive stock awards (restricted shares and restricted units) have been made
to certain officers and other key employees. Stock options generally are granted
at an exercise price equal to the fair market value of the shares on the date of
grant and are exercisable at the rate of one-third per year beginning one year
from the date of grant. In addition, 526,000 options granted to certain senior
officers during fiscal 1994 become exercisable on May 31, 1996. Stock options
generally expire 10 years from the date of grant. Certain 1983-plan stock
options may be canceled in connection with the vesting of restricted units under
circumstances described below.
Restricted units were granted in fiscal 1992, 1993 and 1994. A restricted
unit is a grant that entitles the recipient to a payment of cash at the end of
each vesting period equivalent to the fair market value of a share of the
Company's common stock on the date of vesting subject to a maximum value per
unit, which is equivalent to the fair market value of a share of the Company's
common stock on the date of grant. These restricted units were granted along
with stock options. Restricted units normally vest one-third each year over
three years and earn dividend equivalents during the vesting period.
All awards granted under the 1983 and 1991 plans will vest under
circumstances defined in the plans or under certain employment arrangements,
including, with the consent of the Compensation and Stock Option Committee of
the Board of Directors, upon a change in control of the Company.
Charges to continuing operations associated with restricted shares,
discounted stock options and restricted units were $4 million in fiscal 1995,
$12 million in fiscal 1994, and $11 million in fiscal 1993. The remaining amount
to be charged to future operations is $2 million.
Stock awards may be made only under the 1991 plan. At May 31, 1995, there
were 2,705,236 shares of common stock available under the 1991 plan for future
awards. The table below summarizes the transactions in all stock option plans in
which employees participate, including discounted stock options but excluding
restricted shares and units:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(SHARES OF COMMON STOCK)
<S> <C> <C>
Outstanding at beginning of year (1983 and 1991 plans)................ 15,426,593 11,682,204
Granted............................................................... 6,241,700 5,719,175
Exercised ($4.405 to $16.813 per share in 1995 and 1994).............. (705,022) (282,482)
Canceled and other adjustments........................................ (1,346,146) (1,692,304)
------------ ------------
Outstanding at end of year ($4.41 to $22.44 per share at May 31,
1995)................................................................ 19,617,125 15,426,593
------------ ------------
------------ ------------
Exercisable at end of year............................................ 8,967,874 6,472,708
------------ ------------
------------ ------------
</TABLE>
In September 1994 a new Directors Stock Option Plan replaced the 1991
Director Restricted Share Plan. The plan makes available options to purchase
500,000 shares of common stock for issuance to nonemployee directors. Under the
plan each nonemployee director will receive a stock option for 5,000 common
shares upon initially being elected to the Board of Directors and on each
January, beginning (for those then serving as nonemployee directors)
retroactively in January 1994 when the plan was approved by the Board of
Directors. Awards will vest one year after the date of grant and will expire 10
years after the date of grant. At May 31, 1995, there were options outstanding
for 298,740 shares of common stock under the directors plan, at exercise prices
of $8.67 to $17.78 per share.
11. EARNINGS PER SHARE
Primary earnings per share of common stock are based on after-tax income
applicable to common stock and the weighted average number of shares of common
stock and common stock equivalents outstanding
F-19
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EARNINGS PER SHARE (CONTINUED)
during each period as appropriate. Fully diluted earnings-per-share calculations
are based on the assumption that all dilutive convertible debentures were
converted into shares of common stock as of the beginning of the year, or as of
the issue date if later, and (i) that those shares are added to the weighted
average number of common shares and share equivalents outstanding used in the
calculation of primary earnings per share, and (ii) that after-tax income is
adjusted accordingly.
12. EMPLOYEE RETIREMENT PLANS
Substantially all domestic employees who were employed by NME prior to the
merger, upon qualification, are eligible to participate in a defined
contribution 401(k) plan, the Tenet Healthcare Retirement Savings Plan.
Employees who elect to participate make mandatory contributions equal to 3% of
their eligible compensation, and such contributions are matched by the Company.
Company contributions from continuing operations to the NME plan for the fiscal
years 1995, 1994 and 1993 were approximately $14 million, $17 million and $18
million, respectively. The Company also has a tax-deferred 401(k) savings plan
for employees of AMI prior to the merger. Expenses relating to this plan were
$2.5 million for the three months ended May 31, 1995.
Substantially all employees who were employed by AMI prior to the merger are
eligible to participate in one of AMI's defined benefit pension plans (the "AMI
Plans"). The benefits are based on years of service and the employee's base
compensation as defined in the AMI Plans. The policy is to fund pension costs
accrued within the limits allowed under federal income tax regulations.
Contributions are intended to provide not only for benefits attributed to
credited service to date, but also for those expected to be earned in the
future.
The following table sets forth the funded status of the AMI Plans and
amounts recognized in the consolidated financial statements as of May 31, 1995:
<TABLE>
<CAPTION>
1995
-------------
(IN MILLIONS)
<S> <C>
Actuarial present value of accumulated benefit obligation:
Vested................................................................................... $ 271
-----
-----
Accumulated.............................................................................. 282
-----
-----
Projected benefit obligation............................................................... 285
Plan assets at fair value, primarily listed stocks and corporate bonds..................... (223)
-----
Projected benefit obligation in excess of plan assets...................................... 62
Unrecognized net loss...................................................................... 13
-----
Pension liability.......................................................................... $ 75
-----
-----
</TABLE>
Net pension cost for the AMI Plans for the three months ended May 31, 1995
was $2 million.
The discount rate used in determining the actuarial present value of the
projected benefit obligation for the AMI Plans approximated 7.0% as of May 31,
1995. The rate of increase in future compensation levels for the AMI Plans was
assumed to be 5.0%.
The Company does not have a plan that provides any postretirement benefits
other than pensions to retired employees.
F-20
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. OTHER DISPOSALS AND ACQUISITIONS OF FACILITIES
In January 1994 the Company sold 28 inpatient rehabilitation hospitals and
45 related satellite outpatient clinics for approximately $350 million. This
sale resulted in a gain of $66.2 million. The Company retained six
rehabilitation hospitals on or near general hospital campuses and in March 1994
sold its other remaining rehabilitation hospital for approximately $14 million.
For the fiscal year ended May 31, 1994, net operating revenues of the sold
rehabilitation hospitals were $266 million, while pretax income, before general
corporate overhead costs, was $22 million. The Company is contingently liable
for approximately $88 million in obligations, substantially all of which are
lease obligations, relating to the facilities sold in January 1994.
During fiscal 1994 Hillhaven purchased the remaining 23 nursing centers it
previously leased from the Company for $112 million. (See Note 14.) The sales
resulted in a gain of $17 million. In May 1994 the Company entered into a
long-term operating lease of a general hospital in New Orleans. In July 1993 the
Company sold one general hospital, and in June 1994 the Company sold two general
hospitals. Also in June 1994 the Company acquired its partner's 50% interest in
its general hospital in Barcelona, Spain, which opened in February 1994.
In May 1995 the Company announced it had reached an agreement in principle
to purchase Mercy+Baptist Medical Center, a general two-hospital (759 beds)
not-for-profit provider in New Orleans. Also in May 1995 the Company announced
it had reached an agreement in principle to purchase Providence Memorial
Hospital, a 436-bed not-for-profit general hospital in El Paso, Texas. The cash
consideration for these acquisitions will be approximately $350 million.
14. THE HILLHAVEN CORPORATION
The Company owns approximately 8.9 million common shares, or an
approximately 26% voting interest, of Hillhaven. The Company also holds 35,000
shares of Hillhaven's cumulative nonvoting 8 1/4% Series C Preferred Stock, with
an aggregate liquidation preference of $35.0 million, and 65,430 shares of
Hillhaven's cumulative nonvoting 6 1/2% payable-in-kind Series D Preferred
Stock, with an aggregate liquidation preference of $65.4 million.
The Company is contingently liable under various guarantees for $182 million
of Hillhaven's obligations to third parties, including $172 million of lease
obligations and $10 million of long-term debt obligations. During fiscal 1995
and 1994, Hillhaven reduced by approximately $104 million and $420 million,
respectively, its obligations guaranteed by the Company.
On April 24, 1995, Vencor, Inc. and Hillhaven announced that they had
entered into an agreement pursuant to which Vencor would acquire Hillhaven.
Under terms of the agreement, Hillhaven's shareholders would receive $32.25 in
value in Vencor common stock for each share of Hillhaven common stock (subject
to adjustment under certain circumstances depending on the market price of
Vencor stock). The Company expects to receive approximately $90 million in cash
for its Series C Preferred Stock and its Series D Preferred Stock in connection
with this transaction.
15. SALES OF SUBSIDIARIES' COMMON STOCK
On August 11, 1994, the Company completed the sale of a controlling interest
in Total Renal Care, Inc. ("TRC"), an operator of outpatient renal dialysis
centers. As part of the transaction, the Company received a $75.5 million cash
distribution from TRC prior to the sale and retained an approximate 25% minority
interest, which since has been reduced to approximately 23% due to the issuance
of additional shares by TRC in connection with acquisitions. This transaction
resulted in a $32.0 million gain to the Company in fiscal 1995. Net operating
revenues of the subsidiary were $80.5 million in the fiscal year ended May 31,
1994, and operating income was $5.7 million. Net operating revenues and
operating income included in the current year's statement of operations, for the
period from June 1, 1994 through August 11, 1994, were $16.6 million and $2.7
million, respectively.
F-21
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. RESTRUCTURING CHARGES
In connection with the March 1, 1995 merger of the Company and AMH, the
Company has relocated substantially all of its hospital support activities
located in Southern California and Florida to the former corporate headquarters
of AMH located in Dallas, Texas. Severance payments and outplacement services
for involuntarily terminated former NME employees and other related costs in
connection with this move are estimated to be $36.9 million ($0.12 per share on
an after-tax, fully diluted basis) and have been classified as restructuring
charges in the accompanying consolidated statements of operations for the year
ended May 31, 1995.
During the fourth quarter of fiscal 1994, the Company initiated a plan to
significantly decrease overhead costs through a reduction in corporate and
division staffing levels and to review the resulting office space needs of all
corporate operations. The Company decided to sell its corporate headquarters
building and to lease substantially less office space in that building or at an
alternative site. Costs of the write-down of the building, employee severance
benefits and other expenses directly related to the overhead reduction plan were
estimated to be approximately $77.0 million.
In 1993 the Company recorded a charge of $52.0 million for costs associated
with the combination of the Company's rehabilitation hospital division into its
general hospital division, a corporate overhead reduction program that began in
April 1993, and severance costs incurred in connection with a change in senior
executive management.
During the year ended May 31, 1995, actual costs incurred and charged
against the restructuring reserves were approximately $22.7 million. The
balances of the reserves are included in other current liabilities or other
long-term liabilities in the Company's consolidated balance sheets at May 31,
1995 and 1994.
17. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. These derivatives are
nonleveraged and involve little complexity. They are used to manage well-defined
interest rate and foreign currency risks. The notional amounts of derivatives in
the tables below do not represent amounts exchanged by the parties and, thus,
are not a measure of the exposure of the Company through its use of derivatives.
There are no cash or collateral requirements in connection with these
agreements.
INTEREST RATE SWAPS--These derivative financial instruments allow the
Company to make long-term borrowings at floating rates and then swap them into
fixed rates that are lower than those available to the Company if fixed-rate
borrowings were made directly. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. Cross-currency interest rate swaps allow
borrowings to be made in foreign currencies, gaining access to additional
sources of financing while limiting foreign exchange risk. The Company's
exposure to credit loss under these agreements is limited to the interest rate
spread in the event of nonperformance by the other parties. Because the other
parties are creditworthy financial institutions, generally commercial banks, the
Company does not expect nonperformance.
F-22
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The following table shows the Company's interest rate swaps and their
weighted average interest rates as of the end of the most recent two fiscal
years. Variable interest rates may change significantly, affecting future cash
flows.
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notional amount for agreements under which the Company receives fixed
rates...................................................................... $ 29.0 $ 29.0
Average receive rate...................................................... 7.0% 7.0%
Average pay rate.......................................................... 5.7% 3.4%
Contract duration......................................................... 2 years 3 years
Notional amount for agreements under which the Company pays fixed rates..... $ 120.0 $ 121.0
Average pay rate.......................................................... 8.5% 8.5%
Average receive rate...................................................... 5.6% 3.4%
Contract duration........................................................... 1-5 years 1-6 years
</TABLE>
FORWARD EXCHANGE CONTRACTS--Due to its foreign operations in Australia,
Great Britain, Malaysia, Singapore, Spain, Switzerland and Thailand, the Company
is exposed to the effects of foreign exchange rate fluctuations on the U.S.
dollar. Forward exchange contracts, generally having maturities of less than six
months, are entered into for the sole purpose of hedging the Company's long-term
net investments in its foreign subsidiaries or unconsolidated foreign
affiliates. The Company's forward exchange contracts, as of May 31, 1995 and
1994, are shown in the table below:
<TABLE>
<CAPTION>
1995 1994
-------------------- ----------------------
FOREIGN FOREIGN
CURRENCY MATURITY CURRENCY MATURITY
AMOUNT DATE AMOUNT DATE
--------- --------- ----------- ---------
(CURRENCY IN MILLIONS)
<S> <C> <C> <C> <C>
Australian dollars.................................................. 23.0 09/20/95 18.0 08/31/94
Australian dollars.................................................. 18.0 07/31/95 23.0 07/18/94
Spanish pesetas..................................................... 450.0 06/09/95 150.0 10/05/94
Spanish pesetas..................................................... 1,700.0 06/22/95 450.0 06/24/94
Spanish pesetas..................................................... -- -- 100.0 06/30/94
Spanish pesetas..................................................... -- -- 350.0 06/30/94
Swiss francs........................................................ 5.0 11/15/95 -- --
Swiss francs........................................................ 23.0 03/15/96 -- --
Thai baht........................................................... 200.0 07/13/95 -- --
U.K. pounds......................................................... 10.0 06/30/95 10.0 06/27/94
</TABLE>
CURRENCY SWAP AGREEMENTS--The Company uses foreign currency swaps to
effectively convert foreign-currency-denominated debt to U.S.-dollar-denominated
debt in order to reduce the impact of interest rate and foreign currency rate
changes on future income. The differential to be paid or received under these
F-23
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
agreements is recognized as an adjustment to interest expense related to the
debt. The related amount payable to or receivable from counterparties is
included in other long-term liabilities or long-term receivables. At May 31,
1995 and 1994, the Company had the following foreign currency swap agreements:
<TABLE>
<CAPTION>
1995 1994
----------------------------------- -----------------------------------
NOTIONAL INTEREST MATURITY NOTIONAL INTEREST MATURITY
AMOUNT RATE DATE AMOUNT RATE DATE
----------- ----------- --------- ----------- ----------- ---------
(CURRENCY IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Australian dollars.............................. 20.5 10.54% 02/24/99 20.5 10.54% 02/24/99
Australian dollars.............................. 14.3 8.26% 03/04/98 14.3 4.86% 03/04/98
Spanish pesetas................................. 300.0 12.00% 10/09/98 300.0 12.00% 10/09/98
Spanish pesetas................................. 300.0 11.33% 10/09/98 300.0 11.33% 10/09/98
</TABLE>
18. SUBSEQUENT EVENTS--SALES OF ASSETS
On June 28, 1995, the Company sold its 505-bed Mount Elizabeth Hospital, its
145-bed East Shore Hospital and related healthcare businesses in Singapore to
the Singapore-based holding company Parkway Holdings Limited for $243.3 million,
which is net of $78.3 million in debt assumed by the buyer. The Company used the
net proceeds from the sale to repay secured bank loans under its domestic term
loan and revolving credit agreement. The transaction resulted in a gain
estimated to be approximately $150 million, which will be included in the
results of operations during the Company's first quarter of fiscal 1996.
The Company also has agreements to sell its holdings in Malaysia, Thailand
and Australia for approximately $94.0 million, which proceeds will be used to
retire long-term debt. These transactions are expected to close no later than
November 30, 1995. The pending sales are subject to foreign government
clearances and a vote of minority shareholders in Australia. Fiscal 1995 net
operating revenues and operating profits from the facilities sold and to be sold
were $202.4 million and $39.4 million, respectively. The net assets of the sold
and to-be-sold facilities amounted to $158.9 million at May 31, 1995 and have
been included in assets held for sale in the accompanying consolidated balance
sheets.
F-24
<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 ANY OF THE UNDERWRITERS. 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.......................... 4
Incorporation of Certain Documents by
Reference..................................... 4
Prospectus Summary............................. 5
Risk Factors................................... 10
Use of Proceeds................................ 15
Historical and Pro Forma Capitalization........ 15
Pro Forma Financial Information................ 16
Selected Historical Financial Information...... 21
Management's Discussion and Analysis........... 22
Business....................................... 28
Description of Notes........................... 42
Description of the Credit Agreement............ 60
Underwriting................................... 62
Legal Matters.................................. 63
Experts........................................ 63
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
TENET HEALTHCARE CORPORATION
$300,000,000
SENIOR NOTES DUE 2003
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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........................................... $103,449
NASD filing fee................................................ 30,500
Rating Agency Fee*.............................................
Blue sky fees and expenses..................................... 15,000
Printing and engraving expenses*...............................
Legal fees and expenses*.......................................
Accounting fees and expenses*..................................
Trustee fees*..................................................
Miscellaneous*.................................................
----------
Total...................................................... $ *
----------
----------
<FN>
- ------------------------
* To be supplied by amendment.
</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 X 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
II-1
<PAGE>
monetary damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate 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)
5.1 Opinion of Scott M. Brown, Esq.
10.1 Form of Amendment No. 1 to the Credit Agreement, dated as of August 31, 1995,
among the Company, Morgan Guaranty Trust Company of New York, Bank of America
N.T. & S.A., The Bank of New York, Bankers Trust Company and the other lenders
parties thereto.
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 Pro Forma Per Share Earnings for the fiscal year
ended May 31, 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>
- ------------------------
* Previously filed.
</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
II-2
<PAGE>
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 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 requirement 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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Monica, State of California on
September 26, 1995.
TENET HEALTHCARE CORPORATION
By: *
--------------------------------------
Jeffrey C. Barbakow
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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>
* Chairman of the Board of September 26, 1995
---------------------------------------- Directors and Chief Executive
Jeffrey C. Barbakow Officer (Principal Executive
ATTORNEY-IN-FACT Officer)
* President, Chief Operating September 26, 1995
---------------------------------------- Officer and Director
Michael H. Focht, Sr.
* Senior Vice President and Chief September 26, 1995
---------------------------------------- Financial Officer (Principal
Raymond L. Mathiasen Financial and Accounting
ATTORNEY-IN-FACT Officer)
* Director September 26, 1995
----------------------------------------
Bernice B. Bratter
* Director September 26, 1995
----------------------------------------
John T. Casey
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- -------------------------------- ----------------------
<C> <S> <C>
* Director September 26, 1995
----------------------------------------
Maurice J. DeWald
* Director September 26, 1995
----------------------------------------
Peter de Wetter
* Director September 26, 1995
----------------------------------------
Edward Egbert, M.D.
* Director September 26, 1995
----------------------------------------
Raymond A. Hay
* Director September 26, 1995
----------------------------------------
Lester B. Korn
* Director September 26, 1995
----------------------------------------
James P. Livingston
Director
----------------------------------------
Robert W. O'Leary
* Director September 26, 1995
----------------------------------------
Thomas J. Pritzker
* Director September 26, 1995
----------------------------------------
Richard S. Schweiker
*By /s/ SCOTT M. BROWN
----------------------------------------
Scott M. Brown
ATTORNEY-IN-FACT
</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)
5.1 Opinion of Scott M. Brown, Esq.
10.1 Form of Amendment No. 1 to the Credit Agreement, dated as of August 31, 1995, among the Company,
Morgan Guaranty Trust Company of New York, Bank of America N.T. & S.A., The Bank of New York,
Bankers Trust Company and the other lenders parties thereto
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 Pro Forma Per Share Earnings for the fiscal year ended May 31, 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>
- ------------------------
* Previously filed.
<PAGE>
==============================================================================
TENET HEALTHCARE CORPORATION
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
______________________
UNDERWRITING AGREEMENT
______________________
Dated as of October ___, 1995
==============================================================================
<PAGE>
TENET HEALTHCARE CORPORATION
__% SENIOR NOTES DUE 2003
UNDERWRITING AGREEMENT
October ___, 1995
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
Subject to the terms and conditions herein contained, Tenet
Healthcare Corporation, a Nevada corporation (the "Company"), proposes to
issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated (collectively with DLJ,
the "Underwriters") an aggregate of $300.0 million principal amount of its
__% Senior Notes due 2003 (the "Securities"). The Securities are to be
issued pursuant to the provisions of an Indenture (the "Indenture") to be
dated as of October ___, 1995, by and between the Company and The Bank of New
York, as Trustee (the "Trustee").
This Agreement, the Securities and the Indenture are collectively
referred to herein as the "Transaction Documents."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission promulgated
pursuant thereto (collectively, the
<PAGE>
"Act"), a registration statement on Form S-3 (No. 33-_____), with respect to
the Securities, including a preliminary prospectus, subject to completion,
relating to the Securities. The registration statement, as amended at the
time it becomes effective or, if a post-effective amendment is filed with
respect thereto, as amended by such post-effective amendment at the time of
its effectiveness (including in each case all documents incorporated or
deemed to be incorporated by reference therein, if any, all financial
statements and exhibits, and the information, if any, contained in a
prospectus subsequently filed with the Commission pursuant to Rule 424(b)
under the Act and deemed to be a part of the registration statement at the
time of its effectiveness pursuant to Rule 430A of the Act) is hereinafter
referred to as the "Registration Statement;" and the prospectus constituting
a part of the Registration Statement at the time it became effective, or such
revised prospectus as shall be provided to the Underwriters for use in
connection with the offering of the Securities that differs from the
prospectus on file with the Commission at the time the Registration Statement
became effective (including, in each case, all documents incorporated or
deemed to be incorporated by reference therein, if any), whether or not filed
with the Commission pursuant to Rule 424(b) under the Act, is hereinafter
referred to as the "Prospectus." Any reference herein to the Registration
Statement, the Prospectus, any amendment or supplement thereto or any
preliminary prospectus shall be deemed to refer to and include the documents
incorporated by reference therein, and any reference herein to the terms
"amend," "amendment" or "supplement" with respect to the Registration
Statement or Prospectus shall be deemed to refer to and include the filing
after the execution hereof of any document with the Commission deemed to be
incorporated by reference therein.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to
its terms and conditions, the Company agrees to issue and sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to
purchase from the Company, the Securities in the respective principal amounts
set forth opposite their names on Schedule I hereto, plus such amount as they
may individually become obligated to purchase pursuant to Section 8 hereof,
at a purchase price equal to ______% of the principal amount of the
Securities together with accrued interest, if any, to the Closing Date (the
"Purchase Price").
3. DELIVERY AND PAYMENT. Delivery to you of and payment for
the Securities shall be made at 10:00 A.M., New York City time, on October
___, 1995 (such time and date being referred to as the "Closing Date"), at
the offices of DLJ at 140 Broadway, New York, New York 10005 (Cashier's
Window, Main Level), or such other place as you shall reasonably designate.
The Securities in definitive form shall be registered in
such names and issued in such denominations as you shall request in writing
not later than two full business days prior to the Closing Date, and shall be
made available to you at the offices of DLJ (or at such other place as shall
be acceptable to you) for inspection not later than
-2-
<PAGE>
10:00 A.M., New York City time, on the business day next preceding the
Closing Date. The Securities shall be delivered to you on the Closing Date
with any transfer taxes payable upon initial issuance thereof duly paid by
the Company, for your respective accounts against payment of the appropriate
Purchase Price by [wire transfer of immediately available funds] to an
account designated by the Company; PROVIDED, HOWEVER, that, to the extent you
are not paid for the Securities in immediately available funds, the Company
will promptly reimburse you for the cost of your delivering the Purchase
Price in immediately available funds upon your presentation of an invoice.
The Closing Date and the location of delivery of, and the form of payment
for, the Securities may be varied by agreement between DLJ and the Company.
4. AGREEMENTS OF THE COMPANY. The Company agrees with each
of you that:
(a) It will, if the Registration Statement has not
heretofore become effective under the Act, and if otherwise necessary or
required by law, file an amendment to the Registration Statement or, if
necessary pursuant to Rule 430A of the Act, a post-effective amendment to the
Registration Statement, in each case as soon as practicable after the
execution and delivery of this Agreement, and it will use its best efforts to
cause the Registration Statement or such post-effective amendment to become
effective at the earliest possible time. If the Registration Statement has
become effective and the Company, omitting from the Prospectus certain
information in reliance upon Rule 430A of the Act, elects not to file a
post-effective amendment pursuant to Rule 430A of the Act, it will file the
form of Prospectus required by Rule 424(b) of the Act within the time period
specified by Rule 430A and Rule 424(b) of the Act. The Company will
otherwise comply in a timely manner with all applicable provisions of Rule
424 and Rule 430A of the Act.
(b) It will advise DLJ promptly and, if requested by
DLJ, confirm such advice in writing, (i) when the Registration Statement has
become effective, if and when the Prospectus is sent for filing pursuant to
Rule 424 of the Act and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the receipt of any comments from the
Commission or any state securities commission or any other regulatory
authority that relate to the Registration Statement or requests by the
Commission or any state securities commission or any other regulatory
authority for any amendment or supplement to the Registration Statement or
any amendment or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by the Commission or any
state securities commission or any other regulatory authority and (iv) of the
happening of any event during the period referred to in paragraph (d), below,
which makes any statement of a material fact made in the Registration
Statement untrue or which requires the making of any additions to or changes
in the Registration Statement
-3-
<PAGE>
in order to make the statements therein not misleading or that makes any
statement of a material fact made in the Prospectus untrue or which requires
the making of any addition to or change in the Prospectus in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
of the Securities under any Federal or state securities or Blue Sky laws,
and, if at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or any other regulatory authority shall issue an order suspending
the qualification or exemption of the Securities under any state securities
or Blue Sky laws, the Company shall use every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time.
(c) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as in your
reasonable judgment a prospectus is required to be delivered in connection
with sales of the Securities by an Underwriter or a dealer, it will furnish
to each Underwriter and each dealer, without charge, as many copies of the
Prospectus, including all documents incorporated by reference therein, (and
of any amendment or supplement to the Prospectus) as you may reasonably
request.
(d) If during the period specified in paragraph (c) of
this Section 4 any event shall occur as a result of which it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing as of the date
the Prospectus is delivered to an offeree or a purchaser, not misleading, or
if it is necessary to amend or supplement the Prospectus to comply with any
law, it will promptly prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not, in the light of the
circumstances existing as of the date the Prospectus is so delivered, be
misleading, and will comply with applicable law, and will promptly notify you
of such event and amendment or supplement and furnish to you without charge
such number of copies thereof as you may reasonably request.
(e) It will make generally available to its security
holders, as soon as practicable and for the time period specified by Rule 158
under the Act, a consolidated earnings statement which shall satisfy the
provision of Section 11(a) and Rule 158 of the Act.
(f) Whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, it will pay and be
responsible for all costs, charges, expenses, fees and taxes incurred in
connection with or incident to (i) the preparation, printing, filing,
distribution and delivery under the Act of the Registration Statement
(including financial statements and exhibits), each preliminary prospectus,
the Prospectus and all amendments and supplements thereto, (ii) the
registration with the
-4-
<PAGE>
Commission and the issuance and delivery of the Securities, (iii) the
printing and delivery of this Agreement, the Indenture and all other
agreements, memoranda, reports, correspondence and other documents printed,
distributed and delivered in connection with the offering of the Securities,
(iv) the registration or qualification of the Securities for offer and sale
under the securities or Blue Sky laws of the jurisdictions referred to in
paragraph (i) below (including, in each case, the reasonable fees and
disbursements of counsel relating to such registration or qualification and
memoranda relating thereto and any filing fees in connection therewith), (v)
furnishing such copies of the Registration Statement (including exhibits),
Prospectus and preliminary prospectuses, and all amendments and supplements
to any of them, including any document incorporated by reference therein, as
may be reasonably requested by the Underwriters or by dealers to whom
Securities may be sold, (vi) any filing with the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the offering of the
Securities (including, without limitation, any filing fees in connection
therewith but excluding the fees of Davis Polk & Wardwell, legal counsel to
the Underwriters ("Underwriters' Counsel")), (vii) the listing of the
Securities on the New York Stock Exchange (the "NYSE"), (viii) the rating of
the Securities by investment rating agencies, (ix) any "qualified independent
underwriter" as required by Schedule E of the Bylaws of the NASD (including
fees and disbursements of counsel for such qualified independent underwriter)
and (x) the performance by the Company of its other obligations under this
Agreement, including (without limitation) the fees of the Trustees, the cost
of its personnel and other internal costs, the cost of printing and engraving
the certificates representing the Securities, and all expenses incident to
the sale and delivery of the Securities to the Underwriters.
(g) It will furnish to DLJ, without charge, one signed
copy (plus one additional signed copy to Underwriters' Counsel) of the
Registration Statement as first filed with the Commission and of each
amendment or supplement to it, including each post-effective amendment, all
exhibits filed therewith and all documents incorporated by reference therein,
and such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, including each post-effective amendment, but
without exhibits, as you may reasonably request.
(h) It will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus (other than
any document required to be filed under the Securities Exchange Act of 1934,
as amended, including the rules and regulations thereunder (collectively, the
"Exchange Act") that upon filing is deemed to be incorporated by reference
therein) of which you shall not previously have been advised and provided a
copy prior to the filing thereof or to which you shall reasonably object
unless in the opinion of legal counsel to the Company such amendment or
supplement is required by law to be filed; it will furnish to you at or prior
to the filing thereof a copy of any document that upon filing is deemed to be
incorporated by reference in the Registration Statement or Prospectus; and it
will prepare and file with the Commission, promptly upon your reasonable
request, any amendment or supplement
-5-
<PAGE>
to the Registration Statement or amendment or supplement to the Prospectus
which may be necessary or advisable in connection with the distribution of
the Securities by you, and will use its best efforts to cause the same to
become effective as promptly as possible.
(i) Prior to any public offering of the Securities, it
will cooperate with you and Underwriters' Counsel in connection with the
registration or qualification of the Securities for offer and sale by the
Underwriters under the state securities or Blue Sky laws of such United
States jurisdictions as you may request. The Company will continue such
qualification in effect so long as required by law for distribution of the
Securities and will file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification (PROVIDED, that the Company shall not be obligated to qualify
as a foreign corporation in any jurisdiction in which it is not so qualified
nor to take any action that would subject it to general consent to service of
process in any jurisdiction in which it is not now so subject).
(j) It timely will complete all required filings and
otherwise comply fully in a timely manner with all provisions of the Exchange
Act to effect the registration of the securities pursuant thereto, and,
during the period specified in paragraph (c) of this Section 4, will file
timely all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act and it will use its best
efforts to cause the Securities to be listed on the NYSE.
(k) So long as any of the Securities are outstanding, it
will mail to each of the Underwriters, without charge, a copy of each report
or other publicly available information furnished to holders of the
Securities, or filed with the Commission, whether or not required by law or
pursuant to the Indenture, and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request, at
the same time as such reports or other information are furnished to such
holders.
(l) To the extent permitted by law, it will not
voluntarily claim, and will actively resist any attempts to claim, the
benefit of any usury laws against the holders of the Securities.
(m) It will use the proceeds from the sale of the
Securities in the manner described in the Prospectus under the caption "Use
of Proceeds."
(n) During the period beginning on the date of this
Agreement and continuing to and including the Closing Date, it will not
offer, sell, contract to sell or otherwise dispose of any debt securities of
the Company or warrants, rights, or options to purchase debt securities of
the Company (other than (i) the Securities and (ii)
-6-
<PAGE>
commercial paper issued in the ordinary course of business), without your
prior written consent.
(o) It will use its best efforts to do and perform all
things required to be done and performed under this Agreement by it prior to
or after the Closing Date and will use its reasonable best efforts to satisfy
all conditions precedent on its part to be satisfied prior to the delivery of
the Securities.
5. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to each Underwriter that:
(a) When the Registration Statement becomes effective,
including on the date of effectiveness of any post-effective amendment, at
the date of the Prospectus (if different) and at the Closing Date, the
Registration Statement will comply in all material respects with the
provisions of the Act, and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; at the
date of the Prospectus, at the date of any supplement or amendment to the
Prospectus and at the Closing Date, the Prospectus and each supplement or
amendment thereto will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties contained in this
paragraph (a) shall not apply to statements in or omissions from the
Registration Statement or the Prospectus (or any supplement or amendment to
them) made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through DLJ expressly for use therein. The Company acknowledges
for all purposes under this Agreement (including this paragraph and Section 6
hereof) that the statements set forth in the last paragraph on the cover page
and the third paragraph under the caption "Underwriting" in the Prospectus
constitute the only written information furnished to the Company by or on
behalf of any Underwriter through DLJ expressly for use in the Registration
Statement, the preliminary prospectus, or the Prospectus (or any amendment or
supplement to any of them) and that the Underwriters shall not be deemed to
have provided any information (and therefore are not responsible for any
statements or omissions) pertaining to any arrangement or agreement with
respect to any party other than the Underwriters. When the Registration
Statement becomes effective, the Indenture will be deemed to have been
qualified under and will conform in all material respects to the requirements
of the Trust Indenture Act of 1939, as amended, and the rules and regulations
promulgated pursuant thereto (collectively, the "TIA"). At the date of any
post-effective amendment to the Registration Statement, at the date of the
Prospectus and any amendment or supplement thereto (if different) and at the
Closing Date, the qualification of the Indenture under the TIA will not have
been suspended and the Indenture will conform in all material respects to the
requirements of the TIA. No contract or document of a character required to
be described in the Registration Statement, the Prospectus or any of the
documents
-7-
<PAGE>
incorporated by reference therein or to be filed as an exhibit to the
Registration Statement or to any of the documents incorporated by reference
therein has not been described and filed as required.
(b) Each preliminary prospectus and the Prospectus,
filed as part of the Registration Statement as originally filed or as part of
any amendment or supplement thereto, or filed pursuant to Rule 424 or 430A
under the Act, complied when so filed in all material respects with the Act.
(c) The documents incorporated by reference in the
Registration Statement, the Prospectus, any amendment or supplement thereto
or any preliminary prospectus, when they became or become effective under the
Act or were or are filed with the Commission under the Exchange Act, as the
case may be, conformed or will conform in all material respects with the
requirements of the Act or the Exchange Act, as applicable.
(d) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any United States
Federal or state governmental body, agency or official which prevents the
issuance of the Securities, suspends the effectiveness of the Registration
Statement, prevents or suspends the use of any preliminary prospectus or
suspends the sale of the Securities in any jurisdiction referred to in
Section 4(i) hereof; no injunction, restraining order, or order of any nature
by any Federal or state court has been issued with respect to the Company or
any of its subsidiaries which would prevent the issuance or sale of the
Securities, suspend the effectiveness of the Registration Statement, or
prevent or suspend the use of any preliminary prospectus or Prospectus in any
jurisdiction referred to in Section 4(i) hereof.
(e) The capitalization table set forth in the Prospectus
under the caption "Historical and Pro Forma Capitalization" identifies in
reasonable detail all outstanding short-term and long-term indebtedness and
shareholders' equity of the Company and its subsidiaries, prior to and after
giving PRO FORMA effect to the consummation of the offering of the
Securities, the application of the net proceeds therefrom as described in the
Prospectus and certain other transactions described in the Prospectus.
(f) The Indenture has been duly authorized by the
Company and, when duly executed and delivered in accordance with its terms,
will be a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) and except to the extent that a waiver of
rights under any usury laws may be unenforceable.
-8-
<PAGE>
(g) The Securities have been duly authorized by the
Company and, when executed and delivered by the Company and authenticated by
the Trustee in accordance with the Indenture and paid for in accordance with
the terms of this Agreement, will constitute legal, valid and binding
obligations of the Company, enforceable against the Company according to
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors' rights
and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that a waiver of rights under any usury laws may be
unenforceable, will be entitled to the benefits of the Indenture and will
conform in all material respects to the description thereof in the Prospectus.
(h) This Agreement has been duly authorized and validly
executed and delivered by the Company and constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity) and except to the extent that rights to indemnification and
contribution with respect to liability in connection with Federal or state
securities laws may be unenforceable under such laws or the policies
underlying such laws and except to the extent that a waiver of rights under
any usury laws may be unenforceable.
(i) The execution and delivery of this Agreement by the
Company, the execution and delivery of the Indenture and the Securities by
the Company, the issuance and sale of the Securities, the performance of this
Agreement, the Securities and the Indenture and the consummation of the
transactions contemplated by this Agreement and the Indenture will not
conflict with or result in a breach or violation of any of the respective
charters or bylaws of the Company or any of its subsidiaries (each, a
"Subsidiary" and collectively, the "Subsidiaries") or any of the terms or
provisions of, or constitute a default or cause an acceleration of any
obligation under or result in the imposition or creation of (or the
obligation to create or impose) any security interest, mortgage, pledge,
claim, lien, encumbrance or adverse interest of any nature (each, a "Lien")
with respect to, any of the Transaction Documents or any other obligation,
bond, agreement, note, debenture, or other evidence of indebtedness, or any
indenture, mortgage, deed of trust or other agreement, lease or instrument
(collectively, "Agreement") to which the Company or any of the Subsidiaries
is a party or by which it or any of them is bound, or to which any properties
of the Company or any of the Subsidiaries is or may be subject, or any order
of any court or governmental agency, body or official having jurisdiction
over the Company or any of the Subsidiaries or any of their properties, or
violate or conflict with any statute, rule or regulation or administrative
regulation or decree or court decree applicable to the Company or any of the
Subsidiaries, or any of their respective assets or properties, where, in any
such instance, such conflict, breach, violation, default, acceleration of
indebtedness or Lien
-9-
<PAGE>
would have, singly or in the aggregate, a material adverse effect on the
assets, liabilities, results of operations, financial condition or prospects
of the Company and the Subsidiaries, taken as a whole (a "Material Adverse
Effect").
(j) No authorization, approval or consent or order of,
or filing with, any court or governmental body, agency or official is
necessary in connection with the transactions contemplated by this Agreement,
except such as may be required by the NASD or have been obtained and made
under the Act, the Exchange Act, the TIA or state securities or Blue Sky laws
or regulations. Neither the Company nor, to the best of the Company's
knowledge, any of its affiliates is presently doing business with the
government of Cuba or with any person or affiliate located in Cuba.
(k) The Securities have been approved for listing on the
NYSE, subject to official notice of issuance.
(l) The Company has been duly organized, is validly
existing as a corporation in good standing under the laws of the State of
Nevada and has the requisite power and authority to carry on its business as
it is currently being conducted, to own, lease and operate its properties and
to authorize the offering of the Securities, to execute, deliver and perform
this Agreement and to issue, sell and deliver the Securities, and is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction where the operation, ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to be so qualified or in good standing would have a Material Adverse
Effect. Each of the Subsidiaries of the Company that (i) directly or
indirectly own or lease any interest in any hospitals, healthcare facilities
or medical office buildings, (ii) directly or indirectly conduct any
insurance activities or (iii) are otherwise material to the Company and the
Subsidiaries, taken as a whole (collectively, the "Significant
Subsidiaries"), has been duly organized, is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation and has
the requisite power and authority to carry on its business as it is currently
being conducted and to own, lease and operate its properties and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction where the operation, ownership or leasing of
property or the conduct of its business requires such qualifications and
where failure to be so qualified or in good standing would have a Material
Adverse Effect.
(m) All of the issued and outstanding shares of capital
stock of, or other ownership interests in, each of the Significant
Subsidiaries have been duly authorized and validly issued, and all of the
shares of capital stock of, or other ownership interests in, each of the
Significant Subsidiaries [other than Australian Medical Enterprises, Ltd.
("AME")] are owned, directly or through subsidiaries, by the Company. All
such shares of capital stock are fully paid and nonassessable, and are owned
free and clear of any Lien, except Liens securing indebtedness under the
Credit Agreement (as defined in the Prospectus), and there are no outstanding
subscriptions,
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rights, warrants, options, calls, convertible or exchangeable securities,
commitments of sale, or Liens related to or entitling any person to purchase
or otherwise to acquire any shares of the capital stock of, or other
ownership interest in, any of the Subsidiaries, [except that shareholders
of AME have certain preemptive rights with respect to rights offerings by
AME].
(n) Neither the Company nor the Significant Subsidiaries
is in violation of its respective charter or bylaws and neither the Company
nor the Subsidiaries is in default in the performance of any obligation,
bond, agreement, debenture, note or any other evidence of indebtedness, or
any indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them is bound, or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, except as would not have,
singly or in the aggregate, a Material Adverse Effect.
(o) Except as disclosed in the Registration Statement or
the Prospectus, there is no action, suit, proceeding or investigation before
or by any court, governmental agency or body, arbitration board or tribunal,
or governmental or private accrediting body, domestic or foreign, pending
against or affecting the Company or any of the Subsidiaries, or any of their
respective assets or properties, which is required to be disclosed in the
Registration Statement or the Prospectus, or in which there is a reasonable
possibility of adverse decisions which in the aggregate could reasonably be
expected to have a Material Adverse Effect, or which might materially and
adversely affect the Company's or any of its Subsidiaries' performance of its
obligations, as applicable, pursuant to this Agreement (including, without
limitation, the issuance of the Securities), the Indenture or the
transactions contemplated hereby and thereby, and to the best of the
Company's knowledge, after due inquiry, no such action, suit, or proceeding
is contemplated or threatened.
Except as disclosed in the Registration Statement or
the Prospectus, neither the Company nor the Subsidiaries is subject to any
judgment, order or decree of any court, governmental authority or arbitration
board or tribunal which has had or which can reasonably be expected to have,
a Material Adverse Effect.
(p) The firms of accountants that have certified or
shall certify the applicable consolidated financial statements and supporting
schedules and the notes thereto of the Company and American Medical Holdings,
Inc., a Delaware corporation ("AMH"), filed or to be filed with the
Commission as part of the Registration Statement and the Prospectus or
incorporated therein by reference are, to the best of the Company's
knowledge, independent public accountants with respect to the Company and its
Subsidiaries and AMH and its Subsidiaries, as the case may be, as required by
the Act. The consolidated financial statements, together with related
schedules and notes, set forth or incorporated by reference in the Prospectus
and the Registration Statement, comply as to form in all material respects
with the requirements of the Act and fairly present the
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consolidated financial position of the Company and its Subsidiaries and AMH
and its Subsidiaries, as the case may be, at the respective dates indicated
and the results of their operations and their cash flows for the respective
periods indicated, in accordance with generally accepted accounting
principles in the United States of America ("GAAP") consistently applied
throughout such periods and in accordance with Regulation S-X. The PRO FORMA
financial statements contained in the Registration Statement have been
prepared in conformity with the standards set forth in Rule 11-02 of
Regulation S-X and on a basis consistent with such historical statements and
give effect to assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by the Prospectus and this
Agreement. [The Company's ratio of earnings to fixed charges (actual and
PRO FORMA) included in the Prospectus under the captions "Prospectus
Summary--Summary Pro Forma Financial Information," "Pro Forma Financial
Information," "Selected Historical Financial Information" and in Exhibits
12.1 and 12.2 to the Registration Statement have been calculated in
compliance with Item 503(d) of the Commission's Regulation S-K. The other
financial and statistical information and data of the Company included or
incorporated by reference in the Prospectus and in the Registration
Statement, historical and PRO FORMA, are in all material respects accurately
presented and prepared on a basis consistent with the books and records of
the Company.
(q) The projected amount of operating synergies and
other cost reductions resulting from the Merger included in the Registration
Statement was determined by the Company with a reasonable basis and in good
faith and the assumptions used in the determination of the amount of such
projected operating synergies and other cost reductions are all those the
Company believes are significant in projecting the amount of such synergies
and other cost reductions. Notwithstanding the foregoing, no assurance can
be made as to the amount of cost savings, if any, that actually will be
realized.
(r) Except as contemplated by the Registration Statement
and the Prospectus, subsequent to the respective dates as of which
information is presented in the Registration Statement and the Prospectus and
up to the Closing Date (i) neither the Company nor the Subsidiaries has
incurred any liabilities or obligations, direct or contingent, which are
material to the Company and the Subsidiaries, taken as a whole, or entered
into any transaction not in the ordinary course of business, (ii) there has
been no decision or judgment in the nature of litigation or arbitration that
could reasonably be expected to have a Material Adverse Effect, (iii) there
has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock and (iv) there has not been any
material adverse change, or any development which could involve a material
adverse change, in the results of operations, assets, liabilities, financial
condition or prospects of the Company or its Subsidiaries, taken as a whole
(any of the items set forth in clauses (i), (ii), (iii) or (iv) above, a
"Material Adverse Change").
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<PAGE>
(s) (i) Except as described in the Registration
Statement or Prospectus or as could not reasonably be expected to have a
Material Adverse Effect, each of the Company and the Subsidiaries has all
certificates, consents, exemptions, orders, permits, licenses,
authorizations, accreditations or other approvals or rights (each, an
"Authorization") of and from, and has made all declarations and filings with,
all Federal, state, local and other governmental authorities, all
self-regulatory organizations, all governmental and private accrediting
bodies and all courts and other tribunals, necessary or required to own,
lease, license and use its properties and assets and to conduct its business
in the manner described in the Prospectus, (ii) all such Authorizations are
valid and in full force and effect, except as could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect,
(iii) the Company and the Subsidiaries are in compliance with the terms and
conditions of all such Authorizations and with the rules and regulations of
the regulatory authorities and governing bodies having jurisdiction with
respect thereto except as could not reasonably be expected to have a Material
Adverse Effect and (iv) neither the Company nor the Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such Authorization.
(t) Neither the Company nor any agent acting on its
behalf has taken or will take any action that is reasonably likely to cause
the issuance or sale of the Securities to violate Regulation G, T, U, or X of
the Board of Governors of the Federal Reserve System, in each case as in
effect, on the date hereof.
(u) Neither the Company nor the Significant Subsidiaries
is (i) an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended,
or (ii) a "holding company" or a "subsidiary company" of a holding company,
or an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1934, as amended.
(v) Each certificate signed by any officer of the
Company and delivered to the Underwriters or the Underwriters' Counsel shall
be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(w) Immediately after consummation of the transactions
contemplated by the Transaction Documents, the fair value and present fair
saleable value of the assets of the Company will exceed the sum of its stated
liabilities and identified contingent liabilities; the Company will not be,
after giving effect to the execution, delivery and performance of the
Transaction Documents, and the consummation of the transactions contemplated
thereby, (i) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted or (ii) unable to pay its debts
(contingent or otherwise) as they mature.
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<PAGE>
(x) The Company will deliver to the Underwriters a true
and correct copy of each of the Transaction Documents in the form
substantially as they will be executed and delivered on or prior to the
Closing Date, together with all related agreements and all schedules and
exhibits thereto, and there have been no amendments, alterations,
modifications or waivers of any of the provisions of any of the Transaction
Documents from the form in which they have been delivered to the
Underwriters; there exists as of the date hereof (after giving effect to the
transactions contemplated by the Transaction Documents) no event or condition
which would constitute a default or an event of default (in each case as
defined in the Credit Agreement) under the Credit Agreement and no event or
condition which would constitute a default or an event of default (in each
case as defined in each of the Transaction Documents) under any of the
Transaction Documents which would reasonably be expected to result in a
Material Adverse Effect.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
(i) each of the Underwriters and their respective affiliates, (ii) each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) any of the Underwriters or any of their
respective affiliates (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "Controlling Person"), and (iii) each of
the respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any Controlling Person, and each of
their respective officers, directors, partners, employees, representatives
and agents (any person referred to in clause (i), (ii) or (iii) of this
Section 6(a) may hereinafter be referred to as an "Indemnified Person") to
the fullest extent lawful, from and against any and all losses, claims,
damages, judgments, actions, costs, assessments, expenses and other
liabilities (collectively, "Liabilities"), including without limitation and
as incurred, reimbursement of all reasonable costs of investigating,
preparing, pursuing or defending any claim or action, or any investigation or
proceeding by any foreign, Federal, state or local authority, regulatory
body, administrative agency, court or other governmental or
quasi-governmental body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Person, to the extent such
Liabilities are directly or indirectly caused by, related to, based upon or
arising out of, or in connection with, any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
supplement or amendment thereto), or the Prospectus (including any amendment
or supplement thereto) or any preliminary prospectus, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, except insofar as such Liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission that is (x)
made in reliance upon and in conformity with information relating to any of
the Underwriters furnished in writing to the Company by or on behalf of the
Underwriter through DLJ expressly for use in the Registration
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<PAGE>
Statement (or any amendment or supplement thereto) or the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus or (y) with
respect to the Underwriter from whom the person asserting the Liabilities
purchased Securities, made in any preliminary prospectus if a copy of the
Prospectus (as amended or supplemented, if the Company shall have furnished
the Underwriters with such amendments or supplements thereto on a timely
basis) was not delivered by or on behalf of such Underwriter to the person
asserting the Liabilities, if required by law to have been so delivered by
the Underwriter seeking indemnification, at or prior to the written
confirmation of the sale of the Securities, and it shall be finally
determined by a court of competent jurisdiction, in a judgment not subject to
appeal or review, that the Prospectus (as so amended or supplemented) would
have completely corrected such untrue statement or omission. The foregoing
indemnity shall be in addition to any liability that the Company might
otherwise have to any of the Underwriters and such other Indemnified Persons.
The Company shall notify you promptly of the institution, threat or
assertion of any claim, proceeding (including any governmental investigation)
or litigation in connection with the matters addressed by this Agreement
which involves the Company or an Indemnified Person.
(b) In case any action or proceeding (for all purposes
of this Section 6, including any governmental or quasi-governmental
investigation) shall be brought or asserted against any of the Indemnified
Persons with respect to which indemnity under this Section 6 may be sought
against the Company, such Underwriter (or the Underwriter controlled by such
Controlling Person) promptly shall notify the Company in writing and the
Company shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Underwriter and payment of all fees and
expenses; PROVIDED, that the delay or failure to give such notice shall not
relieve the Company from any liability that it may have on account of the
indemnity under this Section 6, unless and only to the extent that such delay
or omission materially adversely affects the ability of the Company to defend
or assume the defense of such action or proceeding. Upon receiving such
notice, the Company shall be entitled to participate in any such action or
proceeding and to assume, at its sole expense, the defense thereof, with
counsel reasonably satisfactory to such Indemnified Person (who shall not,
except with the consent of the Indemnified Person to be represented, be
counsel to the Company or any of the Subsidiaries) and, after written notice
from the Company to such Indemnified Person of its election so to assume the
defense thereof within five business days after receipt of the notice from
the Indemnified Person of such action or proceeding, the Company shall not be
liable to such Indemnified Person hereunder for legal expenses of other
counsel subsequently incurred by such Indemnified Person in connection with
the defense thereof, other than reasonable costs of investigation, unless (i)
the Company agrees in writing to pay such fees and expenses, or (ii) the
Company fails promptly to assume such defense or fails to employ counsel
reasonably satisfactory to such Indemnified Person, or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both such Indemnified Person and the Company or an affiliate of the
Company, and that Indemnified Person shall have been advised in writing
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<PAGE>
by counsel, with a copy of such writing to the Company, that either (x) there
may be one or more legal defenses available to such Indemnified Person that
are different from or additional to those available to the Company or such
affiliate or (y) a conflict may exist between such Indemnified Person and the
Company or such affiliate. In the event of any of clause (i), (ii) and (iii)
of the immediately preceding sentence, the Company shall not have the right
to assume the defense thereof on behalf of the Indemnified Person and such
Indemnified Person shall have the right to employ its own counsel in any such
action and the fees and expenses of such counsel shall be paid, as incurred,
by the Company, subject to repayment to the Company if it is ultimately
determined that an Indemnified Person is not entitled to indemnification
hereunder, it being understood, however, that the Company shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all of the Indemnified Persons which firm shall be
designated in writing by DLJ. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's
written consent, which consent may not be unreasonably withheld, but if
settled with the written consent of the Company, the Company agrees to
indemnify and hold harmless any Indemnified Person from and against any loss
or liability by reason of such settlement. The Company shall not, without
the prior written consent of each Indemnified Person, settle, compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action, claim, suit, investigation or other proceeding
in respect of which any Indemnified Person is or could have been a party and
indemnification or contribution could have been sought hereunder by such
Indemnified Person, unless such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Person from
all liability on claims that are the subject matter of such proceeding.
(c) Each of the Underwriters agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement, and any person controlling
(within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act) the Company, to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Persons, but only with respect to claims
and actions based on information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through DLJ expressly for use in
the Registration Statement, Prospectus or preliminary prospectus, as
applicable. In case any action shall be brought against the Company, any of
its directors, any such officer, or any such controlling person based on the
Registration Statement, the Prospectus or any preliminary prospectus in
respect of which indemnity is sought against any Underwriter pursuant to the
foregoing sentence, the Underwriter shall have the rights and duties given to
the Company (except that if the Company shall have assumed the defense
thereof, such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Underwriter),
and the Company, its directors, any such officers, and
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<PAGE>
each such controlling person shall have the rights and duties given to the
Indemnified Person by Section 6(b) above.
(d) If the indemnification provided for in this Section
6 is finally determined by a court of competent jurisdiction to be
unavailable to an Indemnified Person in respect of any Liabilities referred
to herein, then the Company, in lieu of indemnifying such Indemnified Person,
shall contribute to the amount paid or payable by such Indemnified Person as
a result of such Liabilities: (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Indemnified Person on the other hand from the offering of the Securities,or
(ii) if the allocation provided by clause (i), above, is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i), above, but also the relative
fault of the Company and the Indemnified Person in connection with the
actions, statements or omissions that resulted in such Liabilities, as well
as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and any of the Underwriters (and
its related Indemnified Persons), on the other hand, shall be deemed to be in
the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by such Underwriter, in each case as set forth in the
Prospectus. The relative fault of the Company and the Underwriter shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact related to information supplied by the Company or the
Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The indemnity and contribution obligations of the Company set forth herein
shall be in addition to any liability or obligation the Company may otherwise
have to any Indemnified Person.
The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 6(d) were
determined by PRO RATA allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the Liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 6, none
of the Underwriters (and its related Indemnified Persons referred to in
Section 6 above) shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total underwriting discount
applicable to the Securities purchased by such underwriter exceeds the amount
of any damages or liabilities which such Underwriter (and its related
Indemnified Persons referred to in Section 6 above) has otherwise been
required to pay
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<PAGE>
or incur by reason of such untrue or alleged untrue statement or omission or
alleged omission or other indemnified action or proceeding. Notwithstanding
anything to the contrary contained herein, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 6(d) are several in proportion to the respective
aggregate principal amount of Securities purchased by each of the
Underwriters hereunder and not joint.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
respective obligations of the several Underwriters to purchase any Securities
under this Agreement are subject to the satisfaction or waiver by the several
underwriters of each of the following conditions on the Closing Date:
(a) All the representations and warranties of the
Company contained or incorporated by reference in this Agreement shall be
true and correct on the Closing Date after giving effect to the transactions
contemplated by the Transaction Documents, with the same force and effect as
if made on and as of the Closing Date. The Company and its Subsidiaries shall
have performed or complied with all of their obligations and agreements
herein contained and required to be performed or complied with by it at or
prior to the Closing Date.
(b) (i) The Registration Statement shall have
become effective (or, if a post-effective amendment is required to be filed
pursuant to Rule 430A of the Act, such post-effective amendment shall have
become effective (or, if any Securities are sold in reliance upon Rule 430A
of the Act and no post-effective amendment is so required to be filed, the
Prospectus shall have been timely filed with the Commission in accordance
with Section 4(a) hereof)) on the date of this Agreement or at such later
date and time as you may approve in writing, (ii) at the Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
commenced or shall be pending before or contemplated by the Commission and
every request for additional information on the part of the Commission shall
have been complied with in all respects, (iii) no stop order suspending the
sale of the Securities in any jurisdiction referred to in Section 4(i) shall
have been issued and no proceeding for that purpose shall have been commenced
or shall be pending or threatened, and (iv) since the effective date of the
Registration Statement, there shall not have occurred any event required to
be set forth in an amendment or supplement to the Registration Statement or
Prospectus that has not been set forth, and there shall not have been any
document required to be filed under the Exchange Act that upon such filing
would be deemed to be incorporated by reference in the Prospectus that has
not been so filed.
(c) No action shall have been taken and no statute,
rule, regulation or order shall have been enacted, adopted or issued by any
governmental
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<PAGE>
agency, body or official which would, as of the Closing Date, prevent the
issuance of the Securities; and no injunction, restraining order or order of
any nature by any Federal or state court shall have been issued as of the
Closing Date which would prevent the issuance of the Securities. Subsequent
to the execution and delivery of this Agreement and prior to the Closing
Date, there shall not have been any downgrading, nor shall any notice have
been given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) of the Act.
(d) (i) Since the earlier of the date hereof or the
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any Material Adverse Change, (ii) since
the date of the latest balance sheet included in the Registration Statement
and the Prospectus, there shall not have been any material adverse change, or
development involving a prospective material adverse change, in the capital
stock or debt, of the Company and the Subsidiaries, taken as a whole, and
(iii) neither the Company nor any of its Subsidiaries shall have any
liability or obligation, direct or contingent, that is material to the
Company and the Subsidiaries, taken as a whole, and which is not disclosed in
the Registration Statement and the Prospectus.
(e) You shall have received a certificate of the
Company, dated the Closing Date, executed on behalf of the Company, by an
executive officer and a financial officer of the Company satisfactory to you
confirming, as of the Closing Date, the matters set forth in paragraphs (a),
(b), (c), (d) and (k) of this Section 7.
(f) On the Closing Date, you shall have received:
(1) an opinion (satisfactory to you and
your counsel), dated the Closing Date, of Skadden,
Arps, Slate, Meagher & Flom, counsel for the Company
("Skadden, Arps"), to the effect that:
(i) the Company has the corporate power
and corporate authority to enter into and
perform its obligations under this Agreement;
and this Agreement has been duly authorized and
validly executed and delivered by the Company;
(ii) the Registration Statement, at the
time it became effective and on the Closing
Date, complied as to form in all material
respects with the applicable requirements of
the Act and the TIA (except for financial
statements, the notes thereto and related
schedules and other financial, numerical,
statistical and accounting data included
therein and the Statement of Eligibility
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<PAGE>
and Qualification of the Trustee on Form T-1 (the
"Form T-1"), as to which no opinion need be
expressed);
(iii) each document filed pursuant to the
Exchange Act and incorporated by reference in
the Prospectus, at the time it was filed or
last amended, complied as to form in all
material respects to the applicable
requirements of the Exchange Act (except for
financial statements, the notes thereto and
related schedules and other financial,
numerical, statistical and accounting data
included or incorporated by reference therein
or omitted therefrom, as to which no opinion
need be expressed);
(iv) the Securities have been duly
authorized and executed by the Company and,
when authenticated in accordance with the terms
of the Indenture and delivered to and paid for
by the Underwriters in accordance with the
terms of this Agreement, will be valid and
binding obligations of the Company, enforceable
against the Company in accordance with their
terms and entitled to the benefits of the
Indenture under which they are being issued,
except to the extent that the enforceability
thereof may be limited by (A) bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium and other similar
laws in effect as of the date of the opinion or
thereafter relating to or affecting creditors'
rights generally and (B) general principles of
equity (regardless of whether enforcement is
sought in a proceeding at law or in equity) and
except that such counsel need express no
opinion as to the enforceability or effect of
the waiver of rights under any usury laws
pursuant to the Indenture;
(v) the Indenture has been
duly authorized, executed and delivered by the
Company and, assuming due authorization,
execution and delivery thereof by the Trustee,
is a valid and binding agreement of the
Company, enforceable against the Company in
accordance with its terms, except to the extent
that the enforceability thereof may be limited
by (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and
other similar laws in effect as of the date of
the opinion or thereafter relating to or
affecting creditors' rights generally and (B)
general principles of equity (regardless of
whether enforcement is sought in a proceeding
at law or in equity) and except that such
counsel need express no opinion as to the
enforceability or effect of the waiver of
rights under any usuary laws pursuant to the
Indenture;
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<PAGE>
(vi) the Securities and the
Indenture conform in all material respects to
the descriptions thereof contained in the
Prospectus;
(vii) the Company and each
of its Significant Subsidiaries (as identified
by the Company on a schedule to such opinion)
is a corporation existing and in good standing
under the laws of its jurisdiction or
organization;
(viii) neither the Company
nor any of its Significant Subsidiaries is (a)
an "investment company" or a company
"controlled" by an investment company within
the meaning of the Investment Company Act of
1940, as amended, or (b) a "holding company" or
a "subsidiary company" of a holding company, or
an "affiliate" therefor within the meaning of
the Public Utility Holding Company Act of 1934,
as amended;
(ix) no consent, approval,
authorization or other order of, or filing
with, any Federal, Delaware or New York
executive, legislative, judicial,
administrative or regulatory body, including,
without limitation, the Commission (each, a
"Governmental Authority"), is legally required
under any laws, rules and regulations of the
State of Delaware, the State of New York and
the United States of America that, in the
experience of such counsel, are normally
applicable to transactions of the type
contemplated by this Agreement and the
Indenture (provided that no opinion need be
expressed as to the "blue sky" or state
securities laws of any jurisdiction)
(collectively, the "Applicable Laws") for the
issuance or sale to the Underwriters of the
Securities as contemplated by this Agreement
except such as may be required under the Act,
the Exchange Act and the TIA;
(x) the execution and
delivery by the Company of this Agreement and
the Indenture and the issuance and sale of the
Securities to you as contemplated thereby and
the performance of its obligations pursuant to
this Agreement and the Indenture (A) will not
conflict with or result in a breach or
violation of any of the terms or provisions of,
or constitute a default under the charter or
bylaws of the Company; (B) will not conflict
with or result in a breach or violation of any
of the terms or provisions of, or constitute a
default (with the passage of time or otherwise)
under, or result in the imposition of a Lien on
any properties of the Company or any of its
Subsidiaries or an acceleration of indebtedness
pursuant to any of the agreements
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<PAGE>
listed on a schedule attached to such opinion,
where, in any such instance, such breach,
default, lien, acceleration of indebtedness or
conflict could have, singly or in the
aggregate, a material adverse effect or a
prospective material adverse effect on the
assets, liabilities, results of operations or
financial condition of the Company and its
Subsidiaries, taken as a whole; and (C) will
not conflict with or violate any Applicable Law
or any order or decree of Delaware, New York or
Federal Governmental Authorities by which the
Company or any of its Subsidiaries is bound,
the existence of which is actually known to
such counsel or has been specifically disclosed
to such counsel in writing by the Company;
(xi) the Credit Agreement
conforms in all material respects to the
descriptions thereof contained in the
Prospectus;
(xii) the Staff of the
Commission has orally advised such counsel that
the Registration Statement was declared
effective under the Act and the Indenture was
qualified under the TIA, in each case, at 5:00
p.m., Washington, D.C. time, on October __,
1995, and, to the best of such counsel's
knowledge, no stop order suspending the
effectiveness of the Registration Statement or
the qualification of Indenture has been issued
and no proceedings for that purpose are
pending; and the Prospectus has been sent for
filing with the Commission pursuant to Rule
425(b) within the time period required by such
Rule.
(2) In giving their opinion required by
subsection (f)(1) of this Section 7, such counsel may
state that such opinions are limited to matters
governed by the Federal laws of the United States of
America, the laws of the State of New York and the laws
of the State of Delaware.
In addition, such counsel shall state
that such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
for the Company, your representatives and your counsel
at which the contents of the Registration Statement
and the Prospectus and related matters were discussed
and, although such counsel is not passing upon, and
does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in
the Registration Statement or the Prospectus on the
basis of the foregoing, no fact has come to the
attention of such counsel that leads it to believe that
the Registration Statement, at the time it became
effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as of its date
-22-
<PAGE>
and as of the Closing Date, contained an
untrue statement of a material fact or omitted to state
a material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading, except that such counsel need not express
any opinion or belief with respect to the financial
statements, schedules and other financial, numerical,
statistical and accounting data included in or excluded
from the Registration Statement or the Prospectus, the
exhibits to the Registration Statement or the Form T-1.
In rendering the foregoing opinions,
Skadden, Arps may rely as to matters of Nevada law on
the opinion of Woodburn & Wedge, Nevada counsel to the
Company, or such other counsel as is reasonably
satisfactory to the Underwriters' Counsel.
(3) an opinion (satisfactory to you and
Underwriters' Counsel), dated the Closing Date, of
Scott M. Brown, Esq., Senior Vice President and General
Counsel of the Company, to the effect that:
(i) the descriptions in the
Registration Statement and the Prospectus of
statutes, legal and governmental proceedings,
contracts and other documents and regulatory
matters, including, without limitation, those
described in the Prospectus under the
captions "Risk Factors--Limits on
Reimbursement," "--Extensive Regulation,"
"--Healthcare Reform Legislation,"
"Business--Medicare, Medicaid and other
Revenues," and "--Healthcare Reform,
Regulation and Licensing," and in the
Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1995 under the
captions "Medicare, Medicaid and Other
Revenues" and "Health Care Reform, Regulation
and Licensing" insofar as such statements
constitute summaries of legal matters,
documents or proceedings referred to therein
are accurate in all material respects and
such counsel does not know of any contracts
or documents of a character required to be
described in the Registration Statement or
Prospectus (or required to be filed under the
Exchange Act if upon such filing they would
be incorporated by reference therein) or to
be filed as exhibits to the Registration
Statement which are not described and filed
as required; it being understood that such
counsel need express no opinion as to the
financial statements, notes or schedules or
other financial data included therein or
those parts of the Registration Statement
that constitute the Form T-1);
(ii) each of the Company and
its Significant Subsidiaries has such
Authorizations from all regulatory
-23-
<PAGE>
or governmental officials, bodies and tribunals
as are necessary to own, lease and operate
its respective properties and to conduct its
business in the manner described in the
Prospectus;
(iii) to the best of such
counsel's knowledge, there is no current,
pending or threatened action, suit or
proceeding before any court or governmental
agency, authority or body or any arbitrator
involving the Company or any of its
Subsidiaries or to which any of their
respective property is subject of a character
required to be disclosed in the Registration
Statement which is not adequately disclosed
in the Prospectus;
(iv) all of the issued and
outstanding shares of capital stock of, or
other ownership interests in, each
Significant Subsidiary of the Company have
been duly and validly authorized and issued,
and the shares of capital stock of, or other
ownership interests in, each such subsidiary
are owned of record, directly or through
subsidiaries, by the Company, are fully paid
and nonassessable, and to the best knowledge
of such counsel are owned free and clear of
any material, consensual Lien, other than
Liens arising under the Credit Agreement; and
(v) the Company and each of
its significant subsidiaries (as defined
under the Commission's Regulation S-X and
identified on a schedule to such opinion) is
a duly organized corporation, has the
requisite corporate power and authority to
own, lease and operate its properties and to
conduct its business as described in the
Registration Statement and the Prospectus,
and, to the extent each is a party thereto,
to execute, deliver and perform its
obligations pursuant to the Indenture and
this Agreement, and is duly qualified as a
foreign corporation and in good standing in
each jurisdiction where the ownership,
leasing or operation of property or the
conduct of its business requires such
qualification, except where the failure so to
be qualified could not have, singly or in the
aggregate, a Material Adverse Effect.
(4) In giving their opinion required by
subsection f(3) of this Section 7, such counsel shall
state that no fact has come to the attention of such
counsel that leads it to believe that the descriptions
of statutes, legal and governmental proceedings,
contracts and other documents and regulatory matters
described in the Registration Statement and the
Prospectus under the captions set forth in subsection
(f)(3)(i) of this Section 7 contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
-24-
<PAGE>
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading.
(g) You shall have received an opinion, dated the
Closing Date, of Davis Polk & Wardwell counsel for the Underwriters, in form
and substance reasonably satisfactory to you.
(h) You shall have received complete sets of all closing
documents, including without limitation all opinions, required to be
delivered under any of the other Transaction Documents.
(i) You shall have received letters on and as of the
date hereof as well as on and as of the Closing Date, in the latter case
constituting an affirmation of the statements set forth in the earlier
letters, in form and substance satisfactory to you, from KPMG Peat Marwick
LLP and Price Waterhouse LLP, independent public accountants to the Company
and AMH, respectively, with respect to the financial statements and certain
financial information contained or incorporated by reference in the
Registration Statement and the Prospectus as you shall reasonably require.
(j) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Agreement, the
Securities, the Registration Statement and the Prospectus, and all other
legal matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory to Davis Polk & Wardwell and such
counsel shall have been furnished with such documents and opinions, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
this Section 7, in order to evidence the accuracy, completeness and
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained and to render the opinion referred
to in Section 7(g) hereof.
(k) There shall have been no amendments, alterations,
modifications, or waivers of any provisions of the Transaction Documents
since the date of the execution and delivery thereof by the parties thereto
other than those which are disclosed in the Registration Statement or the
Prospectus or any supplement thereto or which under the Act are not required
to be disclosed in the Prospectus or any supplement thereto and which have
been disclosed to the Underwriters prior to the date hereof.
8. EFFECTIVE DATE OF AGREEMENT, DEFAULT AND TERMINATION.
This Agreement shall become effective upon the later of (i) the execution and
delivery of this Agreement by the parties hereto, (ii) the effectiveness of
the Registration Statement, and (iii) if a post-effective amendment is
required to be filed pursuant to Rule 430A under the Act, the effectiveness
of such post-effective amendment.
-25-
<PAGE>
This Agreement may be terminated at any time on or prior
to the Closing Date by you by notice to the Company if any of the following
has occurred: (i) subsequent to the date the Registration Statement is
declared effective or the date of this Agreement, any Material Adverse Change
which, in your judgment, impairs the investment quality of the Securities,
(ii) any outbreak or escalation of hostilities or other national or
international calamity or crisis or material adverse change in the financial
markets of the United States or elsewhere, or any other substantial national
or international calamity or emergency if the effect of such outbreak,
escalation, calamity, crisis or emergency would, in your judgment make it
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (iii) any suspension or limitation of trading
generally in securities, or in any securities of the Company, on the New
York, American or Pacific Stock Exchanges, the National Association of
Securities Dealers Automated Quotation National Market, or the
over-the-counter markets or any setting of minimum prices for trading on such
exchanges or markets, (iv) any declaration of a general banking moratorium by
either Federal or New York authorities, (v) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs that in your judgment has a material adverse effect on the
financial markets in the United States, and would, in your judgment, make it
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (vi) any securities of the Company or any of
its Subsidiaries shall have been downgraded or placed on any "watch list" for
possible downgrading or reviewed for a possible change that does not indicate
the direction of the possible change by any "nationally recognized
statistical rating organization," as such term is defined for purposes of
Rule 436(g)(2) of the Act, or (vii) the enactment, publication, decree or
other promulgation of any Federal or state statute, regulation, or rule or
order of any court or other governmental authority which in your judgment
could have a Material Adverse Effect.
If this Agreement shall be terminated by you pursuant to
clause (i), (vi) or, in the case of a statute, regulation, rule or order
specifically addressing the Company, and not affecting its industry
generally, (vii) of the second paragraph of this Section 8 or because of the
failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse you for all reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of counsel) incurred by you.
Notwithstanding any termination of this Agreement, the Company shall be
liable for all expenses which it has agreed to pay pursuant to Section 4(f)
hereof. If this Agreement is terminated pursuant to this Section 8, such
termination shall be without liability of any Underwriter to the Company or
any of its Subsidiaries.
If on the Closing Date any of the Underwriters shall fail
or refuse to purchase the Securities which it has agreed to purchase
hereunder on such date, and the aggregate principal amount of such Securities
that such defaulting Underwriter or Underwriters, as the case may be, agreed
but failed or refused to purchase does not
-26-
<PAGE>
exceed 20% of the total principal amount of such Securities to be purchased
on such date by all Underwriters, each non-defaulting Underwriter shall be
obligated severally, in the proportion which the amount of Securities set
forth opposite its name in Schedule I and Schedule II, respectively, hereto
bears to the aggregate principal amount of Securities which all the
non-defaulting Underwriters, as the case may be, have agreed to purchase, or
in such other proportion as you (at your option) may specify, to purchase the
Securities that such defaulting Underwriter or Underwriters, as the case may
be, agreed but failed or refused to purchase on such date; PROVIDED that in
no event shall the aggregate principal amount of Securities that any
Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 8 by an amount in excess of one-ninth of such
principal amount of Securities without the written consent of such
Underwriter. If, on the Closing Date any of the Underwriters shall fail or
refuse to purchase the Securities, as the case may be, and the total
principal amount of Securities with respect to which such default occurs
exceeds 20% of the total amount of Securities to be purchased on such date by
all Underwriters and arrangements satisfactory to you and the Company for the
purchase of such Securities are not made within 48 hours after such default,
this Agreement shall terminate without liability on the part of the
non-defaulting Underwriters and the Company, except as otherwise provided in
this Section 8. In any such case that does not result in termination of this
Agreement, either you or the Company may postpone the Closing Date for not
longer than seven (7) days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall
not relieve a defaulting Underwriter from liability in respect of any default
of any such Underwriter under this Agreement.
9. NOTICES. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to it at
2700 Colorado Avenue, Santa Monica, California 90404, Attention: Treasurer,
with copies to Attention: General Counsel and to Skadden, Arps, Slate,
Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los Angeles, California
90071, Attention: Thomas C. Janson, Jr. and (b) if to any Underwriter, to
Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York,
New York 10005, Attention: Syndicate Department, and, in each case, with a
copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017, Attention : Richard D. Truesdell, Jr., or in any case to such other
address as the person to be notified may have requested in writing.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPALS OF CONFLICTS OF LAW. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK
STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT,
ACTION OR PROCEEDING RELATED
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<PAGE>
TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY
WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
11. SEVERABILITY. Any determination that any provision
of this Agreement may be, or is, unenforceable shall not affect the
enforceability of the remainder of this Agreement.
12. SUCCESSORS. Except as otherwise provided, this
Agreement has been and is made solely for the benefit of and shall be binding
upon the Company, the Underwriters, any Indemnified Person referred to herein
and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any
right under or by virtue of this Agreement. The terms "successors and
assigns" shall not include a purchaser of any of the Securities from any of
the Underwriters merely because of such purchase.
13. CERTAIN DEFINITIONS. For purposes of this
Agreement, (a) "business day", means any day on which the NYSE is open for
trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the Act.
14. COUNTERPARTS. This Agreement may be executed in one
or more counterparts and, if executed in one or more counterparts, the
executed counterparts shall each be deemed to be an original, not all such
counterparts shall together constitute one and the same instrument.
15. HEADINGS. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to
affect the meaning or interpretation of, this Agreement.
16. SURVIVAL. The indemnities and contribution
provisions and the other agreements, representations and warranties of the
Company, its officers and directors and of the Underwriters set forth in or
made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Securities,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any of the Underwriters or by or on behalf of the
Company, the officers or directors of the Company or any controlling person
of the
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Company, (ii) acceptance of the Securities and payment for them hereunder and
(iii) termination of this Agreement.
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<PAGE>
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument. Please confirm that
the foregoing correctly sets forth the agreement among the Company and you.
Very truly yours,
TENET HEALTHCARE CORPORATION
By:_____________________________
Name: Terence P. McMullen
Title: Senior Vice President
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
Acting on behalf of themselves
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:___________________________________
Name: David L. Dennis
Title: Managing Director
J.P. MORGAN SECURITIES INC.
By:___________________________________
Name: Erik R. Oken
Title: Attorney-in-fact for
J.P. Morgan Securities Inc.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:___________________________________
Name: Mathew M. Pendo
Title: Vice President
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MORGAN STANLEY & CO. INCORPORATED
By:___________________________________
Name: Joel P.Feldmann
Title: Principal
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL PERCENTAGE
AMOUNT OF TOTAL
--------- ----------
<S> <C> <C>
Donaldson, Lufkin & Jenrette Securities Corporation. . . $ %
J.P. Morgan Securities Inc. . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith Incorporated . . .
Morgan Stanley & Co. Incorporated. . . . . . . . . . . .
Total. . . . . . . . . . . . $ %
</TABLE>
I-1
<PAGE>
DRAFT
===============================================================================
TENET HEALTHCARE CORPORATION
--------------------------------
$300,000,000
__% SENIOR NOTES due 2003
--------------------------------
-----------------------------
INDENTURE
Dated as of October __, 1995
-----------------------------
--------------------------------
THE BANK OF NEW YORK
--------------------------------
as Trustee
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions . . . . . . . . . . . . . . . 3
Section 1.02. Other Definitions . . . . . . . . . . . . 17
Section 1.03. Incorporation by Reference of TIA . . . . 17
Section 1.04. Rules of Construction . . . . . . . . . . 18
ARTICLE 2
THE SECURITIES; OFFER TO PURCHASE PROCEDURES
Section 2.01. Form and Dating . . . . . . . . . . . . . 18
Section 2.02. Execution and Authentication. . . . . . . 19
Section 2.03. Registrar and Paying Agent. . . . . . . . 19
Section 2.04. Paying Agent to Hold Money in Trust . . . 20
Section 2.05. Holder Lists. . . . . . . . . . . . . . . 20
Section 2.06. Transfer and Exchange . . . . . . . . . . 21
Section 2.07. Replacement Securities. . . . . . . . . . 21
Section 2.08. Outstanding Securities. . . . . . . . . . 22
Section 2.09. Treasury Securities . . . . . . . . . . . 22
Section 2.10. Temporary Securities. . . . . . . . . . . 22
Section 2.11. Cancellation. . . . . . . . . . . . . . . 23
Section 2.12. Defaulted Interest. . . . . . . . . . . . 23
Section 2.13. Record Date . . . . . . . . . . . . . . . 23
Section 2.14. CUSIP Number. . . . . . . . . . . . . . . 23
Section 2.15. Offer to Purchase By Application of
Excess Proceeds . . . . . . . . . . . . . 24
ARTICLE 3
COVENANTS
Section 3.01. Payment of Securities . . . . . . . . . . 26
Section 3.02. Maintenance of Office or Agency . . . . . 27
Section 3.03. Commission Reports. . . . . . . . . . . . 28
Section 3.04. Compliance Certificate. . . . . . . . . . 29
Section 3.05. Taxes . . . . . . . . . . . . . . . . . . 30
Section 3.06. Stay, Extension and Usury Laws. . . . . . 30
Section 3.07. Limitations on Restricted Payments. . . . 30
Section 3.08. Limitations on Dividend and Other
Payment Restrictions Affecting
Subsidiaries. . . . . . . . . . . . . . . 33
Section 3.09. Limitations on Incurrence of
Indebtedness and Issuance of Preferred
Stock . . . . . . . . . . . . . . . . . . 34
Section 3.10. Asset Sales . . . . . . . . . . . . . . . 37
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 3.11. Limitations on Transactions with
Affiliates . . . . . . . . . . . . . . . 38
Section 3.12. Limitations on Liens. . . . . . . . . . . 39
Section 3.13. Change of Control . . . . . . . . . . . . 39
Section 3.14. Corporate Existence . . . . . . . . . . . 41
Section 3.15. Line of Business. . . . . . . . . . . . . 42
Section 3.16. Limitations on Issuances of Guarantees
of Indebtedness by Subsidiaries . . . . . 42
ARTICLE 4
SUCCESSORS
Section 4.01. Limitations On Mergers, Consolidations
or Sales of Assets. . . . . . . . . . . . 42
Section 4.02. Successor Corporation Substituted . . . . 43
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.01. Events of Default . . . . . . . . . . . . 44
Section 5.02. Acceleration. . . . . . . . . . . . . . . 46
Section 5.03. Other Remedies. . . . . . . . . . . . . . 47
Section 5.04. Waiver of Past Defaults . . . . . . . . . 47
Section 5.05. Control by Majority . . . . . . . . . . . 48
Section 5.06. Limitation on Suits . . . . . . . . . . . 48
Section 5.07. Rights of Holders to Receive Payment. . . 49
Section 5.08. Collection Suit by Trustee. . . . . . . . 49
Section 5.09. Trustee May File Proofs of Claim. . . . . 49
Section 5.10. Priorities. . . . . . . . . . . . . . . . 50
Section 5.11. Undertaking for Costs . . . . . . . . . . 50
ARTICLE 6
TRUSTEE
Section 6.01. Duties of Trustee . . . . . . . . . . . . 51
Section 6.02. Rights of Trustee . . . . . . . . . . . . 52
Section 6.03. Individual Rights of Trustee. . . . . . . 53
Section 6.04. Trustee's Disclaimer. . . . . . . . . . . 53
Section 6.05. Notice of Defaults. . . . . . . . . . . . 53
Section 6.06. Reports by Trustee to Holders . . . . . . 53
Section 6.07. Compensation and Indemnity. . . . . . . . 54
Section 6.08. Replacement of Trustee. . . . . . . . . . 55
Section 6.09. Successor Trustee or Agent by Merger,
etc. . . . . . . . . . . . . . . . . . . 56
Section 6.10. Eligibility; Disqualification . . . . . . 56
Section 6.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . 56
ARTICLE 7
DISCHARGE OF INDENTURE
Section 7.01. Defeasance and Discharge of this
Indenture and the Securities. . . . . . . 56
Section 7.02. Legal Defeasance and Discharge. . . . . . 57
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.03. Covenant Defeasance . . . . . . . . . . . 57
Section 7.04. Conditions to Legal or Covenant
Defeasance . . . . . . . . . . . . . . . 58
Section 7.05. Deposited Money and Government
Securities to be Held in Trust; Other
Miscellaneous Provisions. . . . . . . . . 60
Section 7.06. Repayment to Company. . . . . . . . . . . 60
Section 7.07. Reinstatement . . . . . . . . . . . . . . 61
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
Section 8.01. Without Consent of Holders. . . . . . . . 61
Section 8.02. With Consent of Holders . . . . . . . . . 62
Section 8.03. Compliance with TIA . . . . . . . . . . . 63
Section 8.04. Revocation and Effect of Consents . . . . 64
Section 8.05. Notation on or Exchange of Securities . . 64
Section 8.06. Trustee to Sign Amendments, etc . . . . . 64
ARTICLE 9
MISCELLANEOUS
Section 9.01. TIA Controls. . . . . . . . . . . . . . . 65
Section 9.02. Notices . . . . . . . . . . . . . . . . . 65
Section 9.03. Communication by Holders with Other
Holders. . . . . . . . . . . . . . . . . 66
Section 9.04. Certificate and Opinion as to
Conditions Precedent. . . . . . . . . . . 66
Section 9.05. Statements Required in Certificate or
Opinion. . . . . . . . . . . . . . . . . 67
Section 9.06. Rules by Trustee and Agents . . . . . . . 67
Section 9.07. Legal Holidays. . . . . . . . . . . . . . 67
Section 9.08. No Personal Liability of Directors,
Officers, Employees and Shareholders. . . 67
Section 9.09. Duplicate Originals . . . . . . . . . . . 68
Section 9.10. Governing Law . . . . . . . . . . . . . . 68
Section 9.11. No Adverse Interpretation of Other
Agreements. . . . . . . . . . . . . . . . 68
Section 9.12. Successors. . . . . . . . . . . . . . . . 68
Section 9.13. Severability. . . . . . . . . . . . . . . 68
Section 9.14. Counterpart Originals . . . . . . . . . . 68
Section 9.15. Table of Contents, Headings, etc. . . . . 69
EXHIBITS
Exhibit A FORM OF SECURITY. . . . . . . . . . . . . A
Exhibit B FORM OF SUPPLEMENTAL INDENTURE. . . . . . B
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
- --------------- -----------------
<S> <C>
310 (a)(1). . . . . . . . . . . . . . . . 6.10
(a)(2). . . . . . . . . . . . . . . . . 6.10
(a)(3) . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . 6.10
(b) . . . . . . . . . . . . . . . . . . 6.08; 6.10
(c) . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . 6.11
(b) . . . . . . . . . . . . . . . . . . 6.11
(c) . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . 9.03
(c) . . . . . . . . . . . . . . . . . . 9.03
313 (a) . . . . . . . . . . . . . . . . . 6.06
(b)(1) . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . 6.06
(c) . . . . . . . . . . . . . . . . . . 6.06; 9.02
(d) . . . . . . . . . . . . . . . . . . 6.06
314 (a) . . . . . . . . . . . . . . . . . 3.03; 9.02
(b) . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . 9.04
(c)(2) . . . . . . . . . . . . . . . . 9.04
(c)(3) . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . 9.05
(f) . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . 6.01(iii)(b)
(b) . . . . . . . . . . . . . . . . . . 6.05; 9.02
(c) . . . . . . . . . . . . . . . . . 6.01(i)
(d) . . . . . . . . . . . . . . . . . . 6.01(iii)
(e) . . . . . . . . . . . . . . . . . . 5.11
316 (a)(last sentence) . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . 5.05
(a)(1)(B) . . . . . . . . . . . . . . . 5.04
(a)(2) . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . 5.07
(c) . . . . . . . . . . . . . . . . . . 2.13; 8.04
317 (a)(1) . . . . . . . . . . . . . . . 5.08
(a)(2) . . . . . . . . . . . . . . . . 5.09
(b) . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . 9.01
(b) . . . . . . . . . . . . . . . . . . N.A.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(c) . . . . . . . . . . . . . . . . . . 9.01
<FN>
N.A. means not applicable.
____________________________
*THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE.
</TABLE>
2
<PAGE>
INDENTURE dated as of October __, 1995 between Tenet Healthcare Corporation,
a Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee
(the "TRUSTEE").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the __% Senior
Notes due 2003 (the "SECURITIES"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale
and leaseback) other than in the ordinary course of business consistent with
past practices (PROVIDED that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole shall be governed by Section 3.13 and/or
Article 4 hereof and not by Section 3.10 hereof), and (ii) the issuance or
sale by the Company or any of its Subsidiaries of Equity Interests of any of
the Company's Subsidiaries, in the case of either clause (i) or (ii), whether
in a single transaction or a series of related transactions (a) that have a
fair market value in excess of $25.0 million or (b) for net proceeds in
excess of
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$25.0 million. Notwithstanding the foregoing: (a) a transfer of assets by
the Company to a Subsidiary or by a Subsidiary to the Company or to another
Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the
Company or to another Subsidiary, (c) a Restricted Payment that is permitted
by Section 3.07 hereof and (d) a Hospital Swap shall not be deemed to be an
Asset Sale.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any authorized committee thereof.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE" means, at the time any determination thereof is to be
made, any lease of property, real or personal, in respect of which the
present value of the minimum rental commitment would be capitalized on a
balance sheet of the lessee in accordance with GAAP.
"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, participations, 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, 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.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a
Change of Control and a Rating Decline.
"COMMISSION" means the Securities and Exchange Commission.
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<PAGE>
"COMPANY" means Tenet Healthcare Corporation, as obligor under the
Securities, unless and until a successor replaces Tenet Healthcare
Corporation, in accordance with Article 4 hereof and thereafter includes such
successor.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period PLUS (i)
an amount equal to any extraordinary loss of such Person plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), PLUS (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent such provision for taxes was included in computing such
Consolidated Net Income, PLUS (iii) the Fixed Charges of such Person and its
Subsidiaries for such period, to the extent that such Fixed Charges were
deducted in computing such Consolidated Net Income, PLUS (iv) depreciation
and amortization (including amortization of goodwill and other intangibles
but excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Subsidiaries for such period to the extent
that such depreciation and amortization were deducted in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization of,
a Subsidiary of the referent Person shall be added to Consolidated Net Income
to compute Consolidated Cash Flow only to the extent (and in same proportion)
that the Net Income of such Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
but excluding any one-time charge or expense incurred in order to consummate
the Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition
5
<PAGE>
shall be excluded and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"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 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 hereof 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 hereof 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.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 9.02 hereof or such other address as to which
the Trustee may give notice to the Company.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
February 28, 1995, 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.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"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
December 1, 2003.
6
<PAGE>
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement in existence
on the date hereof, until such amounts are repaid, including all
reimbursement obligations with respect to letters of credit outstanding as of
the date hereof (other than letters of credit issued pursuant to the Credit
Agreement).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period; PROVIDED,
HOWEVER, that in the event that the Company or any of its Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated
but prior to the date on which the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period; and PROVIDED
FURTHER that for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related
financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period, and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations) and (ii) the consolidated interest
expense of such Person and its Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness
7
<PAGE>
of another Person that is Guaranteed by such Person or one of its
Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments
in the case of a Person that is a Subsidiary) on any series of preferred
stock of such Person, TIMES (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"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.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"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.
"HOLDER" means a Person in whose name a Security is registered.
"HOSPITAL" means a hospital, outpatient clinic, long-term care
facility or other facility that is used or useful in the provision of
healthcare services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a
Subsidiary of the Company for one or more Hospitals and/or one or more
Related Businesses or for the Capital Stock of any Person owning one or more
Hospitals and/or one or more Related Businesses.
"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
8
<PAGE>
(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.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time.
"INTERNATIONAL SUBSIDIARIES" means International-NME, Inc., NME
(Australia) Pty. Limited, and any of its Subsidiaries.
"INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In
the event that the Company shall select any other Rating Agency, the
equivalent of such ratings by such Rating Agency shall be used.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; PROVIDED that an acquisition of assets,
Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment.
"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).
"METROCREST LETTER OF CREDIT FACILITY" means that certain letter of
credit facility, dated as of February 28, 1995, by and among the Company and
Morgan Guaranty Trust Company of New York and the other banks that are party
thereto, in an aggregate principal amount of $91.35 million.
9
<PAGE>
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction
in respect of preferred stock dividends, excluding, however, (i) any gain
(but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any permitted Non-Cash Consideration received in any Asset Sale), net of the
direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales commissions) and any
other expenses incurred or to be incurred by the Company or a Subsidiary as a
direct result of the sale of such assets (including, without limitation,
severance, relocation, lease termination and other similar expenses), taxes
actually paid or payable as a result thereof, amounts required to be applied
to the repayment of Indebtedness (other than Senior Term Debt or Senior
Revolving Debt) secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"NON-CASH CONSIDERATION" means any non-cash consideration received by
the Company or a Subsidiary of the Company in connection with an Asset Sale
and any non-cash consideration received by the Company or any of its
Subsidiaries upon disposition thereof.
"NON-RECOURSE DEBT" means Indebtedness of an International Subsidiary
(i) as to which neither the Company nor any of its Subsidiaries (other than
the International Subsidiaries) (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness of the Company or any of its Subsidiaries), or (b) is directly
or indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an International Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of
the Company or any of its Subsidiaries (other than the International
Subsidiaries) to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity
(except any such provisions set forth in Existing Indebtedness until the same
is repaid or refinanced).
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"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary and any Vice President of the Company or any Subsidiary, as the
case may be.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers,
one of whom must be the principal executive officer, principal financial
officer or principal accounting officer of the Company.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company, any Subsidiary or the Trustee.
"PAYMENT DEFAULT" means 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.
"PERFORMANCE INVESTMENT PLAN" means the 1989 Performance Investment
Plan adopted by the Company's Board of Directors on March 10, 1989.
"PERMITTED COLLATERAL" means, collectively, (i) all Capital Stock and
other Equity Interests of the Company's present and future direct
Subsidiaries, (ii) all intercompany Indebtedness owed to the Company and
(iii) all Capital Stock and other Equity Interests in Westminster Health Care
Holdings PLC owned by the Company or its Subsidiaries.
"PERMITTED LIENS" means (i) Liens on Permitted Collateral securing
Senior Term Debt of the Company under the Credit Agreement in an aggregate
principal amount at any time outstanding not to exceed an amount equal to
$1.8 billion less the aggregate amount of all repayments, optional or
mandatory, of the principal of any Senior Term Debt (other than repayments
that are immediately reborrowed) that have been made since March 1, 1995;
(ii) Liens on Permitted Collateral securing Senior Revolving Debt and letters
of credit of the Company incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding (with letters of credit
being deemed to have a principal amount equal to the maximum potential
reimbursement obligation of the Company with respect thereto) not to exceed
an amount equal to $500.0 million less the aggregate amount of all Net
Proceeds of Asset Sales applied to permanently reduce commitments with
respect to such Indebtedness pursuant to Section 3.10 hereof since March 1,
1995; (iii) Liens in favor of the Company; (iv) Liens on property of a Person
existing at the time such Person is merged into or
11
<PAGE>
consolidated with the Company or any Subsidiary of the Company or becomes a
Subsidiary of the Company; PROVIDED that such Liens were in existence prior
to the contemplation of such merger, consolidation or acquisition and do not
extend to any assets other than those of the Person merged into or
consolidated with the Company or that becomes a Subsidiary of the Company;
(v) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, PROVIDED that such Liens were in
existence prior to the contemplation of such acquisition; (vi) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vii) Liens existing on the date hereof,
including, without limitation, Liens on Permitted Collateral securing
reimbursement obligations under the Metrocrest Letter of Credit Facility;
(viii) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
PROVIDED that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) other Liens on
assets of the Company or any Subsidiary of the Company securing Indebtedness
that is permitted by the terms hereof to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed 10% of the
Stockholders' Equity of the Company; and (x) Liens to secure Permitted
Refinancing Indebtedness incurred to refinance Indebtedness that was secured
by a Lien permitted hereunder and that was incurred in accordance with the
provisions hereof; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary other than assets or
property securing the Indebtedness so refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used solely to extend, refinance, renew, replace,
defease or refund, other Indebtedness of the Company or any of its
Subsidiaries; PROVIDED that, except in the case of Indebtedness of the
Company issued in exchange for, or the net proceeds of which are used solely
to extend, refinance, renew, replace, defease or refund, Indebtedness of a
Subsidiary of the Company: (i) the principal amount of such Permitted
Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of any premiums paid and reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the Securities, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Securities on terms at least as
favorable to the Holders of Securities as those
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<PAGE>
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Subsidiary who is
the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated
organization (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by
the Company or any of its Subsidiaries to any physician, pharmacist or other
allied healthcare professional in connection with the unwinding, liquidation
or other termination of any joint venture or similar arrangement between any
such Person and the Company or any of its Subsidiaries.
"PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee
incurred in the ordinary course of business by the Company or a Subsidiary of
the Company in connection with any advance, loan or payment to, or on behalf
of or for the benefit of any physician, pharmacist or other allied healthcare
professional for the purpose of recruiting, redirecting or retaining the
physician, pharmacist or other allied healthcare professional to provide
service to patients in the service area of any Hospital or Related Business
owned or operated by the Company or any of its Subsidiaries; EXCLUDING,
HOWEVER, compensation for services provided by physicians, pharmacists or
other allied healthcare professionals to any Hospital or Related Business
owned or operated by the Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the
Company other than Disqualified Stock of the Company.
"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 Securities publicly available,
a nationally recognized securities rating agency or agencies, as the case may
be, selected by the Company, 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 Securities 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
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account (E.G., with respect to S&P, a decline in a rating from BB+ to BB, as
well as from BB- to B+, shall 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 Securities is under publicly
announced consideration for possible downgrade by any of the Rating Agencies)
of: (a) in the event the Securities are rated by either Moody's or S&P on
the Rating Date as Investment Grade, a decrease in the rating of the
Securities by both Rating Agencies to a rating that is below Investment
Grade, or (b) in the event the Securities are rated below Investment Grade by
both Rating Agencies on the Rating Date, a decrease in the rating of the
Securities by either Rating Agency by one or more gradations (including
gradations within Rating Categories as well as between Rating Categories).
"REFINANCING" has the meaning ascribed to it in the prospectus dated
February 21, 1995 relating to the Company's 9 5/8% Senior Notes due 2002 and
the Senior Subordinated Notes.
"RELATED BUSINESS" means a healthcare business affiliated or
associated with a Hospital or any business related or ancillary to the
provision of healthcare services or the operation of a Hospital.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means an Investment in any of the
International Subsidiaries.
"SECURITIES" means the securities described above, issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR REVOLVING DEBT" means revolving credit loans outstanding from
time to time under the Credit Agreement.
"SENIOR SUBORDINATED NOTES" means the 10 1/8% Senior Subordinated
Notes due 2005 of the Company in an aggregate principal amount of $900.0
million, issued pursuant to the Senior Subordinated Note Indenture.
"SENIOR SUBORDINATED NOTES INDENTURE" means the Indenture dated as of
March 1, 1995 between the Company and The Bank of New York, as trustee, as
amended or supplemented from time to time, under which the Senior
Subordinated Notes were issued.
"SENIOR TERM DEBT" means term loans outstanding from time to time
under the Credit Agreement.
"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 hereof.
"S&P" means Standard & Poor's Corporation and its successors.
"SPECIFIED ASSETS" means the Company's and its Subsidiaries' interest
in The Hillhaven Corporation and Westminster Healthcare Holdings PLC owned as
of the date hereof and the Capital Stock and assets of the International
Subsidiaries.
"STOCKHOLDERS' EQUITY" means, with respect to any Person as of any
date, the stockholders' equity of such Person determined in accordance with
GAAP as of the date of the most recent available internal financial
statements of such Person, and calculated on a pro forma basis to give effect
to any acquisition or disposition by such Person consummated or to be
consummated since the date of such financial statements and on or prior to
the date of such calculation.
"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 of the 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 (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof); PROVIDED that no International Subsidiary shall be deemed to be a
"Subsidiary" for any purpose hereunder for so long as such International
Subsidiary: (a) has no Indebtedness other than Existing Indebtedness
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and Non-Recourse Debt; (b) is not a party to any agreement, contract,
arrangement or understanding with the Company or any of its other
Subsidiaries (other than International Subsidiaries) except any such
agreement, contract, arrangement or understanding that (i) was in effect on
the date hereof, or (ii) meets the requirements of Section 3.11 hereof; (c)
is a Person with respect to which neither the Company nor any of its
Subsidiaries (other than International Subsidiaries) has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified level of operating results except, in each
case, any such obligation in existence on the date hereof or created pursuant
to the terms of any Investment permitted by Section 3.07 hereof; and (d) has
not Guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Subsidiaries (other than
International Subsidiaries). If, at any time, any International Subsidiary
would fail to meet the foregoing requirements, it shall thereafter be deemed
to be a Subsidiary for all purposes of this Indenture and any Indebtedness of
such International Subsidiary shall be deemed to be incurred by a Subsidiary
of the Company as of such date (and, if such Indebtedness is not permitted to
be incurred as of such date under Section 3.09 hereof, the Company shall be
in default of such covenant).
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA, except as provided in Section 8.03 hereof.
"TRANSFER RESTRICTION" means, with respect to the Company's
Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary
to (i)(a) pay dividends or make any other distributions to the Company or any
of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans
or advances to the Company or any of its Subsidiaries, or (iii) transfer any
of its properties or assets to the Company or any of its Subsidiaries.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture
and thereafter means the successor serving hereunder.
"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.
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"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- -----------
<S> <C>
"Affiliate Transaction" . . . . . . . 3.11
"Bankruptcy Law". . . . . . . . . . . 5.01
"Change of Control Offer" . . . . . . 3.13
"Change of Control Payment" . . . . . 3.13
"Change of Control Payment Date". . . 3.13
"Commencement Date" . . . . . . . . . 2.15
"Covenant Defeasance" . . . . . . . . 7.03
"Custodian" . . . . . . . . . . . . . 5.01
"Event of Default". . . . . . . . . . 5.01
"Excess Proceeds" . . . . . . . . . . 3.10
"incur" . . . . . . . . . . . . . . . 3.09
"Legal Defeasance". . . . . . . . . . 7.02
"Legal Holiday" . . . . . . . . . . . 9.07
"Notice of Default" . . . . . . . . . 5.01
"Offer Amount". . . . . . . . . . . . 2.15
"Offer Period". . . . . . . . . . . . 2.15
"Paying Agent". . . . . . . . . . . . 2.03
"Purchase Date" . . . . . . . . . . . 2.15
"Purchase Price". . . . . . . . . . . 3.10
"Registrar" . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . 3.07
"Senior Asset Sale Offer" . . . . . . 3.10
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Securities;
"INDENTURE SECURITY HOLDER" means a Holder;
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"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Securities means the Company and any successor
obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by the Commission rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined
has the meaning assigned to it in accordance with
GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the
plural, and in the plural include the singular;
and
(5) provisions apply to successive events
and transactions.
ARTICLE 2
THE SECURITIES; OFFER TO PURCHASE PROCEDURES
SECTION 2.01. FORM AND DATING.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, the terms of which
are incorporated in and made a part of this Indenture. The Securities may
have notations, legends or endorsements approved as to form by the Company
and required by law, stock exchange rule, agreements to which the Company is
subject or usage. Each Security shall be dated the date of its
authentication. The Securities shall be issuable only in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
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<PAGE>
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities for the Company
by manual or facsimile signature. The Company's seal shall be reproduced on
the Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by
two Officers of the Company, authenticate Securities for original issue up to
the aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate principal amount of Securities outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Securities
may be presented for registration of transfer or for exchange (including any
co-registrar, the "REGISTRAR") and (ii) an office or agency where Securities
may be presented for payment (the "PAYING AGENT"). The Registrar shall keep
a register of the Securities and of their transfer and exchange. The Company
may appoint one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any addi-tional paying agent. The
Company may change any Paying Agent, Registrar or co-registrar without prior
notice to any Holder. The Company shall notify the Trustee and the Trustee
shall notify the Holders of the name and address of any Agent not a party to
this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The
Company shall enter into an appropriate agency agreement with
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<PAGE>
any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 6.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the
Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to the due date of principal of, premium, if any, and
interest on any Securities, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and
interest becoming due. The Company shall require each Paying Agent other
than the Trustee to agree in writing that the Paying Agent shall hold in
trust for the benefit of the Holders or the Trustee all money held by the
Paying Agent for the payment of principal of, premium, if any, and interest
on the Securities, and shall notify the Trustee of any Default by the Company
in making any such payment. While any such Default continues, the Trustee
may require a Paying Agent to pay all money held by it to the Trustee. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company) shall have no further liability for the money delivered to
the Trustee. If the Company acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of the Securities held by
each thereof, and the Company shall otherwise comply with TIA Section 312(a).
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<PAGE>
SECTION 2.06. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer
or make the exchange if its requirements for such transactions are met;
PROVIDED, HOWEVER, that any Security presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar and
the Trustee duly executed by the Holder thereof or by his attorney duly
authorized in writing. To permit registrations of transfer and exchanges,
the Company shall issue and the Trustee shall authenticate Securities at the
Registrar's request, subject to such rules as the Trustee may reasonably
require.
Neither the Company nor the Registrar shall be required to register
the transfer or exchange of a Security between the record date and the next
succeeding interest payment date.
No service charge shall be made to any Holder for any registration
of transfer or exchange (except as otherwise expressly permitted herein), but
the Company may require payment of a sum sufficient to cover any transfer tax
or similar governmental charge payable in connection therewith (other than
such transfer tax or similar governmental charge payable upon exchanges
pursuant to Sections 2.10 or 8.05 hereof, which shall be paid by the Company).
Prior to due presentment for registration of transfer of any
Security, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of, premium, if
any, and interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and neither the Trustee, any Agent
nor the Company shall be affected by notice to the contrary.
SECTION 2.07. REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Trustee or the
Company, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Security if the Trustee's
requirements for replacements of Securities are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss
which any of them may suffer if a Security is replaced. Each of the Company
and the Trustee may charge for its expenses in replacing a Security.
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Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount
of Securities then outstanding have concurred in any demand, direction,
waiver or consent, Securities owned by the Company or any Affiliate of the
Company shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in relying on
any such demand, direction, waiver or consent, only Securities that a
Responsible Officer actually knows to be so owned shall be so considered.
Notwithstanding the foregoing, Securities that are to be acquired by the
Company or an Affiliate of the Company pursuant to an exchange offer, tender
offer or other agreement shall not be deemed to be owned by the Company or an
Affiliate of the Company until legal title to such Securities passes to the
Company or such Affiliate, as the case may be.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee, upon receipt of the written order of the Company
signed by two Officers of the Company, shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company and the
Trustee consider appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee, upon receipt of the written
order of the Company signed by two Officers of the Company, shall authenticate
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<PAGE>
definitive Securities in exchange for temporary Securities. Until such
exchange, temporary Securities shall be entitled to the same rights, benefits
and privileges as definitive Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for
registration of transfer, exchange, payment, replacement or cancella-tion and
shall return such cancelled Securities to the Company. The Company may not
issue new Securities to replace Securities that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior
to the related payment date, in each case at the rate provided in the
Securities and in Section 3.01 hereof. The Company shall, with the consent
of the Trustee, fix or cause to be fixed each such special record date and
payment date. At least 15 days before the special record date, the Company
(or the Trustee, in the name of and at the expense of the Company) shall mail
to Holders a notice that states the special record date, the related payment
date and the amount of such interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP" number, and
if it does so, the Trustee shall use the CUSIP number in notices to Holders;
PROVIDED that any such notice may state that no representation is made as to
the correctness or accuracy of the CUSIP number printed in the notice or on
the Securities and that reliance may be placed only on the other
identification numbers printed on the Securities. The Company shall promptly
notify the Trustee of any change in the CUSIP number.
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<PAGE>
SECTION 2.15. OFFER TO PURCHASE BY APPLICATION OF
EXCESS PROCEEDS.
In the event that the Company shall commence a Senior Asset Sale
Offer pursuant to Section 3.10 hereof, it shall follow the procedures
specified below.
No later than the date on which the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such
Senior Asset Sale Offer and provide the Trustee with an Officers' Certificate
setting forth, in addition to the information to be included therein pursuant
to Section 3.10 hereof, the calculations used in determining the amount of
Net Proceeds to be applied to the purchase of Securities. The Company shall
commence or cause to be commenced the Senior Asset Sale Offer on a date no
later than 10 Business Days after such notice (the "COMMENCEMENT DATE").
The Senior Asset Sale Offer shall remain open for at least 20
Business Days after the Commencement Date relating to such Senior Asset Sale
Offer and shall remain open for no more than such 20 Business Days, except to
the extent required by applicable law (as so extended, the "OFFER PERIOD").
No later than one Business Day after the termination of the Offer Period (the
"PURCHASE DATE"), the Company shall purchase the principal amount (the "OFFER
AMOUNT") of Securities required to be purchased in such Senior Asset Sale
Offer pursuant to Section 3.10 hereof or, if less than the Offer Amount has
been tendered, all Securities tendered in response to the Senior Asset Sale
Offer, in each case for an amount in cash equal to the Purchase Price.
If the Purchase Date is on or after an interest payment record date
and on or before the related interest payment date, any accrued interest
shall be paid to the Person in whose name a Security is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Securities pursuant to the Senior Asset Sale
Offer.
On the Commencement Date of any Senior Asset Sale Offer, the
Company shall send, or at the Company's request the Trustee shall send, by
first class mail, a notice to each of the Holders at their last registered
address, with a copy to the Trustee and the Paying Agent, offering to
repurchase the Securities held by such Holder pursuant to the procedure
specified in such notice. Such notice, which shall govern the terms of the
Senior Asset Sale Offer, shall contain all instructions and materials
necessary to enable the Holders to tender Securities pursuant to the Senior
Asset Sale Offer and shall state:
(1) that the Senior Asset Sale Offer is
being made pursuant to this Section
2.15 and Section 3.10
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<PAGE>
hereof and the length of time the
Senior Asset Sale Offer shall remain open;
(2) the Offer Amount, the Purchase
Price and the Purchase Date;
(3) that any Security not tendered or
accepted for payment shall continue
to accrue interest;
(4) that, unless the Company defaults
in the payment of the Purchase
Price, any Security accepted for
payment pursuant to the Senior
Asset Sale Offer shall cease to
accrue interest after the Purchase
Date;
(5) that Holders electing to have a
Security purchased pursuant to any
Senior Asset Sale Offer shall be
required to surrender the Security,
with the form entitled "Option of
Holder to Elect Purchase" on the
reverse of the Security completed,
to the Company, a depositary, if
appointed by the Company, or a
Paying Agent at the address
specified in the notice prior to
the close of business on the
Business Day next preceding the
Purchase Date;
(6) that Holders shall be entitled to
withdraw their election if the
Company, depositary or Paying
Agent, as the case may be,
receives, not later than the close
of business on the Business Day
next preceding the termination of
the Offer Period, a facsimile
transmission or letter setting
forth the name of the Holder, the
principal amount of the Security
the Holder delivered for purchase
and a statement that such Holder is
withdrawing his election to have
such Security purchased;
(7) that, if the aggregate principal
amount of Securities surrendered by
Holders exceeds the Offer Amount,
the Trustee shall select the
Securities to be purchased on a PRO
RATA basis (with such adjustments
as may be deemed appropriate by the
Trustee so that only Securities in
denominations of $1,000, or
integral multiples thereof, shall
be purchased);
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(8) that Holders whose Securities were
purchased only in part shall be
issued new Securities equal in
principal amount to the unpurchased
portion of the Securities
surrendered; and
(9) the circumstances and relevant
facts regarding such Asset Sale and
any other information that would be
material to a decision as to
whether to tender a Security
pursuant to the Senior Asset Sale
Offer.
On the Purchase Date, the Company shall, to the extent lawful, (i)
accept for payment, on a PRO RATA basis to the extent necessary, an aggregate
principal amount equal to the Offer Amount of Securities tendered pursuant to
the Senior Asset Sale Offer, or if less than the Offer Amount has been
tendered, all Securities or portion thereof so tendered, (ii) deposit with
the Paying Agent an amount equal to the Purchase Price in respect of all
Securities or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an
Officers' Certificate stating the aggregate principal amount of Securities or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to each Holder of Securities so tendered payment in an amount
equal to the Purchase Price for such Securities and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) a
new Security to such Holder equal in principal amount to any unpurchased
portion of the Securities surrendered, if any; PROVIDED that each such new
Security shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Senior Asset
Sale Offer on or as soon as practicable after the Purchase Date.
The Company shall 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
purchase of Securities as a result of the Senior Asset Sale Offer.
ARTICLE 3
COVENANTS
SECTION 3.01. PAYMENT OF SECURITIES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Securities on the dates and in the
manner provided in this Indenture and the Securities. Principal, premium, if
any, and interest shall be considered paid on the date due if the Paying
Agent, if other than the Company or a Subsidiary of the Company, holds as of
10:00 a.m.
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Eastern Time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal,
premium, if any, and interest then due. Such Paying Agent shall return to
the Company, no later than five days following the date of payment, any money
(including accrued interest) that exceeds such amount of principal, premium,
if any, and interest to be paid on the Securities.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the interest rate then applicable to the
Securities to the extent lawful. In addition, it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
The Company hereby designates The Bank of New York, 101 Barclay
Street, 21 West, New York, New York 10286 as one such office or agency of the
Company in accordance with Section 2.03 hereof.
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SECTION 3.03. COMMISSION REPORTS.
(i) So long as any of the Securities remain outstanding, the
Company shall provide to the Trustee within 15 days after the filing thereof
with the Commission copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) that the
Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. All obligors on the Securities shall comply with
the provisions of TIA Section 314(a). Notwithstanding that the Company may
not be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act or otherwise report on an annual and quarterly basis on forms
provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Company shall file with the
Commission and provide to the Trustee (a) within 90 days after the end of
each fiscal year, annual reports on Form 10-K (or any successor or comparable
form) containing the information required to be contained therein (or
required in such successor or comparable form), including a "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
a report thereon by the Company's certified public accountants; (b) within 45
days after the end of each of the first three fiscal quarters of each fiscal
year, reports on Form 10-Q (or any successor or comparable form) containing
the information required to be contained therein (or required in any
successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly
from time to time after the occurrence of an event required to be therein
reported, such other reports on Form 8-K (or any successor or comparable
form) containing the information required to be contained therein (or
required in any successor or comparable form); PROVIDED, HOWEVER, that the
Company shall not be in default of the provisions of this Section 3.03(i) for
any failure to file reports with the Commission solely by the refusal of the
Commission to accept the same for filing. Each of the financial statements
contained in such reports shall be prepared in accordance with GAAP.
(ii) The Trustee, at the Company's expense, shall promptly mail
copies of all such annual reports, information, documents and other reports
provided to the Trustee pursuant to Section 3.03(i) hereof to the Holders at
their addresses appearing in the register of Securities maintained by the
Registrar.
(iii) Whether or not required by the rules and regulations of
the Commission, the Company shall 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.
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(iv) The Company shall provide the Trustee with a sufficient number
of copies of all reports and other documents and information that the Trustee
may be required to deliver to the Holders under this Section 3.03.
(v) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 3.04. COMPLIANCE CERTIFICATE.
(i) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether each has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best
of his or her knowledge each entity has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action each is taking or proposes to take
with respect thereto), all without regard to periods of grace or notice
requirements, and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Securities is prohibited or if
such event has occurred, a description of the event and what action each is
taking or proposes to take with respect thereto.
(ii) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 3.03 above shall be
accompanied by a written statement of the Company's certified independent
public accountants (who shall be a firm of established national reputation)
that in making the examination necessary for certification of such financial
statements nothing has come to their attention which would lead them to
believe that the Company or any Subsidiary of the Company has violated any
provisions of Article 3 or of Article 4 of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of
any such violation.
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(iii) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of (a) any Default or Event of Default or (b) any event of default
under any other mortgage, indenture or instrument referred to in Section
5.01(v) hereof, an Officers' Certificate specifying such Default, Event of
Default or event of default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 3.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except (i) as contested in good faith by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP or (ii) where the failure to effect such payment is not adverse in any
material respect to the Holders.
SECTION 3.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted
to the Trustee, but shall suffer and permit the execution of every such power
as though no such law has been enacted.
SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than (w) Physician Joint Venture Distributions, (x)
dividends or distributions payable in Qualified Equity Interests of the
Company, (y) dividends or distributions payable to the Company or any
Subsidiary of the Company and (z) dividends or distributions by any
Subsidiary of the Company payable to all holders of a class of Equity
Interests of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company;
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the Securities, except at the original final maturity date thereof or
pursuant to the Refinancing; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses
30
<PAGE>
(i) through (iv) above being collectively referred to as "RESTRICTED
PAYMENTS"), unless, at the time of and after giving effect to such Restricted
Payment (the amount of any such Restricted Payment, if other than cash, shall
be the fair market value (as conclusively evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee within 60 days prior to the date of such Restricted Payment) of the
asset(s) proposed to be transferred by the Company or such Subsidiary, as the
case may be, pursuant to such Restricted Payment):
(a) no Default or Event of Default shall
have occurred and be continuing or would
occur as a consequence thereof; and
(b) the Company would, at the time of such
Restricted Payment and after giving pro
forma effect thereto as if such
Restricted Payment had been made at the
beginning of the most recently ended
four full fiscal quarter period for
which internal financial statements are
available immediately preceding the date
of such Restricted Payment, have been
permitted to incur at least $1.00 of
additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section
3.09 hereof; and
(c) such Restricted Payment, together with
the aggregate of all other Restricted
Payments (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv)
and (v) of the next succeeding
paragraph) made by the Company and its
Subsidiaries after March 1, 1995, is
less than the sum of (1) 50% of the
Consolidated Net Income of the Company
for the period (taken as one accounting
period) from the beginning of the first
fiscal quarter commencing after March 1,
1995 to the end of the Company's most
recently ended fiscal quarter for which
internal financial statements are
available at the time of such Restricted
Payment (or, if such Consolidated Net
Income for such period is a deficit,
less 100% of such deficit), PLUS
(2) 100% of the aggregate net cash
proceeds received by the Company from
the issue or sale (other than to a
Subsidiary of the Company) since March
1, 1995 of Qualified Equity Interests of
the Company or of debt securities of the
Company or any of its Subsidiaries that
have been converted into or exchanged
for such Qualified Equity Interests of
the Company, PLUS (3) $20.0 million.
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If no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, the foregoing provisions shall not
prohibit:
(i) the payment of any dividend within 60
days after the date of declaration
thereof, if at said date of declaration
such payment would have complied with
the provisions hereof;
(ii) the payment of cash dividends on any
series of Disqualified Stock issued
after the date hereof in an aggregate
amount not to exceed the cash received
by the Company since the date hereof
upon issuance of such Disqualified
Stock;
(iii)the repurchase of the Performance
Investment Plan investment options
from the holders thereof;
(iv) the redemption, repurchase, retirement
or other acquisition of any Equity
Interests of the Company or any
Subsidiary in exchange for, or out of
the net cash proceeds of, the
substantially concurrent sale (other
than to a Subsidiary of the Company) of
Qualified Equity Interests of the
Company; PROVIDED that the amount of any
such net cash proceeds that are utilized
for any such redemption, repurchase,
retirement or other acquisition shall be
excluded from clause (c)(2) of the
preceding paragraph;
(v) the defeasance, redemption or repurchase
of subordinated Indebtedness with the
net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or in
exchange for or out of the net cash
proceeds from the substantially
concurrent sale (other than to a
Subsidiary of the Company) of Qualified
Equity Interests of the Company;
PROVIDED that the amount of any such net
cash proceeds that are utilized for any
such redemption, repurchase, retirement
or other acquisition shall be excluded
from clause (c)(2) of the preceding
paragraph;
(vi) the repurchase, redemption or other
acquisition or retirement for value of
any Equity Interests of the Company or
any Subsidiary of the Company held by
any member of the Company's (or any of
its Subsidiaries') management pursuant
to any management equity subscription
agreement or stock option agreement;
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PROVIDED that the aggregate price paid
for all such repurchased, redeemed,
acquired or retired Equity Interests
shall not exceed $5.0 million in any
twelve-month period; and
(vii)the making and consummation of (A)
an offer to purchase or redeem the
Senior Subordinated Notes in
accordance with the provisions of
the Senior Subordinated Notes
Indenture with any Excess Proceeds
that remain after consummation of a
Senior Asset Sale Offer, within 120
days of the consummation of such
Senior Asset Sale Offer, or (B) a
Change of Control Offer with
respect to the Senior Subordinated
Notes in accordance with the
provisions of the Senior
Subordinated Notes Indenture.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by this covenant were computed.
SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER
PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual Transfer Restriction, except for such
Transfer Restrictions existing under or by reason of:
(a) Existing Indebtedness as in effect on
the date hereof,
(b) this Indenture,
(c) applicable law,
(d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by
the Company or any of its Subsidiaries
as in effect at the time of such
acquisition (except to the extent such
Indebtedness was incurred in connection
with or in contemplation of such
acquisition or in violation of Section
3.09 hereof), which encumbrance or
restriction is not applicable to any
Person, or the properties or assets of
any Person, other than the Person, or
the property or assets of the Person, so
acquired, PROVIDED that the Consolidated
Cash Flow of such Person shall not be
taken into account in
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determining whether such acquisition was
permitted by the terms hereof except to the
extent that such Consolidated Cash Flow would
be permitted to be dividends to the
Company without the prior consent or
approval of any third party,
(e) customary non-assignment provisions in
leases entered into in the ordinary
course of business,
(f) purchase money obligations for property
acquired in the ordinary course of
business that impose restrictions on the
ability of any of the Company's
Subsidiaries to transfer the property so
acquired to the Company or any of its
Subsidiaries,
(g) Permitted Refinancing Indebtedness,
PROVIDED that the restrictions contained
in the agreements governing such
Permitted Refinancing Indebtedness are
no more restrictive than those contained
in the agreements governing the
Indebtedness being refinanced, or
(h) the Credit Agreement and related
documentation as the same is in effect
on the date hereof and as amended or
replaced from time to time, PROVIDED
that no such amendment or replacement is
more restrictive as to Transfer
Restrictions than the Credit Agreement
and related documentation as in effect
on the date hereof.
SECTION 3.09. LIMITATIONS ON INCURRENCE OF
INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, Guarantee or
otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "INCUR") after the date hereof any
Indebtedness (including Acquired Debt), and the Company shall not issue any
Disqualified Stock and shall not permit any of its Subsidiaries to issue any
shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur
Indebtedness (including Acquired Debt) and the Company may issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least (x) 2.25 to 1 if such incurrence or issuance occurs
on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence or issuance
occurs at any time thereafter, in each case determined on a pro forma basis
(including a pro
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forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period. Indebtedness
consisting of reimbursement obligations in respect of a letter of credit
shall be deemed to be incurred when the letter of credit is first issued.
The Company shall not permit any of the International Subsidiaries to incur
any Indebtedness other than Non-Recourse Debt.
The foregoing provisions shall not apply to:
(a) the incurrence by the Company of Senior
Term Debt pursuant to the Credit
Agreement in an aggregate principal
amount at any time outstanding not to
exceed an amount equal to $1.8 billion
less the aggregate amount of all
repayments, optional or mandatory, of
the principal of any Senior Term Debt
(other than repayments that are
immediately reborrowed) that have been
made since March 1, 1995;
(b) the incurrence by the Company of Senior
Revolving Debt and letters of credit
pursuant to the Credit Agreement in an
aggregate principal amount at any time
outstanding (with letters of credit
being deemed to have a principal amount
equal to the maximum potential
reimbursement obligation of the Company
with respect thereto) not to exceed an
amount equal to $500.0 million less the
aggregate amount of all Net Proceeds of
Asset Sales applied to permanently
reduce the commitments with respect to
such Indebtedness pursuant to Section
3.10 hereof after March 1, 1995;
(c) the incurrence by the Company of
Indebtedness represented by the
Securities;
(d) the incurrence by the Company and its
Subsidiaries of the Existing
Indebtedness;
(e) the incurrence by the Company or any of
its Subsidiaries of Permitted
Refinancing Indebtedness in exchange
for, or the net proceeds of which are
used to extend, refinance, renew,
replace, defease, or refund,
Indebtedness that was permitted by this
Indenture to be incurred (including,
without limitation, Existing
Indebtedness);
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(f) the incurrence by the Company of Hedging
Obligations that are incurred for the
purpose of fixing or hedging interest
rate or currency risk with respect to
any fixed or floating rate Indebtedness
that is permitted by the terms hereof to
be outstanding or any receivable or
liability the payment of which is
determined by reference to a foreign
currency; PROVIDED that the notional
principal amount of any such Hedging
Obligation does not exceed the principal
amount of the Indebtedness to which such
Hedging Obligation relates;
(g) the incurrence by the Company or any of
its Subsidiaries of Physician Support
Obligations;
(h) the incurrence by the Company or any of
its Subsidiaries of intercompany
Indebtedness between or among the
Company and any of its Subsidiaries;
(i) the incurrence by the Company or any of
its Subsidiaries of Indebtedness
represented by performance bonds,
standby letters of credit or appeal
bonds, in each case to the extent
incurred in the ordinary course of
business of the Company or such
Subsidiary;
(j) the incurrence by any Subsidiary of the
Company of Indebtedness, the aggregate
principal amount of which, together with
all other Indebtedness of the Company's
Subsidiaries at the time outstanding
(excluding the Existing Indebtedness
until repaid or refinanced and excluding
Physician Support Obligations), does not
exceed the greater of (1) 10% of the
Company's Stockholders' Equity as of the
date of incurrence or (2) $10.0 million;
PROVIDED that, in the case of clause (1)
only, the Fixed Charge Coverage Ratio
for the Company's most recently ended
four full fiscal quarters for which
internal financial statements are
available immediately preceding the date
on which such Indebtedness is incurred
would have been at least (x) 2.25 to 1
if such incurrence occurs on or before
March 31, 1996, or (y) 2.5 to 1 if such
incurrence occurs at any time
thereafter, in each case determined on a
pro forma basis (including a pro forma
application of the net proceeds
therefrom), as if such Indebtedness had
been incurred at the beginning of such
four-quarter period; and
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(k) the incurrence by the Company of
Indebtedness (in addition to
Indebtedness permitted by any other
clause of this paragraph) in an
aggregate principal amount at any time
outstanding not to exceed $250.0
million.
SECTION 3.10. ASSET SALES.
The Company shall not, and shall not permit any of its Subsidiaries
to consummate an Asset Sale, unless (i) the Company (or the Subsidiary as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (as conclusively determined by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) except in the case of a sale of Specified Assets, at
least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; PROVIDED, HOWEVER, that for purposes of
this provision, (x) the amount of (A) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Subsidiary (other than, in the case of an
Asset Sale by the Company, liabilities that are by their terms subordinated
to the Securities) that are assumed by the transferee of any such assets and
(B) any securities or other obligations received by the Company or any such
Subsidiary from such transferee that are immediately converted by the Company
or such Subsidiary into cash (or as to which the Company or such Subsidiary
has received at or prior to the consummation of the Asset Sale a commitment
(which may be subject to customary conditions) from a nationally recognized
investment, merchant or commercial bank to convert into cash within 90 days
of the consummation of such Asset Sale and which are thereafter actually
converted into cash within such 90-day period) shall be deemed to be cash
(but shall not be deemed to be Net Proceeds for purposes of the following
provisions until reduced to cash); and (y) the fair market value of any
Non-Cash Consideration received by the Company or a Subsidiary in any Asset
Sale shall be deemed to be cash (but shall not be deemed to be Net Proceeds
for purposes of the following provisions until reduced to cash) to the extent
that the aggregate fair market value (as conclusively determined by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of all Non-Cash Consideration (measured at the time
received and without giving effect to any subsequent changes in value) held
by the Company immediately after consummation of such Asset Sale does not
exceed 10% of the Company's Stockholders' Equity as of the date of such
consummation.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds (i) to purchase one or more
Hospitals or Related Businesses and/or a controlling interest in the Capital
Stock of a Person owning one or more Hospitals and/or one or more Related
Businesses, (ii) to make a capital expenditure or to acquire other
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tangible assets, in each case, that are used or useful in any business in
which the Company is permitted to be engaged pursuant to Section 3.15 hereof,
(iii) to permanently reduce Senior Term Debt or Existing Indebtedness of a
Subsidiary or (iv) to permanently reduce Senior Revolving Debt (and to
correspondingly reduce commitments with respect thereto), except that up to
an aggregate of $200.0 million of Net Proceeds from Asset Sales may be
applied after the date hereof to reduce Senior Revolving Debt without a
corresponding reduction in commitments with respect thereto. Pending the
final application of any such Net Proceeds, the Company may temporarily
reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the terms hereof. Any Net Proceeds from
Asset Sales that are not so invested or applied shall be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds
$25.0 million, the Company shall make an offer to all Holders of Securities
and holders of any other Indebtedness of the Company ranking on a parity with
the Securities from time to time outstanding with similar provisions
requiring the Company to make an offer to purchase or to redeem such
Indebtedness with the proceeds from any asset sales, PRO RATA in proportion
to the respective principal amounts of the Securities and such other
Indebtedness then outstanding (a "SENIOR ASSET SALE OFFER") to purchase the
maximum principal amount of Securities and such other Indebtedness that may
be purchased out of the Excess Proceeds, at an offer price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase (the "PURCHASE PRICE"), in
accordance with the procedures set forth in Section 2.15 hereof. To the
extent that the aggregate amount of Securities and such other Indebtedness
tendered pursuant to a Senior Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Securities and such
other Indebtedness surrendered by holders pursuant to a Senior Asset Sale
Offer exceeds the amount of Excess Proceeds, the Securities and such other
Indebtedness shall be purchased on a PRO RATA basis. Upon completion of a
Senior Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
SECTION 3.11. LIMITATIONS ON TRANSACTIONS WITH
AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or Guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE
TRANSACTION") unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction involving aggregate
consideration in excess
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of $5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction was approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in
excess of $15.0 million, an opinion as to the fairness of such Affiliate
Transaction to the Company or such Subsidiary from a financial point of view
issued by an investment banking firm of national standing; PROVIDED that (x)
transactions or payments pursuant to any employment arrangements or employee
or director benefit plans entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (y) transactions between or among
the Company and/or its Subsidiaries and (z) transactions permitted under
Section 3.07 hereof, in each case, shall not be deemed to be Affiliate
Transactions.
SECTION 3.12. LIMITATIONS ON LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume or suffer to exist any Lien
(except Permitted Liens) on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom unless all payments due hereunder and under the Securities are
secured on an equal and ratable basis with the Obligations so secured until
such time as such Obligations are no longer secured by a Lien.
SECTION 3.13. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control Triggering Event, each
Holder of Securities shall have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Securities pursuant to the offer described below (the
"CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any,
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 shall mail, or at the Company's request the Trustee shall mail, a
notice of a Change of Control to each Holder (at its last registered address
with a copy to the Trustee and the Paying Agent) offering to repurchase the
Securities held by such Holder pursuant to the procedure specified in such
notice. The Change of Control Offer shall remain open from the time of
mailing until the close of business on the Business Day next preceding the
Change of Control Payment Date. The notice, which shall govern the terms of
the Change of Control Offer, shall contain all instructions
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and materials necessary to enable the Holders to tender Securities pursuant
to the Change of Control Offer and shall state:
(1) that the Change of Control Offer is
being made pursuant to this Section 3.13
and that all Securities tendered will be
accepted for payment;
(2) the Change of Control Payment and the
Change of Control Payment Date, which
date shall be no earlier than 30 days
nor later than 60 days from the date
such notice is mailed;
(3) that any Security not tendered will
continue to accrue interest in
accordance with the terms of this
Indenture;
(4) that, unless the Company defaults in the
payment of the Change of Control
Payment, all Securities accepted for
payment pursuant to the Change of
Control Offer will cease to accrue
interest after the Change of Control
Payment Date;
(5) that Holders electing to have a Security
purchased pursuant to any Change of
Control Offer will be required to
surrender the Security, with the form
entitled "Option of Holder to Elect
Purchase" on the reverse of the Security
completed, to the Company, a depositary,
if appointed by the Company, or a Paying
Agent at the address specified in the
notice prior to the close of business on
the Business Day next preceding the
Change of Control Payment Date;
(6) that Holders will be entitled to
withdraw their election if the Company,
depositary or Paying Agent, as the case
may be, receives, not later than the
close of business on the Business Day
next preceding the Change of Control
Payment Date, a facsimile transmission
or letter setting forth the name of the
Holder, the principal amount of the
Security the Holder delivered for
purchase, and a statement that such
Holder is withdrawing his election to
have such Security purchased;
(7) that Holders whose Securities are being
purchased only in part will be issued
new Securities equal in principal amount
to the unpurchased portion of the
Securities surrendered, which
unpurchased portion must be equal to
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$1,000 in principal amount or an
integral multiple thereof; and
(8) the circumstances and relevant facts
regarding such Change of Control
(including, but not limited to,
information with respect to PRO FORMA
historical financial information after
giving effect to such Change of Control,
information regarding the Person or
Persons acquiring control and such
Person's or Persons' business plans
going forward) and any other information
that would be material to a decision as
to whether to tender a Security pursuant
to the Change of Control Offer.
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered and not withdrawn pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Securities or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Securities so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Securities
so tendered the Change of Control Payment for such Securities, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Security equal in principal amount to any
unpurchased portion of the Securities surrendered, if any; PROVIDED that each
such new Security shall be in a principal amount of $1,000 or an integral
multiple thereof. The Company shall publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Company shall 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 Securities as a result of a Change of Control.
SECTION 3.14. CORPORATE EXISTENCE.
Subject to Section 3.13 and Article 4 hereof, the Company shall do
or cause to be done all things necessary to preserve and keep in full force
and effect (i) its corporate existence, and the corporate, partnership or
other existence of each of its Subsidiaries, in accordance with the
respective organ-izational documents (as the same may be amended from time to
time) of each Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Subsidiaries; PROVIDED,
HOWEVER, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any
of its Subsidiaries, if the
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Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.
SECTION 3.15. LINE OF BUSINESS
The Company shall not, and shall not permit any of its Subsidiaries
to, engage to any material extent in any business other than the ownership,
operation and management of Hospitals and Related Businesses.
SECTION 3.16. LIMITATIONS ON ISSUANCES OF GUARANTEES
OF INDEBTEDNESS BY SUBSIDIARIES
The Company shall not permit any Subsidiary, directly or
indirectly, to Guarantee or secure the payment of any other Indebtedness of
the Company or any of its Subsidiaries (except Indebtedness of a Subsidiary
of such Subsidiary or Physician Support Obligations) unless such Subsidiary
simultaneously executes and delivers a supplemental indenture to this
Indenture, in substantially the form attached hereto as Exhibit B, providing
for the Guarantee of the payment of the Securities by such Subsidiary, which
Guarantee shall be senior to or PARI PASSU with such Subsidiary's Guarantee
of or pledge to secure such other Indebtedness. Any such Guarantee by a
Subsidiary of the Securities shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon the sale or
other disposition, by way of merger or otherwise, to any Person not an
Affiliate of the Company, of all of the Company's stock in, or all or
substantially all the assets of, such Subsidiary, which sale or other
disposition is made in compliance with, and the Net Proceeds therefrom are
applied in accordance with, the applicable provisions hereof. The foregoing
provisions shall not be applicable to any one or more Guarantees of up to
$10.0 million in aggregate principal amount of Indebtedness of the Company at
any time outstanding.
ARTICLE 4
SUCCESSORS
SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS
OR SALES OF ASSETS
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
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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 this Indenture and the
Securities pursuant to a supplemental
indenture in a 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, conveyance
or other disposition shall have been
made (A) shall have Consolidated Net
Worth immediately after the transaction
equal to or greater than the
Consolidated Net Worth of the Company
immediately preceding the transaction
and (B) shall, at the time of such
transaction and after giving pro forma
effect thereto as if such transaction
had occurred at the beginning of the
applicable four-quarter period, be
permitted to incur at least $1.00 of
additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section
3.09 hereof.
The Company shall deliver to the Trustee prior to the consummation
of the proposed transaction an Officers' Certificate to the foregoing effect
and an Opinion of Counsel, covering clauses (i) through (iv) above, stating
that the proposed transaction and such supplemental indenture comply with
this Indenture. The Trustee shall be entitled to conclusively rely upon such
Officers' Certificate and Opinion of Counsel.
SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED.
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Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all
of the assets of the Company in accordance with Section 4.01 hereof, the
successor corporation formed by such consolidation or into or with which the
Company is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted
for (so that from and after the date of such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition, the provisions
of this Indenture referring to the "Company" shall refer instead to the
successor corporation), and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
has been named as the Company, herein.
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT.
Each of the following constitutes an "EVENT OF DEFAULT":
(i) default for 30 days in the payment
when due of interest on the
Securities;
(ii) default in payment when due of the
principal of or premium, if any, on
the Securities at maturity or
otherwise;
(iii)failure by the Company to
comply with the provisions of
Sections 3.07, 3.09, 3.10, or
3.13 hereof;
(iv) failure by the Company to comply
with any other covenant or
agreement in the Indenture or the
Securities for the period and after
the notice specified below;
(v) any default that 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
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<PAGE>
hereof or is created after the date
hereof, 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 such
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
a final judgment or final judgments
aggregating in excess of $25.0
million entered by a court or
courts of competent jurisdiction
against the Company or any of its
Significant Subsidiaries if such
final judgment or judgments remain
unpaid or undischarged for a period
(during which execution shall not
be effectively stayed) of 60 days
after their entry;
(vii) the Company or any Significant
Subsidiary thereof pursuant to
or within the meaning of any
Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an
order for relief against it in
an involuntary case in which
it is the debtor,
(c) consents to the appointment of
a Custodian of it or for all
or substantially all of its
property,
(d) makes a general assignment for
the benefit of its creditors,
or
(e) admits in writing its
inability generally to pay its
debts as the same become due;
and
(viii) a court of competent
jurisdiction enters an order
or decree under any Bankruptcy
Law that:
(a) is for relief against the
Company or any Significant
Subsidiary thereof in an
involuntary case in which it
is the debtor,
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(b) appoints a Custodian of the
Company or any Significant
Subsidiary thereof or for all
or substantially all of the
property of the Company or any
Significant Subsidiary
thereof, or
(c) orders the liquidation of the
Company or any Significant
Subsidiary thereof,
and the order or decree remains unstayed
and in effect for 60 days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "CUSTODIAN" means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under clause (iv) is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the then outstanding Securities notify the Company and
the Trustee in writing, of the Default and the Company does not cure the
Default within 60 days after receipt of such notice. The written notice must
specify the Default, demand that it be remedied and state that the notice is
a "NOTICE OF DEFAULT."
SECTION 5.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified
in clause (vii) or (viii) of Section 5.01 hereof) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the then outstanding Securities by written
notice to the Company and the Trustee, may declare the unpaid principal of,
premium, if any, and any accrued and unpaid interest on all the Securities to
be due and payable immediately. Upon such declaration the principal, premium,
if any, and interest shall be due and payable immediately. If an Event of
Default specified in clause (vii) or (viii) of Section 5.01 hereof occurs
with respect to the Company or any Significant Subsidiary thereof such an
amount shall IPSO FACTO become and be immediately due and payable without
further action or notice on the part of the Trustee or any Holder.
If an Event of Default occurs under this Indenture prior to the
maturity of the Securities by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of such Securities prior to the date
of maturity, then a premium with respect thereto (expressed as a percentage
of the amount that would otherwise be due but for the provisions of this
sentence) shall
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<PAGE>
become and be immediately due and payable to the extent permitted by
law upon the acceleration of such Securities if such Event of Default occurs
during the twelve-month period beginning on October __ of the years set forth
below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1995. . . . . . . . . . . . . [109.625%
1996. . . . . . . . . . . . . 108.342%
1997. . . . . . . . . . . . . 107.058%
1998. . . . . . . . . . . . . 105.775%
1999. . . . . . . . . . . . . 104.492%
2000. . . . . . . . . . . . . 103.208%
2001. . . . . . . . . . . . . 101.925%
2002. . . . . . . . . . . . . 100.642%]
</TABLE>
Any determination regarding the primary purpose of any such action
or inaction, as the case may be, shall be made by and set forth in a
resolution of the Board of Directors (including the concurrence of a majority
of the independent directors of the Company then serving) delivered to the
Trustee after consideration of the business reasons for such action or
inaction, other than the avoidance of payment of such premium or prohibition
on redemption. In the absence of fraud, each such determination shall be
final and binding upon the Holders of Securities. Subject to Section 6.01
hereof, the Trustee shall be entitled to rely on the determination set forth
in any such resolutions delivered to the Trustee.
SECTION 5.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 5.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount of the Securities then outstanding by written notice to the Trustee
may on behalf of the Holders of all of the Securities waive any existing
Default or Event of Default and its consequences under this Indenture except
a continuing
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Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any Security. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 5.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders or that may involve the
Trustee in personal liability. The Trustee may take any other action which it
deems proper which is not inconsistent with any such direction.
SECTION 5.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Securities only if:
(i) the Holder gives to the Trustee written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal
amount of the then outstanding
Securities make a written request to the
Trustee to pursue the remedy;
(iii) such Holder or Holders offer and,
if requested, provide to the
Trustee indemnity satisfactory to
the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the
request within 60 days after receipt of
the request and the offer and, if
requested, the provision of indemnity;
and
(v) during such 60-day period the Holders of
a majority in principal amount of the
then outstanding Securities do not give
the Trustee a direction inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder
or to obtain a preference or priority over another Holder.
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SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal, premium, if any, and interest on
the Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 5.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 5.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in
its own name and as trustee of an express trust against the Company or any
other obligor for the whole amount of principal, premium, if any, and
interest remaining unpaid on the Securities and interest on overdue principal
and, to the extent lawful, interest and such further amount as shall be
sufficient to cover amounts due the Trustee under Section 6.07 hereof,
including the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Securities), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money
or other property payable or deliverable on any such claims and any custodian
in any such judicial proceeding is hereby authorized by each Holder to make
such payments to the Trustee, and in the event that the Trustee shall consent
to the making of such payments directly to the Holders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts
due the Trustee under Section 6.07 hereof. To the extent that the payment of
any such compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section
6.07 hereof out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties which the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorgan-ization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any
plan of
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reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 5.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 6.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders for amounts due and unpaid on the Securities
for principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders pursuant to this Section 5.10 upon five Business Days prior notice
to the Company.
SECTION 5.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit
by the Trustee, a suit by a Holder pursuant to Section 5.07 hereof, or a suit
by Holders of more than 10% in principal amount of the then outstanding
Securities.
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ARTICLE 6
TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE.
(i) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(ii) Except during the continuance of an Event of Default known to
the Trustee:
(a) the duties of the Trustee shall be
determined solely by the express
provisions of this Indenture or the TIA
and the Trustee need perform only those
duties that are specifically set forth
in this Indenture or the TIA and no
others, and no implied covenants or
obligations shall be read into this
Indenture against the Trustee, and
(b) in the absence of bad faith on its part,
the Trustee may conclusively rely, as to
the truth of the statements and the
correctness of the opinions expressed
therein, upon certificates or opinions
furnished to the Trustee and conforming
to the requirements of this Indenture.
However, in the case of any such
certificates or opinions which by any
provisions hereof are required to be
furnished to the Trustee, the Trustee
shall examine the certificates and
opinions to determine whether or not
they conform to the requirements of this
Indenture.
(iii) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(a) this paragraph does not limit the
effect of paragraph (ii) of this
Section;
(b) the Trustee shall not be liable for
any error of judgment made in good
faith by a Responsible Officer,
unless it is proved that the
Trustee was negligent in
ascertaining the pertinent facts;
and
(c) the Trustee shall not be liable
with respect to any action it takes
or omits to take in good faith in
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accordance with a direction
received by it pursuant to Section
5.05 hereof.
(iv) Whether or not therein expressly so provided every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (i), (ii), and (iii) of this Section.
(v) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse
to perform any duty or exercise any right or power unless it receives
security and indemnity satisfactory to it against any loss, liability or
expense.
(vi) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Absent written instruction from the Company, the Trustee shall not be
required to invest any such money. Money held in trust by the Trustee need
not be segregated from other funds except to the extent required by law.
(vii) The Trustee shall not be deemed to have knowledge of any
matter unless such matter is actually known to a Responsible Officer.
SECTION 6.02. RIGHTS OF TRUSTEE.
(i) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(ii) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(iii) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(iv) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture. A permissive right
granted to the Trustee hereunder shall not be deemed an obligation to act.
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(v) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee
is subject to Sections 6.10 and 6.11 hereof.
SECTION 6.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, nor shall it be accountable for the Company's use of the proceeds
from the Securities or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, nor shall it be responsible
for the use or application of any money received by any Paying Agent other
than the Trustee, nor shall it be responsible for any statement or recital
herein or any statement in the Securities or any other document in connection
with the sale of the Securities or pursuant to this Indenture other than its
certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment on any Security, the Trustee
may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders.
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each December 31 beginning with the December
31 following the date hereof, the Trustee shall mail to the Holders a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b). The Trustee shall
also transmit by mail all reports as required by TIA Section 313(c).
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A copy of each report at the time of its mailing to the Holders
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Securities are listed. The Company shall promptly
notify the Trustee when the Securities are listed on any stock exchange.
SECTION 6.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as
the Company and Trustee shall agree in writing. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses incurred by it arising out of or in
connection with the acceptance of its duties and the administration of the
trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Company under this Section 6.07 shall
survive the satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on particular Securities. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 5.01(vii) or (viii) hereof occurs, the
expenses and the compensation for the services (including the fees and
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expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 6.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove
the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section
6.10 hereof;
(2) the Trustee is adjudged a bankrupt or an
insolvent or an order for relief is entered with
respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes
charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee after written request by any Holder who has been a
Holder for at least six months fails to comply with Section 6.10 hereof, such
Holder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
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resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 6.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 6.08, the Company's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into,
or transfers all or substantially all of its corporate trust business to,
another corporation, the successor corporation without any further act shall
be the successor Trustee or Agent.
SECTION 6.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States
of America or of any state thereof authorized under such laws to exercise
corporate trustee power, shall be subject to supervision or examination by
federal or state authority and shall have a combined capital and surplus of
at least $100.0 million as set forth in its most recent published annual
report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject
to TIA Section 310(b).
SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 7
DISCHARGE OF INDENTURE
SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND
THE SECURITIES.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, with
respect to the Securities, elect to have either Section 7.02 or 7.03 hereof
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be applied to all outstanding Securities upon compliance with the conditions
set forth below in this Article 7.
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Securities, which shall thereafter be deemed
to be "outstanding" only for the purposes of Section 7.05 hereof and the
other Sections of this Indenture referred to in clauses (i) and (ii) of this
Section 7.02, and to have satisfied all its other obligations under such
Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
Section 7.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (ii) the Company's obligations with respect to
such Securities under Sections 2.04, 2.06, 2.07, 2.10 and 3.02 hereof, (iii)
the rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 6.07
hereof, and the Company's obligations in connection therewith and (iv) this
Article 7. Subject to compliance with this Article 7, the Company may
exercise its option under this Section 7.02 notwithstanding the prior
exercise of its option under Section 7.03 hereof with respect to the
Securities.
SECTION 7.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03, the Company shall be released from its
obligations under the covenants contained in Sections 2.15, 3.07, 3.08, 3.09,
3.10, 3.11, 3.12, 3.13, 3.15, 3.16 and 3.17 and Article 4 hereof with respect
to the outstanding Securities on and after the date the conditions set forth
below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities
shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Securities shall not be deemed outstanding for
accounting purposes). For this purpose, such Covenant Defeasance means that,
with respect to the outstanding Securities, the Company may omit to comply
with and shall have no liability
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in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any
such covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default
under Section 5.01(iii) hereof, but, except as specified above, the remainder
of this Indenture and such Securities shall be unaffected thereby. In
addition, upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03, Sections 5.01(iv) through 5.01(vi) hereof
shall not constitute Events of Default.
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 7.02 or Section 7.03 hereof to the outstanding Securities:
(i) The Company shall irrevocably have
deposited or caused to be deposited with the
Trustee (or another trustee satisfying the
requirements of Section 6.10 who shall agree to
comply with the provisions of this Article 7
applicable to it) as trust funds in trust for the
purpose of making the following payments,
specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of
such Securities, (a) cash in U.S. Dollars in an
amount, or (b) non-callable Government Securities
that through the scheduled payment of principal
and interest in respect thereof in accordance with
their terms will provide, not later than one day
before the due date of any payment, cash in U.S.
Dollars in an amount, or (c) a combination
thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of
independent public accountants expressed in a
written certification thereof delivered to the
Trustee, to pay and discharge and which shall be
applied by the Trustee (or other qualifying
trustee) to pay and discharge the principal of,
premium, if any, and interest on such outstanding
Securities on the stated maturity date of such
principal or installment of principal, premium, if
any, or interest.
(ii) In the case of an election under Section
7.02 hereof, the Company shall have delivered to
the Trustee an Opinion of Counsel in the United
States confirming that (a) the Company has
received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the
date hereof, there has been a change in the
applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders of the
outstanding Securities will not recognize income,
gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be
subject to federal income tax on the same amounts,
in the same
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manner and at the same times as would
have been the case if such Legal Defeasance had
not occurred.
(iii) In the case of an election under
Section 7.03 hereof, the Company shall have
delivered to the Trustee an Opinion of Counsel in
the United States confirming that the Holders of
the outstanding Securities will not recognize
income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the
same amounts, in the same manner and at the same
times as would have been the case if such Covenant
Defeasance had not occurred.
(iv) No Default or Event of Default with
respect to the Securities shall have occurred and
be continuing on the date of such deposit (other
than a Default or Event of Default resulting from
the borrowing of funds to be applied to such
deposit) or, insofar as Section 5.01(vii) or
5.01(viii) hereof is concerned, at any time in the
period ending on the 91st day after the date of
such deposit (it being understood that this
condition shall not be deemed satisfied until the
expiration of such period).
(v) Such Legal Defeasance or Covenant
Defeasance shall not result in a breach or
violation of, or constitute a default under any
material agreement or instrument (other than this
Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound (other than a
breach, violation or default resulting from the
borrowing of funds to be applied to such deposit).
(vi) The Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that
after the 91st day following the deposit, the
trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency,
reorganization or similar laws affecting
creditors' rights generally.
(vii) The Company shall have delivered to
the Trustee an Officers' Certificate stating that
the deposit made by the Company pursuant to its
election under Section 7.02 or 7.03 hereof was not
made by the Company with the intent of preferring
the Holders of the Securities over the other
creditors of the Company with the intent of
defeating, hindering, delaying or defrauding
creditors of the Company or others.
(viii) The Company shall have delivered to
the Trustee an Officers' Certificate and an
Opinion of Counsel in the United States, each
stating that all conditions precedent provided for
relating to either
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the Legal Defeasance under
Section 7.02 hereof or the Covenant Defeasance
under Section 7.03 hereof (as the case may be)
have been complied with as contemplated by this
Section 7.04.
SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 7.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this
Section 7.05, the "Trustee") pursuant to Section 7.04 hereof in respect of
the outstanding Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to
the payment, either directly or through any Paying Agent (including the
Company acting as Paying Agent) as the Trustee may determine, to the Holders
of such Securities of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 7.04 hereof or the
principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article 7 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the
Company's request any money or non-callable Government Securities held by it
as provided in Section 7.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 7.04(i) hereof), are in excess of the amount thereof
which would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 7.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Security and remaining unclaimed for two years
after such principal, and premium, if any, or interest has become due and
payable shall be paid to the Company on its written request or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such
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Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in
the NEW YORK TIMES and THE WALL STREET JOURNAL (national edition), notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 7.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Dollars
or non-callable Government Securities in accordance with Section 7.02 or 7.03
hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 7.02 or 7.03 hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
7.02 or 7.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the
Company makes any payment of principal of, premium, if any, or interest on
any Security following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Security to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 8.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture
or the Securities without the consent of any Holder:
(i) to cure any ambiguity, defect or
inconsistency;
(ii) to provide for uncertificated
Securities in addition to or in
place of certificated Securities;
(iii) to provide for any
supplemental indenture
required pursuant to Section
3.16 hereof;
(iv) to provide for the assumption of
the Company's obligations to the
Holders of the Securities in the
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case of a merger, consolidation or
sale of assets pursuant to
Article 4 hereof;
(v) to make any change that would
provide any additional rights or
benefits to the Holders of the
Securities or that does not
adversely affect the legal rights
hereunder of any such Holder; or
(vi) to comply with requirements of the
Commission in order to effect or
maintain the qualification of this
Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such supplemental
indenture, and upon receipt by the Trustee of the documents described in
Section 8.06 hereof, the Trustee shall join with the Company in the execution
of any supplemental indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations
which may be therein contained, but the Trustee shall not be obligated to
enter into such supplemental indenture which affects its own rights, duties
or immunities under this Indenture or otherwise.
SECTION 8.02. WITH CONSENT OF HOLDERS.
Except as provided in the next succeeding paragraphs, this
Indenture or the Securities may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Securities
then outstanding (including consents obtained in connection with a tender
offer or exchange offer for such Securities), and any existing default or
compliance with any provision of this Indenture or the Securities may be
waived with the consent of the Holders of a majority in principal amount of
the then outstanding Securities (including consents obtained in connection
with a tender offer or exchange offer for such Securities).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to
the Trustee of the consent of the Holders as aforesaid, and upon receipt by
the Trustee of the documents described in Section 8.06 hereof, the Trustee
shall join with the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case the Trustee
may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
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It shall not be necessary for the consent of the Holders under this
Section 8.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver. Subject to Sections 5.04 and 5.07 hereof, the Holders of a majority
in aggregate principal amount of the Securities then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. Without the consent of each Holder affected,
however, an amendment or waiver may not (with respect to any Security held by
a non-consenting Holder):
(i) reduce the principal amount of
Securities whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of or change the
fixed maturity of any Security;
(iii) reduce the rate of or change the time
for payment of interest on any Security;
(iv) waive a Default or Event of Default in
the payment of principal of or premium,
if any, or interest on the Securities
(except a rescission of acceleration of
the Securities 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);
(v) make any Security payable in money other
than that stated in the Securities;
(vi) make any change in Section 5.04 or 5.07
hereof; or
(vii) make any change in this sentence of this
Section 8.02.
SECTION 8.03. COMPLIANCE WITH TIA.
Every amendment to this Indenture or the Securities- shall be set
forth in a supplemental indenture that complies with the TIA as then in
effect.
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SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by
a Holder is a continuing consent by the Holder and every subsequent Holder of
a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to its Security if the Trustee receives written notice of
revocation before the date the waiver or amendment becomes effective. An
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date
for determining which Holders must consent to such amendment or waiver. If
the Company fixes a record date, the record date shall be fixed at (i) the
later of 30 days prior to the first solicitation of such consent or the date
of the most recent list of Holders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof or (ii) such other date as the
Company shall designate.
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities
that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Security
shall not affect the validity and effect of such amendment or waiver.
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 8 if the amendment does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. If it
does, the Trustee may, but need not, sign it. In signing or refusing to sign
such amendment or supplemental indenture, the Trustee shall be entitled to
receive and, subject to Section 6.01, shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that such amendment or Supplemental Indenture is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that
it shall be valid and binding upon the Company in accordance with its terms.
The Company may not sign an amendment or supplemental indenture until the
Board of Directors approves it.
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control.
SECTION 9.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Company:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Telecopier No.: (310) 998-6700
Attention: Treasurer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopier No.: (213) 687-5600
Attention: [Thomas C. Janson, Jr.]
If to the Trustee:
The Bank of New York
101 Barclay Street, 21 West
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by
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hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
day delivery.
Unless otherwise set forth above, any notice or communication to a
Holder shall be mailed by first class mail, certified or registered, return
receipt requested, or by overnight air courier guaranteeing next day delivery
to its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate (which shall
include the statements set forth in Section 9.05
hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants,
if any, provided for in this Indenture relating to
the proposed action have been satisfied; and
(2) an Opinion of Counsel (which shall
include the statements set forth in Section 9.05
hereof) stating that, in the opinion of such
counsel, all such conditions precedent and
covenants have been satisfied.
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SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to TIA Section 314(a)(4)) shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or
condition;
(2) a brief statement as to the nature and
scope of the examination or investigation upon
which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such
person, he has made such examination or
investigation as is necessary to enable him to
express an informed opinion as to whether or not
such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the
opinion of such person, such condition or covenant
has been satisfied; PROVIDED, HOWEVER, that with
respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or
certificates of public officials.
SECTION 9.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 9.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS,
OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of the
Securities by accepting a Security waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
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Securities. 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.
SECTION 9.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 9.10. GOVERNING LAW.
The internal law of the State of New York, shall govern and be used
to construe this Indenture and the Securities, without regard to the conflict
of laws provisions thereof.
SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 9.12. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 9.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof
shall be enforceable to the full extent permitted by law.
SECTION 9.14. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
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SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of _______________ TENET HEALTHCARE CORPORATION
By:___________________________
Name: [Terence P. McMullen]
Title: Senior Vice President
Attest:
___________________________ (SEAL)
Richard B. Silver
Dated as of _______________ THE BANK OF NEW YORK,
as Trustee
By:___________________________
Name:
Title:
Attest:
___________________________ (SEAL)
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EXHIBIT A
(Face of Security)
__% Senior Note
due December 1, 2003
CUSIP:
No. $____________
TENET HEALTHCARE CORPORATION
promises to pay to
______________________________________________________________
or its registered assigns, the principal sum of_______________
Dollars on December 1, 2003.
Interest Payment Dates: June 1 and December 1, commencing December 1, 1995
Record Dates: May 15 and November 15 (whether or not a Business Day).
TENET HEALTHCARE CORPORATION
By: _________________________
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Dated: __________, ____
(SEAL)
Trustee's Certificate of Authentication:
This is one of the Securities referred
to in the within-mentioned Indenture:
The Bank of New York, as Trustee
By: ___________________________
Authorized Signatory
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(Back of Security)
__% SENIOR NOTE
due December 1, 2003
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation
(the "COMPANY"), promises to pay interest on the principal amount of this
Security at the rate and in the manner specified below.
The Company shall pay interest in cash on the principal amount of
this Security at the rate per annum of __%. The Company shall pay interest
semiannually in arrears on June 1 and December 1 of each year, commencing
December 1, 1995 to Holders of record on the immediately preceding May 15 and
November 15, respectively, or if any such date of payment is not a Business
Day on the next succeeding Business Day (each an "INTEREST PAYMENT DATE").
Interest shall be computed on the basis of a 360-day year comprised
of twelve 30-day months. Interest shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of the original issuance of the Securities. To the extent lawful, the
Company shall pay interest on overdue principal at the rate of 1% per annum
in excess of the interest rate then applicable to the Securities; it shall
pay interest on overdue installments of interest (without regard to any
applicable grace periods) at the same rate to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the record date next
preceding the Interest Payment Date, even if such Securities are cancelled
after such record date and on or before such Interest Payment Date. The
Holder hereof must surrender this Security to a Paying Agent to collect
principal payments. The Company shall pay principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. Principal, premium, if any, and interest shall 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 Holder's registered
address. Notwithstanding the foregoing, all payments with respect to
Securities the Holders of which have given wire transfer instructions, on or
before the relevant record date, to the Paying Agent shall be made by wire
transfer of immediately available funds to the accounts specified by such
Holders.
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3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar or co-registrar without prior notice to any Holder. The Company
and any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Securities under an
Indenture, dated as of October __, 1995 (the "INDENTURE"), between the
Company and the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA") as in effect on the date of the Indenture. The Securities- are
subject to all such terms, and Holders are referred to the Indenture and such
act for a statement of such terms. The terms of the Indenture shall govern
any inconsistencies between the Indenture and the Securities. The Securities
are unsecured general obligations of the Company. The Securities are limited
to $300,000,000 in aggregate principal amount.
5. MANDATORY REDEMPTION. Subject to the Company's obligation to
make an offer to repurchase Securities under certain circumstances pursuant
to Sections 3.10 and 3.13 of the Indenture (as described in paragraph 6
below), the Company shall have no mandatory redemption or sinking fund
obligations with respect to the Securities.
6. REPURCHASE AT OPTION OF HOLDER. (i) If there is a Change of
Control Triggering Event, the Company shall offer to repurchase on the Change
of Control Payment Date all outstanding Securities at 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon to the
Change of Control Payment Date. Holders that are subject to an offer to
purchase shall receive a Change of Control Offer from the Company prior to
any related Change of Control Payment Date and may elect to have such
Securities purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
(ii) If the Company or a Subsidiary consummates an Asset Sale,
within 365 days after the receipt of any Net Proceeds from such Asset Sale,
the Company may apply such Net Proceeds (a) to purchase one or more Hospitals
or Related Businesses and/or a controlling interest in the Capital Stock of a
Person owning one or more Hospitals and/or one or more Related Businesses,
(b) to make a capital expenditure or to acquire other tangible assets, in
each case, that are used or useful in any business in which the Company is
permitted to be engaged pursuant to Section 3.15 of the Indenture, (c) to
permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary
or (d) to permanently reduce Senior Revolving Debt (and to correspondingly
reduce commitments with respect thereto), except that up to an aggregate of
$200.0 million of Net Proceeds from Asset Sales may be
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applied after the date of the Indenture to reduce Senior Revolving Debt
without a corresponding reduction in commitments with respect thereto.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Revolving Debt or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from any Asset Sale that are not so invested or applied shall be
deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company shall make an offer to all
Holders of Securities and holders of any other Indebtedness of the Company
ranking on a parity with the Securities from time to time outstanding with
similar provisions requiring the Company to make an offer to purchase or to
redeem such Indebtedness with the proceeds from any asset sales, PRO RATA in
proportion to the respective principal amounts of the Securities and such
other Indebtedness then outstanding (a "SENIOR ASSET SALE OFFER") to purchase
the maximum principal amount of Securities and such other Indebtedness that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase in accordance with the
terms of the Indenture. To the extent that the aggregate amount of
Securities and such other Indebtedness tendered pursuant to a Senior Asset
Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Securities and such other Indebtedness surrendered by
holders pursuant to a Senior Asset Sale Offer exceeds the amount of Excess
Proceeds, the Securities and such other Indebtedness shall be purchased on a
PRO RATA basis. Holders that are the subject of an offer to purchase shall
receive a Senior Asset Sale Offer from the Company prior to any related
purchase date and may elect to have such Securities purchased by completing
the form entitled "Option of Holder to Elect Purchase" appearing below.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons, and in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or
register the transfer of any Securities between a record date and the
corresponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Agent and
the Company may deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
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purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary. The registered Holder of a Security shall be treated as its owner
for all purposes.
9. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the
next succeeding paragraphs, the Indenture or the Securities may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Securities then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Securities)
and any existing default or compliance with any provision of the Indenture or
the Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities (including consents
obtained in connection with a tender offer or exchange offer for Securities).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Security held by a non-consenting Holder of
Securities): (i) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver, (ii) reduce the principal
of or change the fixed maturity of any Security, (iii) reduce the rate of or
change the time for payment of interest on any Security, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Securities, (except a rescission of acceleration of the
Securities 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), (v) make any Security payable in money other than that stated
in the Securities, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Securities
to receive payments of principal of or premium, if any, or interest on the
Securities or (vii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Securities, the Company and the Trustee may amend or supplement the Indenture
or the Securities to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Securities in addition to or in place of certificated
Securities, to provide for any supplemental indenture required pursuant to
Section 3.16 of the Indenture, to provide for the assumption of the Company's
obligations to Holders of the Securities in the case of a merger,
consolidation or sale of assets, to make any change that would provide any
additional rights or benefits to the Holders of the Securities or that does
not adversely affect the legal rights under the Indenture of any such Holder,
or to comply with requirements of the Securities and Exchange Commission (the
"COMMISSION") in order to effect or maintain the qualification of the
Indenture under the TIA.
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10. DEFAULTS AND REMEDIES. Events of Default under the Indenture
include: (i) a default for 30 days in the payment when due of interest on
the Securities; (ii) a default in payment when due of the principal of or
premium, if any, on the Securities, at maturity or otherwise; (iii) a failure
by the Company to comply with the provisions described under the covenants
"Limitations on Restricted Payments," "Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock," "Asset Sales," and "Change of
Control;" (iv) a failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Securities; (v) any
default that 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 created after the date of the Indenture,
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 such 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 a final judgment or final judgments aggregating in excess of $25.0
million entered by a court or courts or competent jurisdiction against the
Company or any of its Significant Subsidiaries if such final judgment or
judgments remain unpaid or undischarged for a period (during which execution
shall not be effectively stayed) of 60 days after their entry; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Significant Subsidiaries. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Securities by written notice to the Company
and the Trustee, may declare all the Securities to be due and payable
immediately (plus, in the case of an Event of Default that is the result of
willful actions (or inactions) by or on behalf of the Company intended to
avoid prohibitions on redemptions of the Securities contained in the
Indenture or the Securities, an amount of premium applicable pursuant to the
Indenture). 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
Securities shall become due and payable without further action or notice.
Holders of the Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Securities notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
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of principal or interest) if it determines that withholding notice is in such
Holders' interest.
The Holders of not less than a majority in aggregate principal
amount of the Securities then outstanding by written notice to the Trustee
may on behalf of the Holders of all of the Securities waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest or premium
on, or the principal of, the Securities.
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.
The above description of Events of Default and remedies is
qualified by reference, and subject in its entirety, to the more complete
description thereof contained in the Indenture.
11. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Subsidiaries to incur
additional indebtedness and issue preferred stock, pay dividends or make
other distributions, repurchase Equity Interests or subordinated
indebtedness, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its Subsidiaries, issue or sell
Equity Interests of the Company's Subsidiaries, issue Guarantees of
Indebtedness by the Company's Subsidiaries and enter into certain mergers and
consolidations.
12. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and
may otherwise deal with the Company or its Affiliates, as if it were not
Trustee.
13. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Securities, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Security waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of the Securities.
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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14. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the
Securities and reliance may be placed only on the other identification
numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Inden-ture. Request may be made to:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Attention: Treasurer
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ASSIGNMENT FORM
To assign this Security, fill in the form below: For value received (I)
or (we) hereby sell, assign and transfer this Security to
_____________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Print or type assignee's name, address and zip code)
and do hereby irrevocably constitute and appoint ____________________________
Attorney to transfer this Security on the books of the Company with full
power of substitution in the premises.
_____________________________________________________________________________
Date: ____________________________
Your Signature:______________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
__________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security purchased
by the Company pursuant to Section 3.10 or Section 3.13 of the Indenture,
check the appropriate box:
/ / Section 3.10 / / Section 3.13
(Asset Sale) (Change of Control)
If you want to have only part of the Security purchased by the Company
pursuant to Section 3.10 or Section 3.13 of the Indenture, state the amount
you elect to have purchased:
$ _______________
Date:____________
Your Signature:______________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
__________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guarantor"), a subsidiary
of Tenet Healthcare Corporation (or its successor), a Nevada corporation (the
"Company"), and The Bank of New York, as trustee under the indenture referred
to below (the "Trustee").
W I T N E S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of October __, 1995,
providing for the issuance of an aggregate principal amount of $300,000,000
of __% Senior Notes due 2003 (the "Securities");
WHEREAS, Section 3.16 of the Indenture provides that under certain
circumstances the Company is required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the
Guarantor shall guarantee the payment of the Securities pursuant to a
Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and
ratable benefit of the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of the Indenture, the Securities or the
Obligations of the Company hereunder and thereunder, that: (a) the principal
of, premium, if any, and interest on the Securities will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal, premium, if any, and (to the extent
permitted by law) interest on any interest on the Securities and all other
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Obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Securities or any of such other payment Obligations, that same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by
acceleration, redemption or otherwise. Failing payment when due of any
amount so guaranteed for whatever reason the Guarantor shall be obligated to
pay the same immediately. An Event of Default under the Indenture or the
Securities shall constitute an event of default under this Guarantee, and
shall entitle the Holders of Securities to accelerate the Obligations of the
Guarantor hereunder in the same manner and to the same extent as the
Obligations of the Company. The Guarantor hereby agrees that its Obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or the Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder of the Securities
with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge
or defense of the Guarantor. The Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenant that this Guarantee will not be discharged except by complete
performance of the Obligations contained in the Securities and the Indenture.
If any Holder or the Trustee is required by any court or otherwise to return
to the Company, the Guarantor, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the Guarantor,
any amount paid by either to the Trustee or such Holder, this Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and
effect. The Guarantor agrees that it shall not be entitled to, and hereby
waives, any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby. The Guarantor further agrees that, as between
the Guarantor, on one hand, and the Holders and the Trustee, on the other
hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article 5 of the Indenture for the purposes of
this Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations guaranteed hereby,
and (y) in the event of any declaration of acceleration of such Obligations
as provided in Article 5 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantor for
the purpose of this Guarantee.
3. EXECUTION AND DELIVERY OF GUARANTEE. To evidence its Guarantee set
forth in Section 2, the Guarantor hereby agrees that a notation of such
Guarantee substantially in the form of EXHIBIT A shall be endorsed by an
officer of such Guarantor on each Security authenticated and delivered by the
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Trustee and that this Supplemental Indenture shall be executed on behalf of
such Guarantor, by manual or facsimile signature, by its President or one of
its Vice Presidents.
The Guarantor hereby agrees that its Guarantee set forth in Section
2 shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Guarantee.
If an Officer whose signature is on this Supplemental Indenture or
on the Guarantee no longer holds that office at the time the Trustee
authenticates the Security on which a Guarantee is endorsed, the Guarantee
shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Guarantee set forth in this Indenture on behalf of the Guarantors.
4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) Except as set forth in Articles 3 and 4 of the Indenture,
nothing contained in this Supplemental Indenture or in the Securities shall
prevent any consolidation or merger of the Guarantor with or into the Company
or any Subsidiary of the Company that has executed and delivered a
supplemental indenture substantially in the form hereof or shall prevent any
sale or conveyance of the property of the Guarantor as an entirety or
substantially as an entirety, to the Company or any such Subsidiary of the
Company.
(b) Except as provided in Section 4(a) hereof or in a transaction
referred to in Section 5 hereof, the Guarantor shall not consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person unless
(1) either (x) the Guarantor shall be the surviving Person of such merger or
consolidation or (y) the surviving Person or transferee is a corporation,
partnership or trust organized and existing under the laws of the United
States, any state thereof or the District of Columbia and such surviving
Person or transferee shall expressly assume all the obligations of the
Guarantor under this Guarantee and the Indenture pursuant to a supplemental
indenture substantially in the form hereof; (2) immediately after giving
effect to such transaction (including the incurrence of any Indebtedness
incurred or anticipated to be incurred in connection with such transaction)
no Default or Event of Default shall have occurred and be continuing; and (3)
the Company has delivered to the Trustee an Officers' Certificate and Opinion
of Counsel, each stating that such consolidation, merger or transfer complies
with the Indenture, that the surviving Person agrees to be bound thereby, and
that all conditions precedent in the Indenture relating to such transaction
have been satisfied. For purposes of the foregoing, the transfer (by
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<PAGE>
lease, assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties and
assets of one or more Subsidiaries of the Guarantor, the Capital Stock of
which constitutes all or substantially all of the properties and assets of
the Guarantor, shall be deemed to be the transfer of all or substantially all
of the properties and assets of the Guarantor.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all
of the assets of the Guarantor in accordance with this Section 4(b) hereof,
the successor corporation shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a Guarantor.
Such successor corporation thereupon may cause to be signed any or all of
the Guarantees to be endorsed upon all of the Securities issuable hereunder
which theretofore shall not have been signed by the Company and delivered to
the Trustee. All Guarantees so issued shall in all respects have the same
legal rank and benefit under the Indenture as the Guarantees theretofore and
thereafter issued in accordance with the terms of the Indenture as though all
of such Guarantees had been issued at the date of the execution hereof.
5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale,
lease, conveyance or other disposition (by merger, consolidation or
otherwise) of assets of the Guarantor (including, if applicable, disposition
of all of the Capital Stock of the Guarantor), any Liens in favor of the
Trustee in the assets sold, leased, conveyed or otherwise disposed of shall
be released; PROVIDED that in the event of an Asset Sale, such Asset Sale is
effected, and the Net Proceeds therefrom are applied, in accordance with
Section 3.10 of the Indenture. If the assets sold, leased, conveyed or
otherwise disposed of (by merger, consolidation or otherwise) include all or
substantially all of the assets of the Guarantor or all of the Capital Stock
of the Guarantor in each case, in compliance with the terms of the Indenture,
then the Guarantor shall be automatically and unconditionally released from
and relieved of its Obligations under its Guarantee; PROVIDED that in the
event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds
therefrom are applied, in accordance with Section 3.10 of the Indenture.
Upon delivery by the Company to the Trustee of an Officers' Certificate to
the effect that such sale, lease, conveyance or other disposition was made by
the Company in accordance with the provisions of the Indenture, including
without limitation of Section 3.10 thereof, if applicable, the Trustee shall
execute any documents reasonably required in order to evidence the release of
the Guarantor from its Obligations under its Guarantee.
Nothing herein shall relieve the Company from its obligation to
apply the proceeds of any Asset Sale as provided in Section 3.10 of the
Indenture.
B-4
<PAGE>
6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under
the Securities and the Indenture and (ii) the amount, if any, which would not
have (A) rendered the Guarantor "insolvent" (as such term is defined in the
federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New
York) or (B) left it with unreasonably small capital at the time its
Guarantee of the Securities was entered into, after giving effect to the
incurrence of existing Indebtedness immediately prior to such time; PROVIDED
that it shall be a presumption in any lawsuit or other proceeding in which
the Guarantor is a party that the amount guaranteed pursuant to its Guarantee
is the amount set forth in clause (i) above unless any creditor, or
representative of creditors of the Guarantor, or debtor in possession or
trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit
that the aggregate liability of the Guarantor is limited to the amount set
forth in clause (ii). In making any determination as to the solvency or
sufficiency of capital of the Guarantor in accordance with the previous
sentence, the right of the Guarantor to contribution from other Subsidiaries
of the Company that have executed and delivered a supplemental indenture
substantially in the form hereof and any other rights the Guarantor may have,
contractual or otherwise, shall be taken into account.
7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying
Agent other than the Trustee shall have been appointed by the Company and be
then acting under the Indenture, the term "Trustee" as used in this
Supplemental Indenture shall in each case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within
its meaning as fully and for all intents and purposes as if such Paying Agent
were named in this Supplemental Indenture in place of the Trustee.
8. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Guarantor, as such, shall have any
liability for any obligations of the Company or the Guarantor under the
Securities, any Guarantees, the Indenture or this Supplemental Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of the Securities by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities. 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.
9. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
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<PAGE>
10. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
11. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _________________ ___, ____
[Guarantor]
By: ______________________________
Name:
Title:
The Bank of New York,
as Trustee
By: ______________________________
Name:
Title:
B-6
<PAGE>
EXHIBIT A TO SUPPLEMENTAL INDENTURE
GUARANTEE
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability
of the Indenture, the Securities or the Obligations of the Company to the
Holders or the Trustee under the Securities or under the Indenture, that: (a)
the principal of, and premium, if any, and interest on the Securities will be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on overdue principal, premium, if any,
and (to the extent permitted by law) interest on any interest on the
Securities and all other payment Obligations of the Company to the Holders or
the Trustee under the Indenture or under the Securities will be promptly paid
in full, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such
other payment Obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration, redemption or otherwise. Failing payment when
due of any amount so guaranteed, for whatever reason, the Guarantor shall be
obligated to pay the same immediately.
The obligations of the Guarantor to the Holders of Securities and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in a Supplemental Indenture, dated as of _________ __, ____ to the
Indenture, and reference is hereby made to the Indenture, as supplemented,
for the precise terms of this Guarantee.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its respective successors
and assigns to the extent set forth in the Indenture until full and final
payment of all of the Company's Obligations under the Securities and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders of Securities and, in the event of any transfer or
assignment of rights by any Holder of Securities or the Trustee, the rights
and privileges herein conferred upon that party shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions hereof. This a Guarantee of payment and not a guarantee of
collection.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Security upon which this
Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized signatories.
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<PAGE>
For purposes hereof, the Guarantor's liability will be that amount
from time to time equal to the aggregate liability of the Guarantor
hereunder, but shall be limited to the lesser of (i) the aggregate amount of
the Obligations of the Company under the Securities and the Indenture and
(ii) the amount, if any, which would not have (A) rendered the Guarantor
"insolvent" (as such term is defined in the federal Bankruptcy Law and in the
Debtor and Creditor Law of the State of New York) or (B) left it with
unreasonably small capital at the time its Guarantee of the Securities was
entered into, after giving effect to the incurrence of existing Indebtedness
immediately prior to such time; PROVIDED that it shall be a presumption in
any lawsuit or other proceeding in which the Guarantor is a party that the
amount guaranteed pursuant to its Guarantee is the amount set forth in clause
(i) above unless any creditor, or representative of creditors of the
Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor,
otherwise proves in such a lawsuit that the aggregate liability of the
Guarantor is limited to the amount set forth in clause (ii). The Indenture
provides that, in making any determination as to the solvency or sufficiency
of capital of a Guarantor in accordance with the previous sentence, the right
of the Guarantor to contribution from other Subsidiaries of the Company that
have become Guarantors and any other rights the Guarantor may have,
contractual or otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
[GUARANTOR]
By:_________________________
Name:
Title:
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<PAGE>
Exhibit 5.1
[GENERAL COUNSEL'S LETTERHEAD]
September 26, 1995
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Re: National Medical Enterprises, Inc.
Registration Statement No. 33-62591
-----------------------------------
Ladies and Gentlemen:
I am the General Counsel of Tenet Healthcare Corporation (the
"Company"), and have acted as counsel to the Company in connection with the
preparation of the above-referenced Registration Statement on Form S-3, filed by
the Company with the Securities and Exchange Commission (the "Commission") on
September 13, 1995 under the Securities Act of 1933, as amended (the "Act")
and Amendment No. 1 thereto, filed with the Commission on September 26, 1995,
including information deemed to be a part of the Registration Statement at the
time of effectiveness pursuant to Rule 430A of the General Rules and Regulations
under the Act (such Registration Statement, as so amended, being hereinafter
referred to as the "Registration Statement"). The Registration Statement
relates to the registration under the Act of $300,000,000 principal amount of
Senior Notes due 2003 (the "Debt Securities") to be issued by the Company.
The Debt Securities are to be sold pursuant to an underwriting
agreement to be entered into among the Company and the underwriters named
therein (the "Underwriting Agreement"). The Debt Securities will be issued
pursuant to an Indenture (the "Indenture") between the Company and The Bank of
New York, as Trustee. The terms of the Debt Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the 1933 Act.
<PAGE>
Tenet Healthcare Corporation
September 26, 1995
Page 2
In connection with this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
such records of the Company and all such agreements, certificates of public
officials, certificates of officers or other representatives of the Company and
others and such other documents, certificates and records as I have deemed
necessary or appropriate as a basis for the opinions set forth herein,
including, without limitation, (i) the Registration Statement (together with
the form of preliminary prospectus forming a part thereof), (ii) the Restated
Articles of Incorporation and Restated By-laws of the Company, as amended to
date, (iii) copies of certain resolutions adopted by the Board of Directors of
the Company relating to the filing of the Registration Statement and any
amendments or supplements thereto, the proposed issuance of the Debt Securities
and related matters, (iv) the form of Underwriting Agreement and (v) the form of
the Indenture. In my examination, I have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to me as originals, the conformity to original documents of
all documents submitted to me as certified, conformed or photostatic copies and
the authenticity of the originals of such copies. As to any facts material to
the opinions expressed herein which I have not independently established or
verified, I have relied upon statements and representations of officers and
other representatives of the Company and others.
I am a member of the California Bar and for purposes of this opinion
do not express any opinion as to the laws of any jurisdiction other than
California and the General Corporation Law of the State of Nevada.
Based on and subject to the foregoing, I am of the opinion that the
Debt Securities will be, when issued and sold in accordance with the
Registration Statement and the Indenture, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
that the enforcement of such obligations may be limited
<PAGE>
Tenet Healthcare Corporation
September 26, 1995
Page 3
by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally, and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
This opinion is furnished to you solely for your benefit in connection
with the filing of the Registration Statement and is not to be used, circulated,
quoted or otherwise referred to for any other purpose without my prior written
consent. I hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement. I also consent to the reference to me
under the heading "Legal Matters" in the Registration Statement. In giving this
consent, I do not thereby admit that I am included in the category of persons
whose consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Commission promulgated thereunder. This opinion is expressed
as of the date hereof unless otherwise expressly stated and I disclaim any
undertaking to advise you of any subsequent changes of the facts stated or
assumed herein or any subsequent changes in applicable law.
Very truly yours,
Scott M. Brown
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of August 31, 1995 to the $2,300,000,000 Credit
Agreement dated as of February 28, 1995 (the "Agreement") among TENET HEALTHCARE
CORPORATION (formerly National Medical Enterprises, Inc.), the LENDERS party
thereto, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, THE BANK OF NEW YORK and BANKERS TRUST COMPANY,
as Arranging Agents, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent.
WHEREAS, the parties hereto desire to amend the Agreement to modify
certain covenants of the Borrower in Article V thereof;
WHEREAS, if this Amendment is signed by Banks that constitute the
"Required Banks" under the Metrocrest Reimbursement Agreement, the corresponding
covenants in the Metrocrest Reimbursement Agreement will be amended as provided
herein concurrently with the effectiveness of this Amendment; and
WHEREAS, Morgan Guaranty Trust Company of New York wishes to resign as
Collateral Agent under the Security Agreement and J.P. Morgan Delaware is
willing to become the Collateral Agent thereunder;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement has the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the Amendment Effective Date (as defined in
Section 13 hereof) refer to the Agreement as amended hereby.
SECTION 2. DEFINITION OF FINAL MATURITY DATE. The definition of
"Final Maturity Date" in Section 1.01 of the Agreement is amended to read as
follows:
<PAGE>
"Final Maturity Date" means August 31, 2001 or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day;
PROVIDED that the Borrower may, by at least five Domestic Business Days'
notice to the Administrative Agent, specify an earlier date as the Final
Maturity Date if such earlier date is not earlier than the scheduled due
date of the last Term Loan Amortization Payment that has not theretofore
been paid in full. The Administrative Agent shall promptly notify each
Lender of any earlier Final Maturity Date so specified by the Borrower.
SECTION 3. AMENDMENT OF FIXED CHARGE RATIO. The table in Section
5.07 of the Agreement is amended to read as follows:
Period Ratio
------ -----
September 1, 1995 through November 30, 1996 2.25 to 1
December 1, 1996 through November 30, 1997 2.35 to 1
December 1, 1997 through November 30, 1998 2.5 to 1
After November 30, 1998 3.0 to 1
SECTION 4. LIMITATIONS ON DEBT. Section 5.10 of the Agreement is
amended to read in full as follows:
SECTION 5.10. LIMITATIONS ON DEBT. After the Closing Date, neither
the Borrower nor any Included Subsidiary will incur, assume or otherwise be
liable in respect of any Debt, except:
(a) Debt outstanding under this Agreement;
(b) the Senior Notes and the Subordinated Notes;
(c) the Metrocrest Bonds and the obligations of the Borrower
under the Metrocrest Reimbursement Agreement;
(d) Debt outstanding at the close of business on the Closing
Date which the Borrower or AMI has become obligated to purchase,
redeem or otherwise retire within 60 days thereafter pursuant to the
NME Tender Offers, the AMI Tender Offers and the AMI Redemptions;
(e) Debt (other than the Debt covered by the foregoing clauses
of this Section) outstanding at the close of business on the Closing
Date in an
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<PAGE>
aggregate principal or face amount not exceeding $680,000,000;
(f) unsecured Debt of the Borrower incurred to refinance Debt of
the Borrower or AMI described in clauses (a) and (e) above and secured
or unsecured Debt of the Borrower incurred to refinance Debt described
in clause (c) above; PROVIDED that (i) no portion of the principal of
any Debt incurred pursuant to this clause (f) is required to be
repaid, repurchased or otherwise retired before the date which is 12
months after the Final Maturity Date and (ii) the documents evidencing
or governing such Debt do not contain any Restrictive Provision (as
defined in Section 5.11(c)) that is more restrictive than the
provisions of this Agreement;
(g) subject to the limitations in Section 5.11(a)(1), NME Non-
Recourse Debt which is incurred solely to finance Capital
Expenditures;
(h) International Non-Recourse Debt;
(i) subject to the limitations in Section 5.11(b), Debt of any
Person which becomes an Included Subsidiary after the Closing Date;
PROVIDED that (x) such Debt is outstanding when such Person becomes an
Included Subsidiary and was not created in contemplation of such event
or (y) such Debt is incurred solely for the purpose of refinancing
Debt described in the foregoing clause (x);
(j) Guarantees by the Borrower or any Included Subsidiary of
Debt relating to the assets disposed of in any Hospital Sale, Hospital
Swap or Asset Sale; PROVIDED that (i) such Debt was outstanding when
such assets were disposed of and was not created in contemplation of
the disposition thereof and (ii) the sum of (x) the aggregate
outstanding principal amount of all Debt which is Guaranteed by the
Borrower or any of its Included Subsidiaries pursuant to this clause
(j) and (y) the aggregate amount of all lease payments under operating
leases which are Guaranteed by the Borrower or any Included Subsidiary
after November 30, 1994 shall not exceed $200,000,000 at any time;
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<PAGE>
(k) subject to the limitations in Section 5.11(a) as to the
Borrower or Section 5.11(b) as to any Included Subsidiary, Debt
consisting of the obligations of the Borrower or any Included
Subsidiary as lessee which are capitalized in accordance with GAAP;
(l) subject to the limitations in Section 5.11(b) and Section
5.23, Debt of any Included Subsidiary not otherwise permitted by the
foregoing clauses of this Section; PROVIDED that the aggregate
outstanding principal or face amount of all Debt of Included
Subsidiaries permitted by this clause (l) shall not exceed $10,000,000
at any time;
(m) Debt under the Overdraft Facility Agreement not exceeding
$20,000,000 in aggregate outstanding principal amount;
(n) Debt of the Borrower or any Included Subsidiary that can be,
at the option of the Borrower or such Included Subsidiary, retired by
exchanging capital stock of Hillhaven or Westminster for such Debt
when such Debt becomes due (whether by acceleration or otherwise);
PROVIDED that the issuance of such Debt shall be deemed to be a
disposition of such capital stock and the Net Cash Proceeds thereof
shall be applied to prepay Term Loans as provided in Section 2.06(c);
and
(o) subject to the limitations in Section 5.11(a), unsecured
Debt of the Borrower not otherwise permitted by the foregoing clauses
of the Section, PROVIDED that (i) no portion of the principal of any
Debt incurred pursuant to this clause (o) is required to be repaid,
repurchased or otherwise retired before the date which is 12 months
after the Final Maturity Date and (ii) the documents evidencing or
governing such Debt do not contain any Restrictive Provision (as
defined in Section 5.11(c)) that is more restrictive than the
provisions of this Agreement.
4
<PAGE>
Unless the Required Banks otherwise agree, the Borrower will cause any Debt
issued pursuant to subsection (n) of this Section to be retired by
exchanging it for capital stock of Hillhaven or Westminster at or prior to
the date such Debt becomes due.
SECTION 5. ELIMINATION OF CAPITAL EXPENDITURE LIMITATION; ADDITIONAL
LIMITATIONS ON DEBT. Section 5.11 of the Agreement is deleted in its entirety,
and replaced by the following new Section 5.11:
SECTION 5.11. ADDITIONAL LIMITATIONS ON DEBT. (a) The Borrower will
not Incur any Debt otherwise permitted under clause (g), (k) or (o) of
Section 5.10 unless:
(1) the Pro Forma Fixed Charge Ratio would be at least (x) 2.25
to 1 if such Debt is Incurred on or before March 31, 1996, (y) 2.5 to
1 if such Debt is Incurred from April 1, 1996 through September 30,
1996 or (z) 3.0 to 1 if such Debt is Incurred at any time thereafter;
and
(2) if such Debt is Incurred under clause (k) of Section 5.10:
(x) the aggregate principal or face amount of all Debt permitted
by clauses (i), (k) and (l) of Section 5.10 outstanding
immediately after such Debt is Incurred shall not exceed the
Priority Debt Limit; and
(y) the portion of such aggregate principal or face amount that
is required to be repaid, repurchased or otherwise retired before
the date which is 12 months after the Final Maturity Date shall
not exceed $200,000,000.
(b) No Included Subsidiary will Incur any Debt otherwise permitted
under clause (i), (k) or (l) of Section 5.10 unless:
(1) the Pro Forma Fixed Charge Ratio would be at least (x) 2.25
to 1 if such Debt is Incurred on or before March 31, 1996, (y) 2.5 to
1 if such Debt is Incurred from April 1, 1996 through September 30,
1996 or (z) 3.0 to 1 if such Debt is Incurred at any time thereafter;
(2) the aggregate principal or face amount of all Debt permitted
by clauses (i), (k) and (l)
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<PAGE>
of Section 5.10 outstanding immediately after such Debt is Incurred
shall not exceed the Priority Debt Limit; and
(3) the portion of such aggregate principal or face amount that
is required to be repaid, repurchased or otherwise retired before the
date which is 12 months after the Final Maturity Date shall not exceed
$200,000,000.
(c) The following terms, as used in this Section, have the following
meanings:
"Incur" means incur, assume or otherwise become liable in respect
of; PROVIDED that any Person which becomes an Included Subsidiary
after the Closing Date shall be deemed to have Incurred, immediately
after it becomes an Included Subsidiary, all its Debt then
outstanding.
"Priority Debt Limit" means, when any Proposed New Debt is
Incurred, an amount equal to $650,000,000 LESS the aggregate principal
amount of Debt of Included Subsidiaries then outstanding that was
outstanding at the close of business on the Closing Date as permitted
by Section 5.10(e).
"Proposed New Debt" means any Debt proposed to be Incurred under
clause (g), (i), (k), (l) or (o) of Section 5.10.
"Pro Forma Consolidated Interest Expense" means, with respect to
any Proposed New Debt, the consolidated interest expense of the
Borrower and its Consolidated Subsidiaries for a period of one year
commencing on the date that such Proposed New Debt is to be incurred
(the "Relevant Year"), calculated on the following assumptions:
(i) all Debt and other interest-bearing obligations of the
Borrower and its Consolidated Subsidiaries that are outstanding
immediately after such Proposed New Debt is incurred (excluding
any such Debt and obligations to be repaid, repurchased otherwise
refunded with the proceeds of such Proposed New Debt) will remain
outstanding throughout the Relevant Year and no other Debt or
interest-bearing obligations will be incurred during the Relevant
Year; and
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<PAGE>
(ii) any Debt or interest-bearing obligation that bears
interest at a floating rate will bear interest throughout the
Relevant Year at the rate applicable thereto (or in the case of
such Proposed New Debt, the rate that would have been applicable
thereto) two Domestic Business Days before such Proposed New Debt
is Incurred.
Subject to the foregoing assumptions, Pro Forma Consolidated Interest
Expense shall be calculated on a basis consistent with the calculation
of Consolidated Interest Expense for the Relevant Four Quarters.
"Pro Forma Fixed Charge Ratio" means, with respect to any
Proposed New Debt, the ratio of (i) the sum of Consolidated EBITDA for
the Relevant Four Quarters plus Consolidated Rental Expense for the
Relevant Four Quarters to (ii) the sum of Consolidated Rental Expense
for the Relevant Four Quarters plus Pro Forma Consolidated Interest
Expense.
"Relevant Four Quarters" means, with respect to any Proposed New
Debt, the most recent period of four consecutive Fiscal Quarters that
ended at least 45 days before such Proposed New Debt is to be
Incurred.
"Restrictive Covenant" means any covenant that (i) contains a
financial test, (ii) limits the operations of any Person in any
respect or (iii) prohibits any Person from taking specified actions
with respect to any category of its liabilities or assets; PROVIDED
that the term "Restrictive Covenant" shall not include covenants that
relate to specific assets and are contained in a document evidencing
or governing Debt that is secured by such assets or was incurred
solely for the purpose of financing all or part of the cost of such
assets.
"Restrictive Provision" means a provision contained in a document
evidencing or governing any Debt of the Borrower or an Included
Subsidiary which is (i) a Restrictive Covenant, (ii) an event of
default or (iii) any other provision which might obligate the Borrower
or an Included Subsidiary to repay, purchase or otherwise retire such
Debt as a result of the existence or absence
7
<PAGE>
of a condition or event of a type that is, with reasonable frequency,
the subject matter of a Restrictive Covenant or event of default in
documents evidencing or governing Debt. Examples of a provision
referred to in clause (iii) include, without limitation, (a) a change
of control provision which is not an event of default but could
obligate the Borrower to offer to purchase the relevant Debt or (b) a
financial ratio that is not contained in a Restrictive Covenant but
must be met as a condition to the Borrower's ability to "reborrow" or
"rollover" the relevant Debt at the end of an interest period.
SECTION 5. AMENDMENT OF PERMITTED INVESTMENTS. Section 5.13 of the
Agreement is amended as follows:
(i) Clause (b) is amended to read as follows:
(b) Investments in Included Subsidiaries, including any Person which
is an Included Subsidiary immediately after such Investment is made;
(ii) Clause (e) is deleted in its entirety.
(iii) Clause (f) is redesignated as clause (e) and amended to read as follows:
(e) any Investment not expressly permitted by the foregoing clauses
of this Section; PROVIDED that (i) immediately after such Investment is
made or acquired, the aggregate cost of all such Investments made or
acquired by the Borrower and the Included Subsidiaries after November 30,
1994 in Persons other than the Combined Companies does not exceed
$250,000,000 and (ii) no Investment in an Excluded Subsidiary shall be made
or acquired pursuant to this clause (e).
SECTION 6. ELIMINATION OF RESTRICTIONS ON ADDITIONAL OPERATING
LEASES. Section 5.15 of the Agreement is amended to read as follows:
SECTION 5.15. SALE-LEASEBACK TRANSACTIONS. After the Closing
Date, neither the Borrower nor any Included Subsidiary will engage in any
Sale-Leaseback Transaction other than a Medical Office Sale-Leaseback
Transaction.
SECTION 7. PREPAYMENT OF DEBT. Section 5.22 of the Agreement is
amended to read as follows:
8
<PAGE>
SECTION 5.22. RESTRICTION ON PREPAYING DEBT. (a) Neither the
Borrower nor any Included Subsidiary will prepay, defease or purchase,
prior to the date on which it is required by its terms to be repaid ,
repurchased or otherwise retired, all or any portion of (i) any Debt of the
Borrower that is subordinated in right of payment to the Loans or (ii) any
Debt permitted by clause (f), (i), (k), (l) or (o) of Section 5.10.
(b) AMI will not extend the final maturity of any Debt of AMI
permitted to remain outstanding under Section 5.10(e) beyond the currently
scheduled maturity date thereof.
SECTION 8. RESIGNATION AND APPOINTMENT OF COLLATERAL AGENT. Pursuant
to Section 14(G) of the Security Agreement, (i) Morgan Guaranty Trust Company of
New York hereby gives notice that it resigns as Collateral Agent under the
Security Agreement as of the Amendment Effective Date, (ii) the undersigned
Banks, in their capacities as Secured Parties under the Security Agreement,
hereby appoint J.P. Morgan Delaware as the successor Collateral Agent thereunder
and (iii) J.P. Morgan Delaware hereby accepts such appointment as successor
Collateral Agent.
SECTION 9. REPRESENTATIONS OF THE BORROWER. The Borrower represents
that on and as of the Amendment Effective Date, both before and after the
effectiveness of this Amendment, (i) no Default will have occurred and be
continuing and (ii) each of the representations and warranties contained in the
Agreement as amended by this Amendment will be true, except to the extent that
such representations and warranties speak only as of a specific date, in which
case they shall have been true as of such date.
SECTION 10. CONFIRMATION OF AGREEMENT. Except as modified or amended
in this Amendment, all terms and conditions in the Agreement remain in full
force and effect and are hereby ratified and confirmed.
SECTION 11. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 12. COUNTERPARTS. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
9
<PAGE>
SECTION 13. EFFECTIVENESS. The amendment of the Agreement provided
for herein shall become effective on the date (the "Amendment Effective Date")
when the Administrative Agent shall have received:
(a) counterparts hereof signed by the Borrower and the Required
Lenders;
(b) in the case of any such party as to which an executed counterpart
shall not have been received, telegraphic, telex, facsimile or other
written confirmation from such party that a counterpart hereof has been
executed by such party; and
(c) all documents that the Administrative Agent may reasonably
request relating to the existence of the Borrower, the corporate authority
for and the validity of this Amendment and any other matters relevant
hereto, all in form and substance satisfactory to the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
TENET HEALTHCARE CORPORATION
By /s/ T.P. McMullen
-------------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Diana H. Imhof
-------------------------------
Title: Vice President
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
-------------------------------
Title: Vice President
10
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Wyatt R. Ritchie
-------------------------------
Title: Vice President
BANKERS TRUST COMPANY
By
-------------------------------
Title:
THE BANK OF CALIFORNIA, N.A.
By /s/ Jennifer L. Banks
-------------------------------
Title: Vice President
THE MITSUBISHI BANK, LTD.
By /s/ Randy Szuch
-------------------------------
Title: Vice President
BANK OF MONTREAL
By /s/ Daniel A. Brown
-------------------------------
Title: Director
THE BANK OF NOVA SCOTIA
By /s/ Chris Johnson
-------------------------------
Title: Sr. Relationship Mgr.
11
<PAGE>
THE BANK OF TOKYO TRUST COMPANY
By /s/ Margaret Sheridan Sunier
-------------------------------
Title: Vice President & Manager
Specialized Finance
BANQUE PARIBAS
By /s/ Sean T. Conlon
-------------------------------
Title: Vice President
By /s/ John N. Kate
-------------------------------
Title: Group Vice President
THE CHASE MANHATTAN BANK N.A.
By /s/ Michael K. Bayley
-------------------------------
Title: Vice President
CHEMICAL BANK
By /s/ David J. Corcoran
-------------------------------
Title: Vice President
CITICORP USA, INC.
By /s/ David L. Harris
-------------------------------
Title: Assistant Vice President
12
<PAGE>
CREDIT SUISSE
By /s/ Stephen M. Flynn
-------------------------------
Title: Member of Senior Management
By /s/ Marilou Palenzuela
-------------------------------
Title: Member of Senior Management
DEUTSCHE BANK AG, LOS ANGELES
AND/OR CAYMAN ISLANDS
By /s/ J. Scott Jessup
-------------------------------
Title: Vice President
By /s/ Ross Howard
-------------------------------
Title: Vice President
DRESDNER BANK AG, LOS ANGELES
AGENCY AND GRAND CAYMAN BRANCH
By /s/ Jon M. Bland
-------------------------------
Title: Senior Vice President
By /s/ Sidney S. Jordan
-------------------------------
Title: Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By /s/ William J. Baird
-------------------------------
Title: Senior Vice President
13
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By
-------------------------------
Title:
THE FUJI BANK, LIMITED
By /s/ Nobuhiro Umemura
-------------------------------
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Toshinari Iyoda
-------------------------------
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By /s/ Yutaka Kamisawa
-------------------------------
Title: Deputy General Manager
MELLON BANK, N.A.
By /s/ Keith N. Kuhn
-------------------------------
Title: First Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Brad W. DeSpain
-------------------------------
Title: Vice President
14
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By /s/ Anthony L. Trunzo
-------------------------------
Title: Vice President & Manager
THE SANWA BANK LIMITED,
DALLAS AGENCY
By /s/ Blake Wright
-------------------------------
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By
-------------------------------
Title:
SOCIETE GENERALE
By /s/ J. Staley Stewart
-------------------------------
Title: Vice President
THE SUMITOMO BANK, LTD.
By
-------------------------------
Title:
15
<PAGE>
SWISS BANK CORPORATION,
SAN FRANCISCO BRANCH
By /s/ David L. Parrot
-------------------------------
Title: Associate Director
Merchant Banking
By /s/ Hans-Ueli Surber
-------------------------------
Title: Executive Director
Merchant Banking
TORONTO DOMINION (TEXAS), INC.
By /s/ Lisa Allison
-------------------------------
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Douglas L. Williams
-------------------------------
Title: Senior Vice
President/Group Executive
WELLS FARGO BANK, N.A.
By /s/ Brian O'Melveny
-------------------------------
Title: Assistant Vice President
ABN AMRO BANK N.V.
16
<PAGE>
By /s/ Paul K. Stimpfl
-------------------------------
Title: Vice President
By /s/ Matthew S. Thomson
-------------------------------
Title: Group Vice President
THE DAI-ICHI KANGYO BANK, LTD.,
LOS ANGELES AGENCY
By /s/ Tomohiro Nozaki
-------------------------------
Title: Senior Vice President &
Joint General Manager
RABOBANK NEDERLAND
By /s/ David S. Reisman
-------------------------------
Title: Associate General
Counsel, U.S. Vice President
By /s/ W. Jeffrey Vollack
-------------------------------
Title: Vice President, Manager
THE SAKURA BANK LTD.,
LOS ANGELES AGENCY
By /s/ Ofusa Sato
-------------------------------
Title: Senior Vice President &
Assistant General Manager
AMSOUTH BANK OF ALABAMA
17
<PAGE>
By /s/ William Page Barnes
-------------------------------
Title: Vice President
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY
By /s/ Bernardo E. Correa-Henschke
-------------------------------
Title: Vice President & Manager
THE SUMITOMO TRUST AND BANKING CO.,
LTD., NEW YORK BRANCH
By /s/ Surah P. Bhatia
-------------------------------
Title: Senior Vice President
Manager, Corporate
Finance Dept.
ARAB BANK PLC, GRAND CAYMAN BRANCH
By /s/ Nofal Barbar
---------------------------------
Title: Executive Vice President &
Branch Manager
BANQUE NATIONALE DE PARIS
By
-------------------------------
Title:
18
<PAGE>
COMPAGNIE FINANCIERE DE CIC
ET DE L'UNION EUROPEENNE
By /s/ Jacqueline Leclercq
-------------------------------
By /s/ Pascale Moreau
-------------------------------
Title: Attache de Direction
CREDITANSTALT BANKVEREIN
By
-------------------------------
Title:
By
-------------------------------
Title:
THE TOKAI BANK, LTD.,
LOS ANGELES AGENCY
By /s/ Masahiko Saito
-------------------------------
Title: Asst. General Manager
BANCA COMMERCIALE ITALIANA -
LOS ANGELES FOREIGN BRANCH
By /s/ Iacopo Navone
-------------------------------
Title: Vice President & Manager
By /s/ Jack Wityak
-------------------------------
Title: Vice President
BANK OF IRELAND GRAND CAYMAN
By /s/ John G. Cusack
-------------------------------
19
<PAGE>
Title: Assistant Treasurer
BANQUE FRANCAIS DU COMMERCE
EXTERIEUR
By
-------------------------------
Title:
By
-------------------------------
Title:
HIBERNIA NATIONAL BANK
By /s/ Troy J. Villafarra
-------------------------------
Title: Vice President
KREDIETBANK N.V.
By /s/ Robert Snauffer
-------------------------------
Title: Vice President
By /s/ John E. Thierfelder
-------------------------------
Title: Assistant Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ Masaaki (Aaki) Yamagishi
-------------------------------
Title: Chief Manager
NATIONAL CITY BANK, KENTUCKY
By /s/ DeRoy Scott
-------------------------------
Title: Vice President
20
<PAGE>
THE ROYAL BANK OF SCOTLAND PLC
By /s/ D. Dougan
-------------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as resigning
Collateral Agent
By /s/ Diana H. Imhof
-------------------------------
Title: Vice President
J.P. MORGAN DELAWARE, as successor
Collateral Agent
By
-------------------------------
Title:
BANCO ESPIRITO SANTO E COMERCIAL DE
LISBOA
By /s/ Andrew Orsen
-------------------------------
Title: Vice President
By /s/ Joaquim Garnecho
-------------------------------
Title: Executive Vice President &
General Manager
BANK LEUMI TRUST COMPANY OF NEW
YORK
21
<PAGE>
By /s/ Steven R. Navarro
-------------------------------
Title: Managing Director,
Corporate Finance
ALLIED IRISH BANK
By /s/ Marcia Meeker
-------------------------------
Title: Vice President
By /s/ William Strickland
-------------------------------
Title: Senior Vice Presient
BHF-BANK AKTIENGESELLSCHAFT
By /s/ Joy S. Robin
-------------------------------
Title: Assistant Treasurer
By /s/ David Fraenkel
-------------------------------
Title: Vice President
THE DAIWA BANK, LIMITED
By
-------------------------------
Title:
THE CHUO TRUST & BANKING CO., LTD.
By /s/ Shoji Hoshikawa
-------------------------------
Title: Senior Manager
22
<PAGE>
CORESTATES BANK, N.A.
By /s/ Paul Hogan
-------------------------------
Title: Vice President
FUYO GENERAL LEASE (U.S.A.) INC.
By /s/ Yoshito Nakayama
-------------------------------
Title: Executive Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By /s/ Anthony R. Clemente
-------------------------------
Title: Authorized Signatory
MITSUI LEASING (U.S.A.) INC.
By /s/ T. Nagano
-------------------------------
Title: Executive Vice President
SEATTLE-FIRST NATIONAL BANK
By /s/ Michael J. Collum
-------------------------------
Title: Vice President
THE TOYO TRUST & BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Takeo Nagatani
-------------------------------
Title: Deputy General Manager
U.S. NATIONAL BANK OF OREGON
23
<PAGE>
By /s/ Jonathan A. Horton
-------------------------------
Title: Assistant Vice President
SUMITOMO BANK OF CALIFORNIA
By /s/ Seishi Jiromaru
-------------------------------
Title: SVP & Div. Mgr.
BANK OF AMERICA ILLINOIS
By /s/ Jonathan M. Kitei
-------------------------------
Title: Vice President
NATIONAL BANK OF KUWAIT, S.A.K.,
GRAND CAYMAN ISLAND BRANCH
By
-------------------------------
Title:
NATWEST BANK N.A.
By
-------------------------------
Title:
24
<PAGE>
EXHIBIT 11.2
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PRO FORMA PER SHARE EARNINGS*
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1995
------------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period............................................... 166,081
Shares issued in connection with the Merger............................................. 33,157
Shares issued upon exercise of stock options............................................ 311
Dilutive effect of outstanding stock options............................................ 2,067
--------
Weighted average number of shares and share equivalents outstanding..................... 201,616
--------
--------
Income from continuing operations....................................................... $ 228,700
--------
--------
Earnings per share from continuing operations before cumulative effect of a change in
accounting principle................................................................... $ 1.13
--------
--------
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in primary calculation........................... 201,616
Additional dilutive effect of stock options............................................. 203
Assumed conversion of dilutive convertible debentures................................... 13,119
--------
Fully diluted weighted average number of shares......................................... 214,938
--------
--------
Income from continuing operations used in primary calculation........................... $ 228,700
Adjustments for interest expense, contractual allowances and income taxes............... 7,547
--------
Adjusted income from continuing operations used in fully diluted calculation............ $ 236,247
--------
--------
Earnings per share from continuing operations before cumulative effect of a change in
accounting principle................................................................... $ 1.10
--------
--------
<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>
AS REPORTED FOR THE YEARS ENDED MAY 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS FROM CONTINUING OPERATIONS
Income before income taxes.................... $ 329.4 $ 359.9 $ 418.6 $ 359.2 $ 245.1
Less:
Equity in earnings of unconsolidated
affiliates................................. 28.4 23.8 12.5 6.7 5.3
Add:
Cash dividends received..................... 8.3 .2 -- -- --
Portion of rents representative of
interest................................... 35.0 30.7 35.8 35.5 31.8
Interest, net of capitalized portion........ 138.1 70.0 75.3 89.4 123.9
Amortization of previously capitalized
interest................................... 4.0 3.8 3.6 3.4 3.0
-------- -------- -------- -------- --------
Earnings, as adjusted......................... $ 486.4 $ 440.8 $ 520.8 $ 480.8 $ 398.5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
FIXED CHARGES:
Interest, net of capitalized portion.......... $ 138.1 $ 70.0 $ 75.3 $ 89.4 $ 123.9
Capitalized interest.......................... 6.2 3.7 9.0 11.0 16.9
Portion of rents representative of interest... 35.0 30.7 35.8 35.5 31.8
-------- -------- -------- -------- --------
Total fixed charges....................... $ 179.3 $ 104.4 $ 120.1 $ 135.9 $ 172.6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES............ 2.7x 4.2x 4.3x 3.5x 2.3x
</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 included and
incorporated by reference in the Amendment No. 1 to 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 headings "Selected Historical Financial Information" and
"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
September 25, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to the 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
September 25, 1995
<PAGE>
EXHIBIT 25.1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
TENET HEALTHCARE CORPORATION
(Exact name of obligor as specified in its charter)
Nevada 95-2557091
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2700 Colorado Avenue
Santa Monica, California 90404
(Address of principal executive offices) (Zip code)
--------------------
$300,000,000 __% Senior Notes due 2003
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
----------------------------------------------------------------------
Name Address
----------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of September, 1995.
THE BANK OF NEW YORK
By: /S/ LLOYD A. MCKENZIE
-------------------------------
Name: LLOYD A. MCKENZIE
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1995,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . $ 3,025,419
Interest-bearing balances. . . . . . . . . . . . . . . . . 881,413
Securities:
Held-to-maturity securities. . . . . . . . . . . . . . . . 1,242,368
Available-for-sale securities. . . . . . . . . . . . . . . 1,774,079
Federal funds sold in domestic offices of the bank . . . . . 5,503,445
Securities purchased under agreements to resell. . . . . . . 200,634
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . 26,599,533
LESS: Allowance for loan and lease losses. . . . . . . . . 516,283
Loans and leases, net of unearnedincome and allowance. . . 26,083,250
Assets held in trading accounts. . . . . . . . . . . . . . . 1,455,639
Premises and fixed assets (including capitalized leases) . . 612,547
Other real estate owned. . . . . . . . . . . . . . . . . . . 79,667
Investments in unconsolidated subsidiaries and associated
companies. . . . . . . . . . . . . . . . . . . . . . . . . 198,737
Customers' liability to this bank on acceptances
outstanding. . . . . . . . . . . . . . . . . . . . . . . . 1,111,464
Intangible assets. . . . . . . . . . . . . . . . . . . . . . 105,263
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,237,264
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $43,511,189
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<PAGE>
<CAPTION>
<S> <C>
LIABILITIES
Deposits:
In domestic offices. . . . . . . . . . . . . . . . . . . . $19,233,885
Noninterest-bearing. . . . . . . . . . . . . . . . . . . . 7,677,954
Interest-bearing . . . . . . . . . . . . . . . . . . . . . 11,555,931
In foreign offices, Edge and Agreement subsidiaries,
and IBFs . . . . . . . . . . . . . . . . . . . . . . . . 12,641,676
Noninterest-bearing. . . . . . . . . . . . . . . . . . . . 72,479
Interest-bearing . . . . . . . . . . . . . . . . . . . . . 12,569,197
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank
and of its Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased. . . . . . . . . . . . . . . . . . 1,747,659
Securities sold under agreements to repurchase . . . . . . 73,553
Demand notes issued to the U.S. Treasury . . . . . . . . . . 300,000
Trading liabilities. . . . . . . . . . . . . . . . . . . . . 738,317
Other borrowed money:
With original maturity of one year or less . . . . . . . . 1,586,443
With original maturity of more than one year . . . . . . . 220,877
Bank's liability on acceptances executed and outstanding . . 1,113,102
Subordinated notes and debentures. . . . . . . . . . . . . . 1,053,860
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 1,489,252
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Total liabilities. . . . . . . . . . . . . . . . . . . . . . 40,198,624
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EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 942,284
Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . 525,666
Undivided profits and capital reserves . . . . . . . . . . . 1,849,221
Net unrealized holding gains (losses) on
available-for-sale securities. . . . . . . . . . . . . . . (662)
Cumulative foreign currency translation adjustments. . . . . (3,944)
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Total equity capital . . . . . . . . . . . . . . . . . . . . 3,312,565
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Total liabilities and equity capital . . . . . . . . . . . . $43,511,189
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</TABLE>
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
-
J. Carter Bacot |
Thomas A. Renyi | Directors
Samuel F. Chevalier |
-
