<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995. [FEE REQUIRED]
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO . [NO FEE REQUIRED]
COMMISSION FILE NUMBER: I-7293
----------------
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.)
2700 COLORADO AVENUE 90404
SANTA MONICA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
AREA CODE (310) 998-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock New York Stock Exchange
Pacific Stock Exchange
9 5/8% Senior Notes due 2002 New York Stock Exchange
10 1/8% Senior Subordinated Notes due 2005 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
</TABLE>
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. [_]
As of July 31, 1995 there were 199,997,979 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of these shares
on the New York Stock Exchange, was $3,042,163,040. For the purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended May 31, 1995, have been incorporated by reference into Parts I, II
and IV of this Report. Portions of the definitive Proxy Statement for the
Registrant's 1995 Annual Meeting of the Shareholders have been incorporated by
reference into Part III of this Report.
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<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT--1995
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 14
Item 3. Legal Proceedings..................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders................................... 17
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 18
Item 6. Selected Financial Data............................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 18
Item 8. Financial Statements and Supplementary Data........................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 18
Part III
Item 10. Directors and Executive Officers of the Registrant.................................... 18
Item 11. Executive Compensation................................................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 18
Item 13. Certain Relationships and Related Transactions........................................ 18
Part IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..................... 19
</TABLE>
--------
Note: The responses to Items 5 through 8, Items 12 and 13 and portions of
Items 1, 3, 10, 11 and 14 are included in the Registrant's Annual Report
to Shareholders for the year ended May 31, 1995, or the definitive Proxy
Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information is incorporated into this Report by reference to
those documents and is not repeated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Tenet Healthcare Corporation (formerly known as National Medical
Enterprises, Inc.) (together with its subsidiaries, "Tenet", the "Registrant"
or the "Company") 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").
In May, 1995, Tenet announced agreements to acquire a two-general-hospital
system in New Orleans, Louisiana and one general hospital in El Paso, Texas.
The New Orleans transaction closed in the first quarter of fiscal 1996, and
the El Paso transaction is expected to close in the second or third quarter of
fiscal 1996. In the first quarter of fiscal 1996, Tenet acquired a one-third
interest in a general hospital (82 beds) outside of Birmingham, Alabama,
announced a joint venture formed to develop a new general hospital in Weston,
Florida, and announced the signing of a letter of intent by another joint
venture to acquire a general hospital in Jonesboro, Arkansas. In fiscal 1995,
Tenet sold two general hospitals (202 beds) in Montclair and Ontario,
California.
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
discussed in more detail under Other Domestic Operations on page 5 below.
At May 31, 1995, Tenet operated 13 general hospitals in Australia,
Singapore, Spain and Malaysia, with a total of 1,693 licensed beds. Tenet has
sold its two Singapore hospitals and is in the process of selling certain of
its other international operations. These operations are discussed in more
detail under International Operations on page 5 below.
At May 31, 1995, Tenet held investments in the following other healthcare
companies: (i) The Hillhaven Corporation ("Hillhaven"), a publicly traded
company listed on the New York Stock Exchange ("NYSE"), (ii) Westminster
Health Care Holdings PLC ("Westminster"), a publicly traded company listed on
the London Stock Exchange, (iii) Total Renal Care, Inc. ("TRC"), and (iv)
Health Care Property Partners ("HCPP"), a partnership originally formed by the
Company and Health Care Property Investors, Inc. These investments, including
the anticipated acquisition of Hillhaven by Vencor, Inc. ("Vencor"), are
discussed in more detail under Investments on page 6 below.
At the beginning of fiscal 1995, Tenet continued to operate as a
discontinued business 54 freestanding psychiatric hospitals, residential
treatment centers and substance abuse recovery facilities (collectively, the
"Discontinued Facilities"). By the end of fiscal 1995, Tenet had sold or
closed all but two of those Discontinued Facilities. In fiscal 1995, Tenet
also sold its Management Services Division, which through subsidiaries managed
psychiatric, substance abuse and rehabilitation hospitals and units for third
parties and for Tenet.
Under segment reporting criteria, Tenet believes that "healthcare" is its
only material business segment. See the discussion of Tenet's revenues and
operations in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Tenet's 1995 Annual Report to
Shareholders.
1
<PAGE>
OPERATIONS
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 May, 1995, Tenet announced agreements to acquire a two-general-hospital
system in New Orleans, Louisiana and one general hospital in El Paso, Texas.
The New Orleans transaction closed in the first quarter of fiscal 1996, and
the El Paso transaction is expected to close in the second or third quarter of
fiscal 1996. In the first quarter of fiscal 1996, Tenet acquired a one-third
interest in a general hospital (82 beds) outside of Birmingham, Alabama,
announced a joint venture formed to develop a new general hospital in Weston,
Florida, and announced the signing of a letter of intent by another joint
venture to acquire a general hospital in Jonesboro, Arkansas. In fiscal 1995,
Tenet sold two general hospitals (202 beds) in Montclair and Ontario,
California.
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 quartenary 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 (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 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 payers with a lower cost structure.
2
<PAGE>
The following table lists, by state, the general hospitals owned or (if
indicated below) leased by Tenet's subsidiaries and operated domestically as of
May 31, 1995:
OWNED OR LEASED GENERAL HOSPITALS
<TABLE>
<CAPTION>
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
---------------- -------- -------------
<S> <C> <C>
ALABAMA
Brookwood Medical Center Birmingham 586
ARKANSAS
Central Arkansas Hospital Searcy 169
National Park Medical Center Hot Springs 166
St. Mary's Regional Hospital Russellville 170
CALIFORNIA
Alvarado Hospital Medical Center San Diego 231
Century City Hospital(1) Los Angeles 190
Community Hospital & Rehabilitation
Center of Los Gatos(1) Los Gatos 175
Doctors Hospital of Manteca Manteca 73
Doctors Hospital of Pinole(1) Pinole 137
Doctors Medical Center of Modesto Modesto 433
Encino Hospital(2) Encino 151
Garden Grove Hospital and Medical Center Garden Grove 167
Garfield Medical Center Monterey Park 223
Irvine Medical Center(1) Irvine 176
John F. Kennedy Memorial Hospital Indio 130
Lakewood Regional Medical Center Lakewood 175
Los Alamitos Medical Center Los Alamitos 173
Medical Center of North Hollywood North Hollywood 163
Placentia Linda Community Hospital Placentia 114
Redding Medical Center Redding 185
San Dimas Community Hospital San Dimas 99
San Ramon Regional Medical Center San Ramon 123
Sierra Vista Regional Medical Center San Luis Obispo 195
South Bay Hospital(1) Redondo Beach 201
Tarzana Regional Medical Center(2) Tarzana 233
Twin Cities Community Hospital Templeton 84
USC University Hospital(3) Los Angeles 261
FLORIDA
Delray Community Hospital Delray Beach 211
Hollywood Medical Center Hollywood 334
Memorial Hospital of Tampa(4) Tampa 174
North Ridge Medical Center Ft. Lauderdale 395
Palm Beach Gardens Medical Center(1) Palm Beach Gardens 204
Palmetto General Hospital Hialeah 360
Palms of Pasadena Hospital St. Petersburg 310
Seven Rivers Community Hospital Crystal River 128
Town and Country Hospital Tampa 201
West Boca Medical Center Boca Raton 185
GEORGIA
North Fulton Regional Hospital(1) Roswell 167
Spalding Regional Hospital Griffin 160
INDIANA
Culver Union Hospital Crawfordsville 120
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
---------------- -------- -------------
<S> <C> <C>
LOUISIANA
Doctors Hospital of Jefferson(1) Metairie 138
Jo Ellen Smith Medical Center New Orleans 164
Meadowcrest Hospital Gretna 200
Northshore Regional Medical Center(1) Slidell 174
St. Charles General Hospital New Orleans 173
Kenner Regional Medical Center Kenner 300
MISSOURI
Columbia Regional Hospital(5) Columbia 301
Kirksville Osteopathic Medical Center(1) Kirksville 119
Lucy Lee Hospital(1) Poplar Bluff 201
Lutheran Medical Center St. Louis 408
NEBRASKA
Saint Joseph Hospital Omaha 374
NORTH CAROLINA
Central Carolina Hospital Sanford 137
Frye Regional Medical Center(1) Hickory 355
SOUTH CAROLINA
East Cooper Community Hospital Mount Pleasant 100
Hilton Head Hospital(6) Hilton Head 68
Piedmont Medical Center Rock Hill 268
TENNESSEE
John W. Harton Regional Medical Center Tullahoma 137
Saint Francis Hospital Memphis 890
University Medical Center Lebanon 260
TEXAS
Brownsville Medical Center Brownsville 165
Doctors Hospital Dallas 268
Mid-Jefferson Hospital Nederland 138
Nacogdoches Medical Center Nacogdoches 150
Odessa Regional Hospital(7) Odessa 100
Park Place Hospital Port Arthur 223
Park Plaza Houston 468
RHD Memorial Medical Center(1) Dallas 190
Sierra Medical Center El Paso 365
Trinity Medical Center(1) Carrollton 149
Twelve Oaks Hospital Houston 336
</TABLE>
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(1) Leased from a third party.
(2) Leased by a partnership in which Tenet's subsidiaries own a 75% interest.
(3) On leased land.
(4) Owned by a partnership in which Tenet's subsidiaries own a 76% interest.
(5) Excludes the 64-bed Keller Memorial Hospital in Columbia, Missouri, the
financial results of which were combined with the Columbia Regional
Hospital. The lease for Keller Memorial Hospital was terminated during the
first quarter of fiscal year 1996.
(6) Owned by a partnership in which Tenet's subsidiaries own a 70% interest.
(7) Owned by a partnership in which Tenet's subsidiaries own an 82% interest.
4
<PAGE>
The following table shows certain information about the general hospitals
owned or leased domestically by Tenet, for the fiscal years ended May 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total number of facilities............... 70 35 35 35 35
Total number of licensed beds............ 15,451 6,873 6,818 6,559 6,591
Average occupancy during the period...... 47% 47% 48% 51% 52%
</TABLE>
The above tables do not include the Campus Rehabilitation Hospitals, the
Campus Long-Term Care Facilities or the Campus Psychiatric Facilities.
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 Australian Medical
Enterprises ("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, 1995, (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 1996, a project acquired in connection with the Merger. The
net operating revenues of these operations comprised approximately 5% of
Tenet's consolidated net operating revenues from all sources for both fiscal
1995 and 1994.
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, on June 28, 1995, Tenet sold its two
Singapore hospitals to Parkway Holdings Limited ("Parkway"), pursuant to a May
24, 1995 agreement, and 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, made a bid
for all of AME's shares. Tenet expects to complete the sale of its interest in
AME to Parkway, Health Care of Australia or any other 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.
5
<PAGE>
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 May 31, 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"), with an aggregate liquidation preference of $35.0 million, and
64,416 shares of Hillhaven's cumulative non-voting 6 1/2% payable-in-kind
Series D Preferred Stock (the "Hillhaven Series D Preferred"), with an
aggregate liquidation preference of approximately $64.4 million. On June 1,
1995, the Company received a dividend of 1,014 additional shares of Hillhaven
Series D Preferred and on September 1, 1995, the Company expects to receive a
dividend of 1,014 additional shares of Series D Preferred. 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. Under the terms
of that agreement, Hillhaven's shareholders are to receive $32.25 in value
(subject to adjustment under certain circumstances depending upon the market
price of Vencor's stock) in Vencor common stock for each share of Hillhaven
common stock. In addition, the Company expects to receive approximately $90
million for its Hillhaven Series C Preferred and Hillhaven Series D Preferred,
which equals 90% of the aggregate of the liquidation values at the time the
transaction is expected to close. That transaction currently is pending.
The Company owns 21,499,999 shares (26,874,998 shares following
Westminster's pending 1 for 4 rights offering expected to close August 31,
1995), 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 90404. The telephone number is (310) 998-
8000. 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.
6
<PAGE>
The number of licensed beds and locations of the Company's general hospitals
are described on pages 2 through 5. As of May 31, 1995, Tenet had
approximately $104 million of outstanding loans secured by real property and
approximately $51 million of capitalized lease obligations. The Company
believes that all of these properties, as well as the administrative and
medical office buildings described above, are suitable for their intended
purposes.
MEDICAL STAFF AND EMPLOYEES
Tenet's hospitals are staffed by licensed physicians who have been admitted
to the medical staff of individual hospitals. Members of the medical staffs of
Tenet's hospitals often serve on the medical staffs of hospitals not owned by
the Company and may terminate their affiliation with the Tenet hospital or
shift their admissions to competing hospitals at any time. Although the
Company recently has begun to purchase physician practices and employ
physicians, most of the physicians who practice at the Company's hospitals are
not employees of the Company. Nurses, therapists, lab technicians, facility
maintenance staff and the administrative staff of hospitals, however, normally
are employees of the Company.
The number of Tenet employees (of which approximately 30% were part-time
employees) at May 31, 1995, was approximately as follows:
<TABLE>
<S> <C>
Hospital Division(1)............................................... 63,000
International Hospital Division.................................... 4,800
Other Businesses................................................... 550
Corporate Headquarters and Operations Center....................... 700
------
Total.......................................................... 69,050
======
</TABLE>
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(1) Includes employees whose employment relates to the operations of the
Campus Psychiatric Facilities and the Campus Rehabilitation Hospitals.
As a result of the Merger and the relocation of substantially all of the
Company's hospital support services to the Company's Dallas, Texas, operations
center, approximately 150 positions are to be eliminated from the corporate
headquarters or the operations center prior to the end of fiscal 1996. Tenet
established a reserve at May 31, 1995, to cover the costs of the severance
packages and other costs related to the reduction in force.
Tenet is subject to the federal minimum wage and hour laws and maintains
various employee benefit plans. Labor relations at Tenet's facilities have
been satisfactory. A small percentage of Tenet's employees are represented by
labor unions. Although the Company currently is not experiencing a shortage of
nursing personnel, the availability of nursing personnel fluctuates from year
to year, and the Company cannot predict the degree to which it will be
affected by the future availability and cost of nursing personnel.
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.
7
<PAGE>
An expanding factor in the competitive position of Tenet's facilities is the
ability of Tenet to obtain managed care contracts with payers 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 payers. 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 payers 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 payer-required pre-admission
authorization and utilization review and payer pressure to maximize outpatient
and alternative healthcare delivery services for less acutely ill patients.
Increased competition, admissions constraints and payer 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 payers 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 payers 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 payer 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 independent physician
associations ("IPAs"), having the Company join with those IPAs, physicians and
physician group practices to form physician hospital organizations ("PHOs") to
contract with managed care and other payers and forming management services
organizations ("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 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 payers. The number of
persons and the patient mix represented by such group contracts impact the
hospital's operating results.
8
<PAGE>
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,
-----------------------------------
1995 (1) 1994 1993 1992 1991
-------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Medicare............................. 38.9% 35.9% 33.9% 32.1% 31.8%
Medicaid............................. 7.2 8.5 7.5 6.4 6.0
Private and Other.................... 53.9 55.6 58.6 61.5 62.2
----- ----- ----- ----- -----
Totals........................... 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
--------
(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.
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 1994, 1993 and 1992 under each of the following programs:
<TABLE>
<CAPTION>
YEARS ENDED
AUGUST 31,
-------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Medicare............................................. 36.2% 32.6% 32.3%
Medicaid............................................. 7.5 6.2 4.8
Private and Other.................................... 56.3 61.2 62.9
----- ----- -----
Totals........................................... 100.0% 100.0% 100.0%
</TABLE>
Medicare payments for general hospital inpatient care are based on a PPS
that generally has been applicable to Tenet's facilities since 1984. Under the
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 ("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.
9
<PAGE>
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 ("PPS-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 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 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.
10
<PAGE>
OBRA '93 provides 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 payers 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 Need process
as a way to contain rising healthcare costs. Tenet operates hospitals in eight
states that require state approval under
11
<PAGE>
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, 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
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 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. 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.
12
<PAGE>
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 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 Department of
Justice ("DOJ"), and the Department of Health and Human Services ("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. (S)1320-7(b)(2)(A) (paying remuneration to
induce referrals) and a one-count violation of 18 U.S.C. (S)371 (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. (S)666 (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.
13
<PAGE>
MANAGEMENT
The executive officers of the Company who also are not Directors as of
August 22, 1995 are:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Maris Andersons Senior Vice President and Treasurer 58
Scott M. Brown Senior Vice President, General Counsel and Secretary 50
Raymond L.
Mathiasen Senior Vice President and Chief Financial Officer 52
</TABLE>
Maris Andersons has served as Treasurer of Tenet since 1981, and as Senior
Vice President since 1992. He is a director of Hillhaven and TRC. Mr.
Andersons joined Tenet in 1976, prior to which he served as a Vice President
of Bank of America.
Scott M. Brown is Senior Vice President, Secretary and General Counsel of
the Company. He joined Tenet in 1981. Mr. Brown was elected Secretary in 1984
and Senior Vice President in 1990. Mr. Brown was appointed acting General
Counsel in July 1993 and General Counsel in February 1994.
Raymond L. Mathiasen is Senior Vice President and, since February 1994,
Chief Financial Officer of the Company. From September 1993 to February 1994,
Mr. Mathiasen was Senior Vice President and acting Chief Financial Officer.
Prior to joining Tenet as a Vice President in 1985, he was a partner with
Arthur Young & Company (now known as Ernst & Young). Mr. Mathiasen was elected
to the position of Senior Vice President in 1990 and Chief Operating Financial
Officer in 1991.
ITEM 2. PROPERTIES.
The response to this item is included in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
The shareholder derivative actions filed in the Los Angeles Superior Court
in October and November of 1991 were consolidated into one shareholder
derivative action entitled Harry Polikoff, Harry Ackerman, and Bette Rita
Grayson, Derivatively on Behalf of Nominal Defendant National Medical
Enterprises, Inc. v. Richard K. Eamer, Leonard Cohen, John C. Bedrosian,
William S. Banowsky, Ph.D., Jeffrey C. Barbakow, Bernice B. Bratter, Maurice
J. DeWald, Peter de Wetter, Edward Egbert, M.D., Michael H. Focht, Sr.,
Raymond A. Hay, Nita P. Heckendorn, Taylor R. Jenson, Lloyd R. Johnson, James
P. Livingston, A.J. Martinson, M.D., Howard F. Nachtman, M.D., Richard S.
Schweiker, Richard L. Stever, Norman A. Zober, Maris Andersons, Scott M.
Brown, Raymond L. Mathiasen and Marcus E. Powers, Defendants. Plaintiffs' suit
was based primarily on alleged breaches of fiduciary duties and constructive
fraud on the part of the individual defendants. The plaintiffs alleged that,
among other things, the individual defendants knew or should have known of
allegedly improper marketing, billing and other practices within what formerly
was known as the Company's psychiatric division and failed to take appropriate
action as required by their fiduciary responsibilities. Based on these claims,
plaintiffs sought compensatory damages on behalf of the Company, punitive
damages, injunctive relief, attorneys' fees, interest and costs. Defendants
filed three separate demurrers that were sustained and resulted in dismissal
of the action with prejudice on May 21, 1993. The dismissal was appealed by
the plaintiffs.
The federal class action lawsuits filed in October and November of 1991 were
consolidated into one action pending in the U.S. District Court in the Central
District of California entitled In Re National Medical Enterprises, Inc.
Securities Litigation I. The defendants in this action were National Medical
Enterprises, Inc., Richard K. Eamer, Leonard Cohen, John C. Bedrosian, William
S. Banowsky, Michael H. Focht, Sr., Norman A. Zober, Marcus E. Powers and
Maris Andersons. The class action alleged violations of Section 10(b) of the
Securities Exchange Act of 1934. Specifically, plaintiffs alleged that each
defendant knew or recklessly disregarded that the public statements made by
the Company and several of its officers and directors in reports to the
Securities and Exchange Commission and others were false and misleading
because the financial data and projections were based upon a number of alleged
illegal practices at many of the Company's psychiatric facilities. Plaintiffs
sought compensatory damages, injunctive relief, attorneys' fees, interest and
costs.
14
<PAGE>
As a result of a mediation process previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1994, and
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1994,
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. The
Company will pay $31.25 million plus interest on its own behalf. 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 to the derivative litigation have executed a
memorandum of understanding regarding the terms of the settlement. A
stipulation of settlement is expected and also will require court approval.
Two additional federal class actions filed in August 1993 and previously
reported in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1994, were consolidated into one action pending in the U.S. District
Court in the Central District of California captioned In re: National Medical
Enterprises Securities Litigation II. These consolidated actions are on behalf
of a purported class of shareholders who purchased or sold stock of the
Company between January 14, 1993 and August 26, 1993, and allege that each of
the defendants violated Section 10(b) of the Securities Exchange Act of 1934.
Specifically, plaintiffs allege that each defendant knew or recklessly
disregarded that the public statements made by the Company and several of its
officers and directors in reports to the Securities and Exchange Commission,
in press releases, communications with shareholders, and communications with
the financial community were false and misleading because the financial data
and projections were based upon a number of alleged illegal practices at many
of the Company's psychiatric facilities. Plaintiffs claim that each of the
defendants was a direct participant in this wrongdoing and conspired with and
aided and abetted each of the other defendants in perpetrating the alleged
fraudulent scheme. Based on these claims, plaintiffs seek compensatory
damages, injunctive relief, attorneys' fees, interest and costs. The parties
commenced a voluntary mediation in July, 1994. The mediation efforts were
unsuccessful and in May 1995 the parties agreed to proceed with the
litigation. On June 23, 1995, the defendants filed a motion to dismiss and to
strike plaintiffs' complaint. The Company believes it has meritorious defenses
to this action and will defend this litigation vigorously.
The Company 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 Company's 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, entitled Justin Love vs. National Medical Enterprises, Inc.; NME
Psychiatric Hospitals, Inc., f/k/a Psychiatric Institutes of America, Inc.;
NME Specialty Hospitals, Inc., f/k/a North Houston Healthcare Campus, Inc.,
d/b/a Laurelwood Hospital; Baywood Hospital, Inc., d/b/a Baywood Hospital;
Psychiatric Facility at Amarillo, Inc., f/k/a P.I.A. Amarillo, Inc., d/b/a
Cedar Creek Hospital; P.I.A. Denton, Inc., d/b/a Twin Lakes Hospital; P.I.A.
of Fort Worth, Inc., d/b/a Psychiatric Institute of Fort Worth; P.I.A. San
Antonio, Inc., d/b/a Colonial Hills Hospital; P.I.A. Stafford, Inc., d/b/a
Stafford Meadows Hospital; P.I.A. Waxahachie, Inc., d/b/a Willowbrook
Hospital; Psychiatric Institute of Bedford, Inc., d/b/a Bedford Meadows
Hospital; Psychiatric Institute of Sherman, Inc., d/b/a Arbor Creek
Psychiatric Hospital; Brookhaven Psychiatric Pavilion; Richard K. Eamer;
Leonard Cohen; John C. Bedrosian; Jeffrey C. Barbakow; Norman A. Zober; Ronald
Bernstein; and Peter J. Alexis. The case contains allegations of fraud and
conspiracy similar to those described above. The plaintiff purports to
represent all psychiatric patients treated during the period of January 1987
through October 1991.
15
<PAGE>
The Company believes that the class is not capable of being certified. The
Company believes it has a number of defenses to these actions and will defend
the litigation vigorously. Until the lawsuits are resolved, however, the
Company will continue to incur substantial legal expenses. The Company expects
that additional lawsuits of this nature will be filed.
On October 5, 1993, John Bedrosian filed the lawsuit John C. Bedrosian vs.
National Medical Enterprises, Inc., Jeffrey C. Barbakow, Michael H. Focht,
Sr., Bernice B. Bratter, Maurice J. DeWald, Peter de Wetter and Lester B. Korn
in the Los Angeles Superior Court. Mr. Bedrosian, who was a director of the
Company until September 28, 1994 and served as its Senior Executive Vice
President until September 24, 1993, when his employment with the Company was
terminated without cause pursuant to the terms of his employment agreement,
alleged: breach of oral agreement; breach of implied in fact contract; breach
of the covenant of good faith and fair dealing; negligent misrepresentation of
material fact; bad faith denial of existence of a contract; breach of written
agreement; age discrimination in employment; libel; tortious interference with
contractual relations; conspiracy to interfere with contractual relations; and
intentional infliction of emotional distress. The suit seeks damages in excess
of $20,000,000, exemplary and punitive damages, declaratory relief, including
relief from six loans he obtained from the Company, attorneys fees and costs
of suit and other equitable relief. The Company filed a cross-complaint
against him for his refusal to make repayment on his six loans. The Company
also filed a motion to have the portion of Mr. Bedrosian's lawsuit that
pertains to his employment agreement with the Company referred to a Superior
Court Referee as provided in the employment agreement. The Company's motion
was granted and Mr. Bedrosian's employment claims against the Company were
referred to a Superior Court Referee for trial. The Company filed motions for
summary judgment on several of Mr. Bedrosian's claims and on its cross-
complaint against Mr. Bedrosian for his failure to repay his loans. The
Company's motions for summary judgment ultimately were granted as to several
of Mr. Bedrosian's claims against the Company, and also as to its claims
against Mr. Bedrosian on his six loans totalling approximately $4,300,000. The
trial of Mr. Bedrosian's employment-related claims took place in June and
July, 1994 before a retired California Superior Court Judge sitting as a
Referee. During that trial, the Court granted defendants' motion to have
certain other of Mr. Bedrosian's employment claims dismissed. The trial on Mr.
Bedrosian's two remaining claims was concluded on July 29, 1994. A decision on
those claims was issued by the Referee on November 4, 1994. The Referee ruled
that Mr. Bedrosian's claim of age discrimination was without merit, but that
the Company must pay to Mr. Bedrosian approximately $476,000 in addition to
amounts already paid to him under his employment contract for bonus
compensation and other benefits under his employment contract. All of Mr.
Bedrosian's other employment claims, including his claim that he was entitled
to be employed by the Company until age 65, also were dismissed. Mr. Bedrosian
filed numerous motions in the Superior Court attempting to have the decision
of the Referee vacated on various grounds. All of those motions were denied.
Mr. Bedrosian has appealed the denial of several of those motions, and those
appeals currently are pending before the California Court of Appeal.
On February 15, 1995, the Company filed a complaint seeking declaratory and
injunctive relief in the California Superior Court for the County of Los
Angeles entitled National Medical Enterprises, Inc. v. The Hillhaven
Corporation, Bruce L. Busby, Christopher J. Marker and Does 1-25. The Company
alleges, among other things, that the named defendants have breached their
fiduciary duties to the Company and its fellow shareholders in Hillhaven and
interfered with the Company's prospective economic advantage by undertaking a
series of acts designed to: (1) entrench themselves, (2) dilute the Company's
equity interest in Hillhaven, and (3) deprive all of Hillhaven's shareholders
the opportunity to consider the friendly acquisition proposal made by Horizon
Healthcare Corporation to Hillhaven. On March 7, 1995, the Services Employees
International Union, a union allegedly representing 2,000 Hillhaven employees
at approximately 40 Hillhaven nursing homes, and Joann Sforza, an individual
allegedly employed by Hillhaven moved to file a complaint in intervention in
the case. On March 23, 1995, the parties entered into a stipulation staying
all activity in the case for a 45 day period. On March 24, 1995, an order
confirming the stay was entered by the court. On May 16, 1995, the parties
agreed to stay the action in light of Vencor's April 24, 1995, announcement
that it had signed a definitive agreement to acquire Hillhaven.
16
<PAGE>
A total of nine purported class actions (the "Class Actions") have been
filed challenging the Merger in both Delaware and California. The seven Class
Actions filed in the Delaware Court of Chancery have been consolidated under
the caption, In re: American Medical Holdings, Inc., Shareholders Litigation,
C.A. No. 13797, and discovery is continuing in this case. In addition, two
purported class actions, entitled Ruth LeWinter and Raymond Cayuso v. the AMH
Directors (with the exception of Harold S. Williams), NME and AMH, Case No.
BC-115206 and David F. and Sylvia Goldstein v. O'Leary, NME, AMH, et al., Case
No. BC-116104, have been filed in the Superior Court of the State of
California, County of Los Angeles. The California actions have been stayed
pending the resolution of the Delaware actions. Because the Merger has been
consummated, 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 attorney's and experts' fees. The
Company believes that the complaints are without merit and will defend this
litigation vigorously.
In its normal course of business the Company also is subject to claims and
lawsuits relating to injuries arising from patient treatment. The Company
believes that its liability for damages resulting from such claims and
lawsuits is adequately covered by insurance or is adequately provided for in
its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The response to this item is included on page 47 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 1995. The required
information hereby is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The response to this item is included on page 16 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 1995. The required
information hereby is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The response to this item is included on pages 17 through 22 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 1995.
The required information hereby is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included on pages 23 through 47 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 1995.
The required information hereby is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION.
Information concerning the Directors of the Registrant, including executive
officers of the Registrant who also are Directors, and other information
required by Items 10 and 11, is included on pages 2 through 5 of the
definitive Proxy Statement for Registrant's 1995 Annual Meeting of
Shareholders and hereby is incorporated by reference. Similar information
regarding executive officers of the Registrant who, except as noted therein,
are not Directors is set forth on page 14 above. Information regarding
compensation of executive officers and Directors of the Registrant is included
on pages 8 through 16 and pages 21 through 23 of the definitive Proxy
Statement for the Registrant's 1995 Annual Meeting of Shareholders and hereby
is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item is included on pages 6 and 27 of the definitive
Proxy Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information hereby is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is included on pages 23 and 24 of the definitive
Proxy Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information hereby is incorporated by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements to be included in Part II, Item
8, are incorporated by reference to the Registrant's 1995 Annual Report
to Shareholders. (See exhibit (13)).
2. FINANCIAL STATEMENT SCHEDULES.
Schedule II Valuation and Qualifying Accounts and Reserves
(included on page F-1)
All other schedules and Condensed Financial Statements of Registrant
are omitted because they are not applicable or not required or because
the required information is included in the financial statements or
notes thereto.
3. EXHIBITS.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
(a) Agreement and Plan of Merger, dated as of October 10, 1994,
among the Company, AMH Acquisition Co. and American Medical
Holdings, Inc. (Incorporated by reference to Exhibit 2(A) to
Registrant's Quarterly Report on Form 10-Q, dated October 14,
1994)
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as amended
October 13, 1987 and June 22, 1995
(b) Restated Bylaws of Registrant, as amended March 1, 1995
(Incorporated by reference to Exhibit 3(b) to Registrant's
Quarterly Report on Form 10-Q dated April 14, 1995)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Form of Indenture for the Registrant's Convertible Floating Rate
Debentures, dated as of February 1, 1992, among NME PIP Funding
I, Inc., the Registrant and Bankers Trust Company, as Trustee
(Incorporated by reference to Exhibit 4(a) to Registration
Statement on Form S-3, Registration No. 33-45689, dated February
14, 1992)
(b) Form of Convertible Floating Rate Debenture due April 3, 1996
(Incorporated by reference to Exhibit (e) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(c) Agreement Providing for First Amendment to Convertible Floating
Rate Debentures due April 3, 1996, dated as of December 11,
1991, between the Registrant and NME PIP Funding I, Inc.
(Incorporated by reference to Exhibit (f) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(d) Certificate of Designation, Preference and Rights of Series A
Junior Participating Preferred Stock (Incorporated by reference
to Exhibit 4(h) to Registrant's Annual Report on Form 10-K dated
August 30, 1993)
(e) Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock (Incorporated by reference to
Exhibit 4(d) to Registrant's Annual Report on Form 10-K dated
August 23, 1991)
(f) Form of Investment Option Agreement
(g) Indenture, dated as of March 1, 1991, between the Registrant and
The Bank of New York, as Trustee, relating to Medium Term Notes
(Incorporated by reference to Exhibit 4(a) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
19
<PAGE>
(h) Indenture, dated as of March 1, 1995, between Tenet and The Bank
of New York, as Trustee, relating to 9 5/8% Senior Notes due
2002 (Incorporated by reference to Exhibit 4(a) to Registrant's
Quarterly Report on Form 10-Q dated April 14, 1995)
(i) Indenture, dated as of March 1, 1995, between Tenet and The Bank
of New York, as Trustee, relating to 10 1/8% Senior Subordinated
Notes due 2005 (Incorporated by reference to Exhibit 4(b) to
Registrant's Quarterly Report on Form 10-Q dated April 14, 1995)
(j) Registration Rights Agreement, dated as of February 22, 1995, by
and between the Registrant and the Selling Shareholders
(Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-3, Registration No. 33-57801,
dated February 22, 1995)
(10) Material Contracts
(a) Guaranty Reimbursement Agreement, dated as of January 31, 1990,
by and between the Registrant and The Hillhaven Corporation
(Incorporated by reference to Exhibit 10(e) to Registrant's
Annual Report on Form 10-K dated August 21, 1992)
(b) First Amendment to Guarantee Reimbursement Agreement, dated as
of May 30, 1991, by and between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(g) to
Registrant's Annual Report on Form 10-K dated August 23, 1991)
(c) Second Amendment to Guarantee Reimbursement Agreement, dated as
of October 2, 1991, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(w) to
Registrant's Annual Report on Form 10-K dated August 21, 1992)
(d) Third Amendment to Guarantee Reimbursement Agreement, dated as
of April 1, 1992, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(dd) to
Registrant's Annual Report on Form 10-K dated August 21, 1992)
(e) Fourth Amendment to Guarantee Reimbursement Agreement, dated as
of November 12, 1992, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(pp) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(f) Fifth Amendment to Guarantee Reimbursement Agreement, dated as
of February 19, 1993, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(qq) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(g) Sixth Amendment to Guarantee Reimbursement Agreement, dated as
of May 28, 1993, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(rr) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(h) Seventh Amendment to Guarantee Reimbursement Agreement, dated as
of May 28, 1993, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(h) the
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(i) Eighth Amendment to Guarantee Reimbursement Agreement, dated
September 2, 1993, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(i) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(j) Agreement and Waiver, dated September 2, 1993, among the
Registrant, the subsidiaries of the Company signatories thereto,
The Hillhaven Corporation and First Healthcare Corporation
(Incorporated by reference to Exhibit 10(n) to Registrant's
Annual Report on Form 10-K dated August 25, 1994)
(k) Shareholding Agreement, dated 30 March 1993, among the
Registrant, Westminster Health Care Holdings PLC and P. R.
Carter and Others (Incorporated by reference to Exhibit 10(tt)
to Registrant's Annual Report on Form 10-K dated August 30,
1993)
20
<PAGE>
(l) $2,300,000 Credit Agreement, dated as of February 28, 1995,
among the Company, 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 Administration Agent (Incorporated by reference
to Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q
dated April 14, 1995)
(m) $91,350,000 Amended and Restated Letter of Credit and
Reimbursement Agreement, dated as of February 28, 1995, among
the Company, as Account Party, and Bank of America National
Trust and Savings Association, The Bank of New York, Bankers
Trust Company and Morgan Guaranty Trust Company of New York, as
Banks, and The Bank of New York, as Issuing Bank (Incorporated
by reference to Exhibit 10(b) to Registrant's Quarterly Report
on Form 10-Q dated April 14, 1995)
(n) Agreement, dated August 22, 1995, among the Registrant, The
Hillhaven Corporation and Vencor, Inc.
(o) Asia Stock Purchase Agreement, dated as of May 24, 1995, between
the Registrant and Parkway Holdings Limited
(p) Australian Stock Purchase Agreement, dated as of July 5, 1995,
between the Registrant and Parkway Holdings Limited
(q) Amending Agreement to the Australia Stock Purchase Agreement,
dated as of August 14, 1995, between the Registrant and Parkway
Holdings Limited
(r) Letter from the Registrant to Jeffrey C. Barbakow, dated May 26,
1993 (Incorporated by reference to Exhibit 10(l) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(s) Letter from the Registrant to Jeffrey C. Barbakow, dated June 1,
1993 (Incorporated by reference to Exhibit 10(m) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(t) Memorandum from the Registrant to Jeffrey C. Barbakow, dated
June 14, 1993 (Incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K dated August 30, 1993)
(u) Board of Directors Retirement Plan, effective January 1, 1985
(Incorporated by reference to Exhibit 10(n) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
(v) First Amendment to Board of Directors Retirement Plan, effective
as of August 18, 1993 (Incorporated by reference to Exhibit
10(xx) to Registrant's Annual Report on Form 10-K dated August
30, 1993)
(w) Amendment to Directors Retirement Plan, dated as of April 25,
1994 (Incorporated by reference to Exhibit 10(oo) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(x) Supplemental Executive Retirement Plan, as amended May 31, 1986
(Incorporated by reference to Exhibit 10(o) to Registrant's
Annual Report on Form 10-K dated August 21, 1992)
(y) Amendment to Supplemental Executive Retirement Plan, dated as of
April 25, 1994 (Incorporated by reference to Exhibit 10(ss) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(z) Amendment to Supplemental Executive Retirement Plan, dated as of
July 25, 1994 (Incorporated by reference to Exhibit 10(tt) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
21
<PAGE>
(aa) 1994 NME Supplemental Executive Retirement Plan Trust Agreement,
dated as of May 25, 1994, as amended July 25, 1994, between the
Registrant, and United States Trust Company of New York
(Incorporated by reference to Exhibit 10(uu) to Registrant's
Annual Report on Form 10-K dated August 25, 1994)
(bb) Long Term Incentive Plan (Incorporated by reference to Exhibit
10(p) to Registrant's Annual Report on Form 10-K dated August
21, 1992)
(cc) 1994 Annual Incentive Plan (Incorporated by reference to Exhibit
B to the Definitive Proxy Statement for the Registrant's 1994
Annual Meeting of Shareholders)
(dd) Deferred Compensation Plan, effective March 23, 1983
(Incorporated by reference to Exhibit 10(v) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
(ee) First Amendment to Deferred Compensation Plan, dated as of
August 15, 1994 (Incorporated by reference to Exhibit 10(zz) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(ff) 1994 NME Deferred Compensation Plan Trust Agreement, dated as of
May 25, 1994, as amended July 25, 1994, between the Registrant
and United States Trust Company of New York (Incorporated by
reference to Exhibit 10(aaa) to Registrant's Annual Report on
Form 10-K dated August 25, 1994)
(gg) Performance Investment Plan (Incorporated by reference to
Exhibit 10(d) to Registrant's Annual Report on Form 10-K dated
August 23, 1991)
(hh) Revolving Credit and Term Loan Agreement, dated as of December
11, 1991, between the Registrant and NME PIP Funding I, Inc.
(Incorporated by reference to Exhibit 10(g) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(ii) 1994 Directors Stock Option Plan (Incorporated by reference to
Exhibit A to the Definitive Proxy Statement for the Registrant's
1994 Annual Meeting of Shareholders)
(jj) 1991 Stock Incentive Plan (Incorporated by reference to Exhibit
B to the definitive Proxy Statement for the Registrant's 1991
Annual Meeting of Shareholders)
(kk) 1995 Stock Incentive Plan (Incorporated by reference to Exhibit
A to the definitive Proxy Statement for the Registrant's 1995
Annual Meeting of Shareholders)
(ll) 1995 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit B to the definitive Proxy Statement for the Registrant's
1995 Annual Meeting of Shareholders)
(mm) Severance Protection Agreement, dated June 28, 1994, between the
Registrant and Barry P. Schochet (Incorporated by reference to
Exhibit 10(ggg) to Registrant's Annual Report on Form 10-K dated
August 25, 1994)
(11) Statement Re: Computation of Per Share Earnings, page 23
(13) 1995 Annual Report to Shareholders of Registrant
(21) Subsidiaries of the Registrant
(23) Consent of Experts
(a)Accountants' Consent and Report on Consolidated Schedule (KPMG
Peat Marwick LLP)
(27) Financial Data Schedule (included only in the EDGAR filing)
(b) REPORTS ON FORM 8-K
Tenet filed no reports on Form 8-K during the last quarter of the 1995
fiscal year.
22
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
(1) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(EXHIBIT 11)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at
beginning of period.......... 166,081 165,898 166,963 174,765 157,782
Shares issued in connection
with merger.................. 8,358 -- -- -- --
Shares issued upon exercise of
stock options................ 311 60 27 299 722
Dilutive effect of outstanding
stock options................ 2,068 1,114 172 495 1,156
Shares issued as grants of
restricted stock, net of
cancellations................ (1) (48) (52) 75 2
Shares repurchased as treasury
stock........................ -- -- (999) (4,295) --
Shares issued upon conversion
of notes and debentures...... -- -- -- 529 348
Other......................... -- -- -- (15) --
-------- -------- -------- -------- --------
Weighted average number of
shares and share equivalents
outstanding.................. 176,817 167,024 166,111 171,853 160,010
======== ======== ======== ======== ========
Income from continuing
operations................... $194,381 $215,901 $263,644 $218,199 $145,142
======== ======== ======== ======== ========
Earnings per share from
continuing operations........ $ 1.10 $ 1.29 $ 1.59 $ 1.27 $ 0.91
======== ======== ======== ======== ========
FOR FULLY DILUTED EARNINGS PER
SHARE
Weighted average number of
shares used in primary
calculation.................. 176,817 167,024 166,111 171,853 160,010
Additional dilutive effect of
stock options................ 203 97 23 1 64
Assumed conversion of dilutive
convertible notes and
debentures................... 13,119 13,966 14,356 20,990 37,118
-------- -------- -------- -------- --------
Fully diluted weighted average
number of shares............. 190,139 181,087 180,490 192,844 197,192
======== ======== ======== ======== ========
Income from continuing
operations used in primary
calculation.................. $194,381 $215,901 $263,644 $218,199 $145,142
Adjustments for interest
expense, contractual
allowances and income taxes.. 7,547 5,981 4,628 12,207 25,991
-------- -------- -------- -------- --------
Adjusted income from
continuing operations........ $201,928 $221,882 $268,272 $230,406 $171,133
======== ======== ======== ======== ========
Earnings per share from
continuing operations........ $ 1.06 $ 1.23 $ 1.49 $ 1.19 $ 0.87
======== ======== ======== ======== ========
</TABLE>
--------
(1) All numbers of 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.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on August 25,
1995.
Tenet Healthcare Corporation
By: /s/ Raymond L. Mathiasen By: /s/ Scott M. Brown
---------------------------- ----------------------------
Raymond L. Mathiasen Scott M. Brown
Senior Vice President, Senior Vice President
Chief Financial Officer and
Chief Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON AUGUST 25, 1995, BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Jeffrey C. Barbakow Chairman, Chief Executive Officer and
__________________________________________ Director
Jeffrey C. Barbakow (Principal Executive Officer)
/s/ Michael H. Focht, Sr. President, Chief Operating Officer and
__________________________________________ Director
Michael H. Focht, Sr.
/s/ Bernice Bratter Director
__________________________________________
Bernice Bratter
/s/ John T. Casey Director
__________________________________________
John T. Casey
/s/ Maurice J. DeWald Director
__________________________________________
Maurice J. DeWald
/s/ Peter de Wetter Director
__________________________________________
Peter de Wetter
/s/ Edward Egbert, M.D. Director
__________________________________________
Edward Egbert, M.D.
/s/ Raymond A. Hay Director
__________________________________________
Raymond A. Hay
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Lester B. Korn Director
__________________________________________
Lester B. Korn
/s/ James P. Livingston Director
__________________________________________
James P. Livingston
/s/ Robert W. O'Leary Director
__________________________________________
Robert W. O'Leary
/s/ Thomas J. Pritzker Director
__________________________________________
Thomas J. Pritzker
/s/ Richard S. Schweiker Director
__________________________________________
Richard S. Schweiker
</TABLE>
25
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 31, 1993, 1994 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO:
-----------------------
BALANCE AT CONTINUING BALANCE AT
BEGINNING OF OPERATIONS DISCONTINUED DEDUCTIONS OTHER END OF
PERIOD (1) OPERATIONS (2) ITEMS(3) PERIOD
------------ ---------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1993.................. $152 $122 $40 $199 $ -- $115
1994.................. $115 $111 $35 $128 $(56) $ 77
1995.................. $ 77 $140 $25 $153 $ 95 $184
</TABLE>
--------
(1) Before considering recoveries on accounts or notes previously written off.
(2) Accounts written off.
(3) Beginning balances of purchased businesses, net of balances of businesses
sold.
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF DISCONTINUED DEDUCTIONS END OF
PERIOD OPERATIONS (1) PERIOD
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Reserves related to discontin-
ued operations:
1993........................ $113 $ 160 $172 $101
1994........................ $101 $1,113 $749 $465
1995........................ $465 $ 16 $404 $ 77
</TABLE>
--------
(1) Primarily cash disbursements and, in 1994, write-down of assets to net
realizable value and reclassification to other long-term liabilities.
F-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ------------------------------------------------------- ------------
<S> <C>
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
(a) Agreement and Plan of Merger, dated as of October 10,
1994, among the Company, AMH Acquisition Co. and
American Medical Holdings, Inc. (Incorporated by
reference to Exhibit 2(A) to Registrant's Quarterly
Report on Form 10-Q, dated October 14, 1994)...........
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as
amended October 13, 1987 and June 22, 1995.............
(b) Restated Bylaws of Registrant, as amended March 1, 1995
(Incorporated by reference to Exhibit 3(b) to
Registrant's Quarterly Report on Form 10-Q dated April
14, 1995)..............................................
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Form of Indenture for the Registrant's Convertible
Floating Rate Debentures, dated as of February 1, 1992,
among NME PIP Funding I, Inc., the Registrant and
Bankers Trust Company, as Trustee (Incorporated by
reference to Exhibit 4(a) to Registration Statement on
Form S-3, Registration No. 33-45689, dated February 14,
1992)..................................................
(b) Form of Convertible Floating Rate Debenture due April
3, 1996 (Incorporated by reference to Exhibit (e) to
Registrant's Registration Statement on Form S-3,
Registration No. 33-45689, dated February 14, 1992)....
(c) Agreement Providing for First Amendment to Convertible
Floating Rate Debentures due April 3, 1996, dated as of
December 11, 1991, between the Registrant and NME PIP
Funding I, Inc. (Incorporated by reference to Exhibit
(f) to Registrant's Registration Statement on Form S-3,
Registration No. 33-45689, dated
February 14, 1992).....................................
(d) Certificate of Designation, Preference and Rights of
Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 4(h) to
Registrant's Annual Report on Form 10-K dated August
30, 1993)..............................................
(e) Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock (Incorporated by
reference to Exhibit 4(d) to Registrant's Annual Report
on Form 10-K dated August 23, 1991)....................
(f) Form of Investment Option Agreement....................
(g) Indenture, dated as of March 1, 1991, between the
Registrant and The Bank of New York, as Trustee,
relating to Medium Term Notes (Incorporated by
reference to Exhibit 4(a) to Registrant's Annual Report
on Form 10-K dated August 23, 1991)....................
(h) Indenture, dated as of March 1, 1995, between Tenet and
The Bank of New York, as Trustee, relating to 9 5/8%
Senior Notes due 2002 (Incorporated by reference to
Exhibit 4(a) to Registrant's Quarterly Report on Form
10-Q dated
April 14, 1995)........................................
(i) Indenture, dated as of March 1, 1995, between Tenet and
The Bank of New York, as Trustee, relating to 10 1/8%
Senior Subordinated Notes due 2005 (Incorporated by
reference to Exhibit 4(b) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
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<S> <C>
(j) Registration Rights Agreement, dated as of February 22,
1995, by and between the Registrant and the Selling
Shareholders (Incorporated by reference to Exhibit 4.1
to Registrants Registration Statement on Form S-3,
Registration No. 33-57801, dated February 22, 1995)....
(10) Material Contracts
(a) Guaranty Reimbursement Agreement, dated as of January
31, 1990, by and between the Registrant and The
Hillhaven Corporation (Incorporated by reference to
Exhibit 10(e) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(b) First Amendment to Guarantee Reimbursement Agreement,
dated as of May 30, 1991, by and between the Registrant
and The Hillhaven Corporation (Incorporated by
reference to Exhibit 10(g) to Registrant's Annual
Report on Form 10-K dated August 23, 1991).............
(c) Second Amendment to Guarantee Reimbursement Agreement,
dated as of October 2, 1991, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(w) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(d) Third Amendment to Guarantee Reimbursement Agreement,
dated as of April 1, 1992, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(dd) to Registrant's Annual Report on Form
10-K dated August 21, 1992)............................
(e) Fourth Amendment to Guarantee Reimbursement Agreement,
dated as of November 12, 1992, between the Registrant
and Hillhaven (Incorporated by reference to
Exhibit 10(pp) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(f) Fifth Amendment to Guarantee Reimbursement Agreement,
dated as of February 19, 1993, between the Registrant
and Hillhaven (Incorporated by reference to
Exhibit 10(qq) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(g) Sixth Amendment to Guarantee Reimbursement Agreement,
dated as of May 28, 1993, between the Registrant and
Hillhaven (Incorporated by reference to
Exhibit 10(rr) to Registrant's Annual Report on Form
10-K dated August 30, 1993)............................
(h) Seventh Amendment to Guarantee Reimbursement Agreement,
dated as of May 28, 1993, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(h) the Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(i) Eighth Amendment to Guarantee Reimbursement Agreement,
dated September 2, 1993, between the Registrant and The
Hillhaven Corporation (Incorporated by reference to
Exhibit 10(i) to Registrant's Annual Report on Form 10-
K dated August 25, 1994)...............................
(j) Agreement and Waiver, dated September 2, 1993, among
the Registrant, the subsidiaries of the Company
signatories thereto, The Hillhaven Corporation and
First Healthcare Corporation (Incorporated by reference
to Exhibit 10(n) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
(k) Shareholding Agreement, dated 30 March 1993, among the
Registrant, Westminster Health Care Holdings PLC and P.
R. Carter and Others (Incorporated by reference to
Exhibit 10(tt) to Registrant's Annual Report on Form
10-K dated August 30, 1993)............................
(l) $2,300,000 Credit Agreement, dated as of February 28,
1995, among the Company, 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 Administration Agent (Incorporated by
reference to Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
(m) $91,350,000 Amended and Restated Letter of Credit and
Reimbursement Agreement, dated as of February 28, 1995,
among the Company, as Account Party, and Bank of
America National Trust and Savings Association, The
Bank of New York, Bankers Trust Company and Morgan
Guaranty Trust Company of New York, as Banks, and The
Bank of New York, as Issuing Bank (Incorporated by
reference to Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
(n) Agreement, dated August 22, 1995, among the Registrant,
The Hillhaven Corporation and Vencor, Inc..............
(o) Asia Stock Purchase Agreement, dated as of May 24,
1995, between the Registrant and Parkway Holdings
Limited................................................
(p) Australian Stock Purchase Agreement, dated as of July
5, 1995, between the Registrant and Parkway Holdings
Limited................................................
(q) Amending Agreement to the Australia Stock Purchase
Agreement, dated as of August 14, 1995, between the
Registrant and Parkway Holdings Limited................
(r) Letter from the Registrant to Jeffrey C. Barbakow,
dated May 26, 1993 (Incorporated by reference to
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K dated August 30, 1993)...............................
(s) Letter from the Registrant to Jeffrey C. Barbakow,
dated June 1, 1993 (Incorporated by reference to
Exhibit 10(m) to Registrant's Annual Report on Form 10-
K dated August 30, 1993)...............................
(t) Memorandum from the Registrant to Jeffrey C. Barbakow,
dated June 14, 1993 (Incorporated by reference to
Exhibit 10(n) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(u) Board of Directors Retirement Plan, effective January
1, 1985 (Incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K dated August
23, 1991)..............................................
(v) First Amendment to Board of Directors Retirement Plan,
effective as of August 18, 1993 (Incorporated by
reference to Exhibit 10(xx) to Registrant's Annual
Report on Form 10-K dated August 30, 1993).............
(w) Amendment to Directors Retirement Plan, dated as of
April 25, 1994 (Incorporated by reference to Exhibit
10(oo) to Registrant's Annual Report on Form 10-K dated
August 25, 1994).......................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
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NO. DESCRIPTION PAGE
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<S> <C>
(x) Supplemental Executive Retirement Plan, as amended May
31, 1986 (Incorporated by reference to Exhibit 10(o) to
Registrant's Annual Report on Form 10-K dated August
21, 1992)..............................................
(y) Amendment to Supplemental Executive Retirement Plan,
dated as of April 25, 1994 (Incorporated by reference
to Exhibit 10(ss) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(z) Amendment to Supplemental Executive Retirement Plan,
dated as of July 25, 1994 (Incorporated by reference to
Exhibit 10(tt) to Registrant's Annual Report on
Form 10-K dated August 25, 1994).......................
(aa) 1994 NME Supplemental Executive Retirement Plan Trust
Agreement, dated as of May 25, 1994, as amended July
25, 1994, between the Registrant, and United States
Trust Company of New York (Incorporated by reference to
Exhibit 10(uu) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(bb) Long Term Incentive Plan (Incorporated by reference to
Exhibit 10(p) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(cc) 1994 Annual Incentive Plan (Incorporated by reference
to Exhibit B to the Definitive Proxy Statement for the
Registrant's 1994 Annual Meeting of Shareholders)......
(dd) Deferred Compensation Plan, effective March 23, 1983
(Incorporated by reference to Exhibit 10(v) to
Registrant's Annual Report on Form 10-K dated August
23, 1991)..............................................
(ee) First Amendment to Deferred Compensation Plan, dated as
of August 15, 1994 (Incorporated by reference to
Exhibit 10(zz) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(ff) 1994 NME Deferred Compensation Plan Trust Agreement,
dated as of May 25, 1994, as amended July 25, 1994,
between the Registrant and United States Trust Company
of New York (Incorporated by reference to Exhibit
10(aaa) to Registrant's Annual Report on Form 10-K
dated August 25, 1994).................................
(gg) Performance Investment Plan (Incorporated by reference
to Exhibit 10(d) to Registrant's Annual Report on Form
10-K dated August 23, 1991)............................
(hh) Revolving Credit and Term Loan Agreement, dated as of
December 11, 1991, between the Registrant and NME PIP
Funding I, Inc. (Incorporated by reference to Exhibit
10(g) to Registrant's Registration Statement on Form S-
3, Registration No. 33-45689, dated February 14, 1992).
(ii) 1994 Directors Stock Option Plan (Incorporated by
reference to Exhibit A to the Definitive Proxy
Statement for the Registrant's 1994 Annual Meeting of
Shareholders)..........................................
(jj) 1991 Stock Incentive Plan (Incorporated by reference to
Exhibit B to the definitive Proxy Statement for the
Registrant's 1991 Annual Meeting of Shareholders)......
(kk) 1995 Stock Incentive Plan (Incorporated by reference to
Exhibit A to the definitive Proxy Statement for the
Registrant's 1995 Annual Meeting of Shareholders)......
</TABLE>
<PAGE>
<TABLE>
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EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
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<S> <C>
(ll) 1995 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit B to the definitive Proxy Statement
for the Registrant's 1995 Annual Meeting of
Shareholders)...........................................
(mm) Severance Protection Agreement, dated June 28, 1994,
between the Registrant and Barry P. Schochet
(Incorporated by reference to Exhibit 10(ggg) to
Registrant's Annual Report on Form 10-K dated August 25,
1994)...................................................
(11) Statement Re: Computation of Per Share Earnings, page 23
(13) 1995 Annual Report to Shareholders of Registrant
(21) Subsidiaries of the Registrant
(23) Consent of Experts
(a) Accountants' Consent and Report on Consolidated Schedule
(KPMG Peat Marwick LLP).................................
(27) Financial Data Schedule (included only in the EDGAR filing)
(b) REPORTS ON FORM 8-K.....................................
</TABLE>
Tenet filed no reports on Form 8-K during the last quarter of the 1995 fiscal
year.
<PAGE>
Exhibit 3(a)
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
NATIONAL MEDICAL ENTERPRISES, INC.
We the undersigned, Terence P. McMullen, Vice President, and Richard B.
Silver, Assistant Secretary, of National Medical Enterprises, Inc., do hereby
certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 29th day of March, 1995, adopted a resolution to amend the original
restated articles as follows:
Article I is hereby amended to read in its entirety as follows:
"I
The name of this corporation is:
Tenet Healthcare Corporation"
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Restated Articles of Incorporation is 201,241,735; that the
said change and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Terence P. McMullen
-------------------------------------------
Terence P. McMullen, Vice President
/s/ Richard B. Silver
-------------------------------------------
Richard B. Silver, Assistant Secretary
State of California
County of Los Angeles
On June 22, 1995, personally appeared before me, a Notary Public, TERENCE
P. MCMULLEN and RICHARD B. SILVER, who acknowledged that they executed the above
instrument.
/s/ Corrine L. Sotolov
------------------------------------------
Signature of Notary
(Notary Stamp or Seal)
<PAGE>
CERTIFICATE OF DIVISION OF SHARES
---------------------------------
OF
--
NATIONAL MEDICAL ENTERPRISES, INC.
----------------------------------
The undersigned, being the duly qualified Secretary of National Medical
Enterprises, Inc., a Nevada corporation (the "Corporation"), certifies that 20
members of the Board of Directors of the Corporation, being at least a majority
of the Directors of the Corporation, voted to adopt the following resolutions at
a meeting of the Board of Directors duly called, noticed and held on the 31st
day of July, 1991 in accordance with the provisions of Nevada Revised Statutes
Section 78.207 to effectuate a division of the shares of the Common Stock of the
Company into smaller denominations without changing the amount of the capital
stock:
WHEREAS, the total number of shares which the Corporation is authorized to
issue is 227,500,000 shares consisting of 225,000,000 shares of Common Stock and
2,500,000 shares of Preferred Stock, with a par value per share of $0.15 and an
aggregate par value of all s hares of $34,125,000;
BE IT RESOLVED, that from and after the date of the filing of a Certificate
certifying these resolutions in the office of the Nevada Secretary of State, the
Common Stock of this Corporation shall be 450,000,000 shares, with a par value
of $.075 per share; and
FURTHER RESOLVED, that the number and amount of the shares of the Preferred
Stock of this Corporation shall not be changed by these resolutions or the
filing of the Certificate.
DATED this 31st day of July, 1991.
/s/ Scott M.Brown
-------------------------------
Scott M. Brown
Secretary
<PAGE>
VERIFICATION BY DIRECTORS OF
----------------------------
CERTIFICATE OF DIVISION OF SHARES
---------------------------------
OF
--
NATIONAL MEDICAL ENTERPRISES, INC.
----------------------------------
State of California )
) ss.
County of Los Angeles )
The undersigned under penalties of perjury, being first duly sworn, do each
depose and say that he or she is a Director of National Medical Enterprises,
Inc., a Nevada corporation (the "Corporation"), that they are a majority of the
directors of the Corporation, and that the contents of the Certificate of
Division of Shares to which this verification is attached is true of his or her
own knowledge.
DATED this 31st day of July, 1991.
/s/ Howard F. Nachtman, M.D. /s/ A.J. Martinson, M.D.
------------------------------------- -----------------------------------
Director Director
/s/ Raymond A. Hay /s/ Leonard Cohen
------------------------------------- -----------------------------------
Director Director
/s/ Edward Egbert, M.D. /s/ Richard K. Eamer
------------------------------------- -----------------------------------
Director Director
/s/ John C. Bedrosian /s/ Peter de Wetter
------------------------------------- -----------------------------------
Director Director
/s/ Edward Egbert, M.D. /s/ Richard K. Eamer
------------------------------------- -----------------------------------
Director Director
/s/ Maurice J. DeWald /s/ Lloyd R. Johnson
------------------------------------- -----------------------------------
Director Director
<PAGE>
/s/ Richard L. Stever /s/ Jeffrey C. Barbakow
------------------------------------- -----------------------------------
Director Director
/s/ Nita P. Heckendorn /s/ William S. Banowsky
------------------------------------- -----------------------------------
Director Director
/s/ Richard S. Schweiker /s/ Taylor R. Jenson
------------------------------------- -----------------------------------
Director Director
/s/ Bernice B. Bratter /s/ Michael H. Focht, Sr.
------------------------------------- -----------------------------------
Director Director
/s/ James P. Livingston /s/ Norman A. Zober
------------------------------------- -----------------------------------
Director Director
SUBSCRIBED and SWORN to before me
this 31st day of July, 1991
/s/ Linda K. Davis
-----------------------------------
NOTARY PUBLIC, In and For
said County and State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
NATIONAL MEDICAL ENTERPRISES, INC., a corporation organized under the laws
of the State of Nevada, by its Senior Vice President and Secretary does hereby
certify:
1. That the Board of Directors of said corporation at a meeting duly
convened and held on the 29th day of July, 1987, passed a resolution declaring
that the change and amendment in the Articles of Incorporation hereinafter set
forth is advisable, and called an annual meeting of the shareholders to take
action thereon.
2. That thereafter, on the 13th day of October, 1987, pursuant to such
call of the Board of Directors, and upon notice given to each shareholder of
record entitled to vote on an amendment to the Articles of Incorporation as
provided by law, an annual meeting of the shareholders of the company was held,
at which meeting, the holders of 67,320,228 shares, representing at least a
majority of the voting power, were present in person or represented by proxy;
that the number of shares of the corporation outstanding and entitled to vote on
the adoption of said amendment was 74,982,774; that 4,410,282 shares voted
against such change and amendment, and that 59,984,200 shares, constituting at
least a majority of the shares outstanding and entitled to vote thereon, voted
in favor of such change and amendment, such change and amendment being as
follows:
That said Articles of Incorporation be amended to add Article X as follows:
"No director or officer of this corporation shall be personally liable to
this corporation or its shareholders for damages for breach of fiduciary duty as
a director or officer, except for liability (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (ii) for
the payment of dividends in violation of Section 300 of the Private Corporation
Law of the State of Nevada.
If the Private Corporation Law of the State of Nevada is amended to
authorize the further elimination or limitation of the liability of directors or
officers, then the liability of a director of this corporation or an officer of
this corporation shall be eliminated or limited to the fullest extent authorized
by the Private Corporation Law of the State of Nevada, as so amended.
-1-
<PAGE>
Any repeal or modification of this Article shall not adversely affect any
right or protection of a director of this corporation or an officer of this
corporation existing hereunder with respect to any act or omission occurring
prior to or at the time of such repeal or modification."
WE, THE UNDERSIGNED, do make and file this amendment to the Articles of
Incorporation, hereby declaring and certifying that the facts herein are true,
and accordingly have hereunto set our hands this 19th day of October, 1987.
/s/ Marcus E. Powers
---------------------------------
Marcus E. Powers
Senior Vice President
/s/ Scott M. Brown
---------------------------------
Scott M. Brown
Secretary
-2-
<PAGE>
STATE OF CALIFORNIA
County of Los Angeles
On this 19th day of October, 1987, before me, a Notary Public, personally
appeared Marcus E. Powers, Senior Vice President and Scott M. Brown, Secretary,
who severally acknowledged that they executed the above instrument.
/s/ Harriet Gingberg
-------------------------------
Notary Public
(NOTARIAL SEAL)
-3-
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
NATIONAL MEDICAL ENTERPRISES, INC.
I
The name of this corporation is:
NATIONAL MEDICAL ENTERPRISES, INC.
II
The principal office of this corporation in the State of Nevada is to be
located at One East First Street, 16th Floor (care of Woodburn, Wedge, Blakey,
Folsom & Hug), City of Reno, County of Washoe.
III
This corporation may engage in any lawful activity, including but not
without limitation thereto, its further-development as a proprietary health care
company devoted to the ownership, management and operation of all types of
facilities for the delivery of high quality health care.
IV
The total number of shares which this corporation is authorized to issue is
Two Hundred Twenty-Seven Million, Five Hundred Thousand (227,500,000) shares.
Each share shall have a par value of Fifteen Cents ($.15), and the aggregate par
value of all shares is Thirty Four Million, One Hundred Twenty Five Thousand
Dollars ($34,125,000). The stock of this corporation shall be divided into two
classes, consisting of Two Million Five Hundred Thousand (2,500,000) shares of
Preferred Stock and Two Hundred Twenty-Five Million (225,000,000) shares of
Common Stock. No shares shall have any pre-emptive rights.
The shares of Preferred Stock may be issued and reissued from time to time
in one or more series. The Board of Directors is hereby authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, the liquidation preference, and any other rights,
preferences, privileges, attributes or other matters which may be reserved to
the Board of Directors by law, of any wholly-unissued series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof; and to increase the number of shares of any series at any time. In
case the outstanding shares of any series shall be reacquired or shall not be
issued, such shares may be designated or redesignated and altered, and issued or
reissued, hereunder, by action of the Board of Directors.
<PAGE>
-2-
V
This corporation shall be governed by a Board of Directors, and the members
thereof shall be called Directors. This corporation initially shall have three
Directors, and their names and post office addresses are:
Richard K. Eamer 11440 San Vicente Boulevard
Los Angeles, California 90049
Leonard Cohen 11440 San Vicente Boulevard
Los Angeles, California 90049
John C. Bedrosian 11440 San Vicente Boulevard
Los Angeles, California 90049
The Board of Directors may change the number of Directors from time to
time, and may fill any vacancies in the board of Directors, however created,
except vacancies first filled by the Shareholders. However, neither the Board
of Directors nor the Shareholders may ever increase the number of Directorships
by more than one within any period of twelve months, except upon the affirmative
vote of 2/3 of the Directors of each class, or the affirmative vote of the
holders of 2/3 of all the outstanding shares voting together and not by class,
and this provision may not be amended except by a like vote.
If and when National Medical Enterprises, Inc., a California corporation,
shall be merged into this corporation, thereupon the number of Directors of this
corporation automatically shall increase to eight, and the persons then serving
as Directors of National Medical Enterprises, Inc., a California corporation,
shall become the Directors of this corporation. The Board of Directors of this
corporation shall thenceforth be classified into three classes, with three
Directors in Class 1, three Directors in Class 2, and two Directors in Class 3.
Each Director in Class 1 initially shall serve for a term ending at the Annual
Meeting of Shareholders in 1976; each Director in Class 2 shall serve for an
initial term ending at the Annual Meeting of Shareholders in 1977; and each
Director in Class 3 shall serve for an initial term ending at the Annual Meeting
of Shareholders in 1978. After the respective initial terms of the classes
indicated, each such class of Directors shall be elected for successive terms
ending at the Annual Meeting of Shareholders the third year after election.
The Board of Directors of this Corporation shall designate the Directors
initially assigned to each class, in accordance with the classification of
Directors submitted to the Shareholders of National Medical Enterprises, Inc., a
California corporation.
VI
The capital stock of this corporation shall be non-assessable to the full
extent permitted by law.
<PAGE>
- 3 -
VII
The name and post office address of each of the incorporators signing these
Articles of Incorporation are:
Richard K. Eamer 11440 San Vicente Boulevard
Los Angeles, California 90049
Leonard Cohen 11440 San Vicente Boulevard
Los Angeles, California 90049
John C. Bedrosian 11440 San Vicente Boulevard
Los Angeles, California 90049
VIII
This corporation is to have perpetual existence.
IX
The affirmative vote of the holders of 2/3 of all outstanding shares,
voting together and not by class, shall be required to approve any merger or
consolidation or the sale of substantially all of the assets of this
corporation. This provision shall not be amended except by a like vote.
We, the undersigned officers of NATIONAL MEDICAL ENTERPRISES, INC., certify
that the foregoing "Restated Articles of Incorporation" of the NATIONAL MEDICAL
ENTERPRISES, INC. set forth the Articles of the said Corporation, as amended to
the 10th day of October, 1985.
/s/ Marcus E. Powers
---------------------------------
Marcus E. Powers
Senior Vice President
/s/ Scott M. Brown
---------------------------------
Scott M. Brown
Secretary
<PAGE>
STATE OF CALIFORNIA
County of LOS ANGELES
On this 19th day of October, 1987, before me, a Notary Public, personally
appeared Marcus E. Powers, Senior Vice President and Scott M. Brown, Secretary
who severally acknowledged that they executed the above instrument.
/s/ Patricia L. Donahue
----------------------------------
Notary Public
(NOTARIAL SEAL)
<PAGE>
Exhibit 4(f)
$_____________ principal amount _____________________
of Debentures the "Participant"
INVESTMENT OPTION AGREEMENT, made as of this 29th day of March, 1989,
among NATIONAL MEDICAL ENTERPRISES, INC. (the "Company'), NME PIP FUNDING 1,
INC., a wholly owned subsidiary of the Company ("PIP Funding I"), and the above-
named Participant.
WHEREAS, the Participant is employed by the Company or one of its
subsidiaries in a key capacity, and the Company desires to provide an incentive
to the Participant to continue the Participant's employment and to work in the
best interests of the Company's stockholders by offering the Participant the
opportunity to make an investment that will increase the Participant's
participation in the potential appreciation of the Company's Common Stock (the
"Common Stock");
WHEREAS, the Board of Directors of the Company has adopted the 1989
Performance Investment Plan (the "Plan") to be administered by a committee
designated by the Company's Board of Directors (the "Committee"), and the
Committee has designated the Participant as an eligible employee under the Plan;
WHEREAS, in connection with the Plan, the Company is issuing and
selling to PIP Funding I an issue of Convertible Subordinated Floating Rate
Debentures due April 3, 1996 (the "Debentures"), which will be convertible into
shares of the Company's Series B Convertible Preferred Stock (the "Convertible
Preferred Stock"), which in turn will be convertible into shares of Common
Stock; and
WHEREAS, PIP Funding I has agreed to sell to the Participant an
investment option to purchase from PIP Funding I a specified principal amount of
the Debentures and the Participant has agreed to purchase such option from PIP
Funding I.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Sale and Purchase of Option. PIP Funding I hereby sells, and the
---------------------------
Participant hereby purchases, an investment option (the "Option") evidenced by
this Investment Option Agreement entitling the Participant to purchase from PIP
Funding I the principal amount of Debentures indicated at the top of the
preceding page (the "Option Debentures"), at a purchase price equal to $100,000
per $105,264 principal amount of Option Debentures (the "Purchase Price"), plus
interest, if any, on such Option Debentures. The Option Debentures may only be
purchased in denominations of $105,264 or an integral multiple thereof.
2. Investment Option Amount for the Option. Simultaneously with the
---------------------------------------
Participant's execution and delivery of this Investment Option Agreement, the
Participant has delivered to PIP Funding I $5,264 per $105,264 principal amount
of the Option Debentures, representing the purchase price of the Option (the
"Investment Option Amount").
3. Restrictions on Exercise of the Option.
--------------------------------------
(a) Vesting. Except as otherwise provided herein, the Option may not
-------
be exercised, in whole or in part, at any time prior to the second anniversary
of the date of this Investment Option Agreement. Thereafter, the Option may be
exercised beginning on the second anniversary of the date hereof with respect to
25% of the principal amount of the Option Debentures, and beginning on each of
the third, fourth and fifth anniversaries of the date hereof with respect to an
additional 25% of the principal amount of the Option Debentures.
(b) Accelerated Vesting. Notwithstanding Section 3(a), but subject
-------------------
to Sections 3(c) and 3(d), the Option shall vest in full and may be exercised
immediately upon the occurrence of any Accelerated Vesting Event as defined in
Exhibit A hereto.
(c) Expiration. The Option may not be exercised after, and shall
----------
expire on, April 3, 1996 or such earlier date as is provided herein (the
"Expiration Date").
(d) Securities Laws. The Participant confirms that the Participant
---------------
will not make any distribution of Option Debentures purchased pursuant to any
exercise of the Option, the Convertible Preferred Stock into which such Option
Debentures are convertible or the Common Stock into
-2-
<PAGE>
which such Convertible Preferred Stock is convertible, in violation of
applicable securities laws. Prior to the second anniversary of the date of this
Investment Option Agreement (or as soon as practicable after any portion of the
Option becomes exercisable, if earlier), the Company will file and cause to be
declared effective a registration statement covering secondary offerings by the
Participant of all Common Stock acquired or which may be acquired upon the
conversion of Convertible Preferred Stock. In connection therewith, the Company
will also cause such Common Stock to be listed on the New York Stock Exchange,
if not already so listed. If the current market price of the Common Stock is
below the conversion price applicable to the Convertible Preferred Stock at the
time such filing of a registration statement is required, the Company may defer
any such filing of a registration statement and listing until such time as the
market price of the Common Stock is at least equal to such conversion price.
4. Repurchase of the Option.
------------------------
(a) Discretionary Repurchase. At any time after April 3, 1994, PIP
------------------------
Funding I may repurchase the Option (and all other options outstanding under
investment option agreements entered into pursuant to the Plan), in whole, 20
business days after notice to the Participant specifying PIP Funding I's
determination to repurchase the Option and the date of repurchase. The
repurchase shall be effected by paying the Participant an amount equal to the
Investment Option Amount applicable to the unexercised portion of the Option,
plus a premium (calculated as a percentage of such Investment Option Amount) of
41.9% if the repurchase date is during the 12-month period ending April 3, 1995
and 50.4% thereafter; provided, however, that the Participant shall have the
-------- -------
right to exercise the unexercised portion of the Option within 18 business days
after the date of such notice. Upon repurchase, the then unexercised portion of
the Option shall expire.
(b) Mandatory Repurchase. (i) If there occurs a "Call Event" or an
--------------------
"Acceleration Event" as such terms are defined in Exhibit A hereto, PIP Funding
I shall repurchase the Option (and all other options outstanding under
investment option agreements entered into pursuant to the Plan), in whole. PIP
Funding I shall notify the Participant of such Call Event or Acceleration Event
within 5 business days thereof and specify in such notice the repurchase date,
which shall be 15 business days after the date of notice, and the repurchase
price which shall be computed in accordance I with clause (ii) below. If there
occurs a "Call Event" or an "Acceleration Event",
-3-
<PAGE>
the Option shall vest in full and the Participant shall have the right to
exercise the unexercised portion of the Option within 13 business days after the
date of PIP Funding I's notice thereof.
(ii) The amount to be paid to Participant in the case of a repurchase
of the Option in accordance with clause (i) above shall be equal to the
Investment Option Amount applicable to the unexercised portion of the Option
plus, in the case of a Call Event (but not an Acceleration Event), a Premium
(calculated as a percentage of such Investment Option Amount) of 6.0% if
repurchased on or before April 3, 1990 and thereafter the applicable premium
(calculated as a Percentage of such Investment Option Amount) set forth below:
<TABLE>
<CAPTION>
Repurchase date during
the 12-month period ending April 3 Premium
---------------------------------- -------
<S> <C>
1991 12.4%
1992 19.1%
1993 26.2%
1994 33.8%
1995 41.9%
1996 50.4%
</TABLE>
Upon repurchase, the then unexercised portion of the Option shall expire.
(c) Deferral of Repurchase. If the Participant is a person subject
----------------------
to Section 16 of the Securities Exchange Act of 1934, as amended, by reason of
being or having been an officer or director of the Company, the Participant may
by notice to PIP Funding I elect to defer any repurchase until 15 business days
after the end of such Participant's Section 16 holding period. To be effective,
any such notice of election must be received by PIP Funding I not later than
3:00 P.M., Los Angeles time, on the second business day prior to the repurchase
date specified by PIP Funding I. The repurchase price for any such deferred
repurchase shall be computed in accordance with Section 4(a) or Section
4(b)(ii), as applicable.
-4-
<PAGE>
(d) Repurchase following Expiration. Unless repurchased pursuant to
-------------------------------
section 4 (a), 4(b) or 4(c), PIP Funding I shall repurchase the Option, in
whole, on the business day next following April 3, 1996 by paying the
Participant an amount equal to the Investment Option Amount applicable to the
unexercised portion of the Option.
5. Termination of Employment.
-------------------------
(a) Death. If the Participant dies while employed by the Company or
-----
any of its subsidiaries, the Option shall continue in effect in accordance with
its terms, and the beneficiary designated by the Participant, or, if no such
beneficiary is so designated, the Participant's estate or any person who
acquires the right to exercise the Option by reason of the Participant's death,
shall be entitled (until the Expiration Date and subject to Sections 3 and 4) to
exercise the Option to the extent not previously exercised.
(b) Permanent Disability. If the Participant's employment with the
--------------------
Company or any of its subsidiaries is terminated by reason of permanent
disability, as determined by the Committee, the Option shall continue in effect
in accordance with its terms, and the Participant shall be entitled (until the
Expiration Date and subject to Sections 3 and 4) to exercise the Option to the
extent not previously exercised.
(c) Voluntary or Involuntary Termination of Employment. If the
--------------------------------------------------
Participant's employment with the Company or any of its subsidiaries is
voluntarily or involuntarily terminated for any reason other than as referred to
in Sections 5(a), (b) or (d), the Participant shall be entitled, for a period of
90 days after such termination (but not after the Expiration Date), (i) to
exercise the portion of the Option vested prior to the date of such termination
to the extent not previously exercised or (ii) require that PIP Funding I
repurchase the Option for the Investment Option Amount applicable to the
unexercised portion thereof. Any such repurchase shall be effected within 7
business days after PIP Funding I receives a request therefor.
(d) Retirement. If the Participant retires at normal retirement age
----------
or, with the consent of the Committee, retires at an earlier age, the Option
shall continue in effect in accordance with its terms and the Participant shall
be entitled (until the Expiration Date and subject to Sections 3 and 4) to
exercise the Option to the extent not previously exercised.
-5-
<PAGE>
(e) Other. Following any termination of employment referred to in this
-----
Section 5, the Participant (or another person specified in Section 5(a) if that
Section is applicable) may not at any time transfer the unexercised portion of
the Option unless the Company, in its sole discretion, requests that the
unexercised portion of the Option be transferred to another eligible employee of
the Company or a subsidiary of the Company under arrangements mutually
satisfactory to the Participant (or such other person specified in Section
5(a)), the Company and the transferee.
6. Exercise.
--------
(a) General. The Option may be exercised by the Participant as a whole
-------
or from time to time in part by completion and delivery to PIP Funding I of an
exercise notice (together with any documents specified therein) in one of
several forms to be prescribed by PIP Funding I depending on whether the
Participant proposes to pay the Purchase Price for the Debentures being
purchased in cash or by delivery of a secured recourse note or by application of
the proceeds from a simultaneous conversion of Debentures into Convertible
Preferred Stock and then into Common Stock and the sale of all or a portion of
such Common Stock. Upon exercise of the Option the Participant will be required
to pay to PIP Funding I an amount equal to the Purchase Price (i.e., $100,000
for each $105,264 principal amount of Option Debentures being purchased) plus
interest, if any (which payment of interest may be in cash or by a short-term
secured recourse note). If requested several days in advance of exercise of the
Option, PIP Funding I will endeavor to ascertain and advise the Participant of
the approximate amount of any interest to be paid upon such exercise and the
next date on which the Option may be exercised without payment of interest. The
communications in the preceding sentence may be oral or in writing.
(b) Delivery of Notes. If payment of the Purchase Price and/or any
-----------------
interest is to be made by delivery of a secured recourse note or notes, the
Purchased Option Debentures will be retained by PIP Funding I as security for
the payment of the notes. The notes shall be in such forms as shall be
prescribed by PIP Funding I and shall require a pledge of such Debentures and
the delivery to PIP Funding I of such other documents as it may require in
connection therewith.
(c) Schedule. Upon each exercise of the Option, the Participant will
--------
be required to submit to PIP Funding I the Participant's copy of this
-6-
<PAGE>
Investment Option Agreement for notation by PIP Funding I on the schedule
annexed hereto of the principal amount of Option Debentures purchased, the date
of exercise and the remaining principal amount of Option Debentures for which
the Option may be exercised. When the Option has been fully exercised, the
Participant's copy of this Investment Option Agreement will be marked cancelled.
Upon any repurchase of the Option, the Participant will be required to deliver
the Participant's copy of this Investment Option Agreement to PIP Funding I for
similar marking.
7. Conversion. Conversion of Debentures acquired by a Participant
----------
upon exercise of the Option shall be effected by completion and delivery to the
Company of a conversion notice (together with the documents specified therein)
in one of several forms to be prescribed by the Company depending on the manner
of payment of the Purchase Price and the disposition to be made of the
Convertible Preferred Stock issuable upon conversion of the Debentures and the
Common Stock issuable upon conversion of the Convertible Preferred Stock.
8. Subordinated Guarantee of the Company. The Company unconditionally
-------------------------------------
and irrevocably guarantees that if PIP Funding I does not repay the investment
Option Amount (including any premium with respect thereto) in connection with
any repurchase of the Option required herein, the Company shall pay such amount
as if the Company instead of PIP Funding I were the primary obligor for such
amount under this Investment Option Agreement; provided, however, that this
-------- -------
obligation of the Company is subordinated to the extent and in the manner
provided in the Debentures as originally issued to PIP Funding I with regard to
the Company's obligations under such Debentures, to the prior payment in full of
all "Senior Debt" of the Company, as such term is defined in such Debentures.
9. Miscellaneous.
-------------
(a) No Right to Continued Employment. Neither
--------------------------------
this Investment Option Agreement nor the Plan shall be construed as giving the
Participant any right to be retained in the employ of the Company or any of its
subsidiaries.
(b) Non-Transferability. The Option is exercisable only by the
-------------------
Participant during his or her lifetime and neither this Investment Option
Agreement nor the Option may be sold, pledged, assigned, hypothecated or
-7-
<PAGE>
transferred in any manner other than by will or the laws of descent and
distribution, except that they may be pledged as security for a loan to finance
the Investment Option Amount or the Purchase Price under arrangements
satisfactory to the Company or except as contemplated by Section 5(e). Upon
exercise of the Option by the Participant, the purchased Debentures may be
pledged, assigned, hypothecated or transferred, subject to compliance with
applicable securities laws and delivery to the Company of a legal opinion
satisfactory to the Company with respect to such compliance (except that the
purchased Debentures may be pledged as security for any secured recourse notes
delivered to PIP Funding I without the delivery of a legal opinion); provided,
--------
however, that, concurrently with such sale, pledge, assignment, hypothecation or
-------
transfer, the Participant repays the outstanding balance of any secured recourse
notes delivered by such Participant or the Company approves the assignment of
the Participant's secured recourse notes to the transferee. Thereafter the
Debentures shall be convertible only by the transferee.
(c) Tax Withholding. The Company and its subsidiaries shall have the
---------------
right to require the Participant to remit to the Company, prior to the delivery
of any certificate or certificates for Debentures, Convertible Preferred Stock
or Common Stock or the payment of any money or other property, an amount
sufficient to satisfy any Federal, state and/or local tax withholding
requirements.
(d) Amendment. This Investment Option Agreement may not be modified,
---------
amended or waived in any manner except by an instrument in writing signed by
each of the parties hereto. The waiver by any party of compliance with any
provision of this Investment Option Agreement by any other party shall not
operate or be construed as a waiver of any other provision of this investment
Option Agreement, or of any subsequent breach by such party of a provision of
this Investment Option Agreement.
(e) Maintenance of an Office or Agency. PIP Funding I will maintain an
----------------------------------
office or agency at the principal executive offices of the Company where this
Investment Option Agreement may be submitted for exercise of the Option and
where notices or demands to or upon PIP Funding I in respect hereof may be
served. PIP Funding I will advise the Participant of any change in the location
of such office or agency.
-8-
<PAGE>
(f) Notices. Except as otherwise provided herein, every notice or
-------
other communication relating to this Investment Option Agreement shall be in
writing, and shall be mailed or delivered to the party for whom it is intended
at such address as may from time to time be designated by such party in a notice
mailed or delivered to the other party as herein provided; provided, however,
-------- -------
that unless and until some other address shall be so designated, all notices or
communications by the Company to the Participant may be given to the Participant
personally or may be mailed to the address noted under the Participant's
signature below.
(g) Headings. The headings of paragraphs herein are included solely
--------
for convenience of reference and shall not affect the meaning or interpretation
of any of the provisions of this Investment Option Agreement.
(h) Governing Law. This Investment Option Agreement is to be governed
-------------
by and interpreted in accordance with the laws of the State of New York.
(i) Acknowledgment of Agency. The parties hereto acknowledge that PIP
------------------------
Funding I is acting as agent on behalf of the Company and is issuing and selling
the Option and the remarketed notes issued under the indenture referred to in
Exhibit A hereto, and is acquiring, holding and transferring the Debentures, in
its capacity as such pursuant to the terms of this Investment Option Agreement
and the Plan.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investment
Option Agreement as of the day and year first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By____________________________________________
Title: Senior Vice President
Address: 11620 Wilshire Boulevard
Los Angeles, CA 90025
Attention: Treasurer
With a copy to: General Counsel
NME PIP FUNDING I, INC.
By______________________________________________
Title: President
Address: 11620 Wilshire Boulevard
Los Angeles, CA 90025
Attention: Treasurer
________________________________________________
Participant
Address:
________________________________________________
Social Security or Tax I.D. Number
-10-
<PAGE>
Schedule
--------
Record of Option Exercises
--------------------------
<TABLE>
<CAPTION>
Principal Amount Remaining
of Debentures Principal Amount
Purchased Pursuant of Debentures Notation
Date to Option Subject to Option Made By
---- -------------------- ------------------ ----------
<S> <C> <C> <C>
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
</TABLE>
<PAGE>
Exhibit A
---------
For the purposes of Section 3(b) the term "Accelerated Vesting Event"
shall mean any of the following:
(i) Any "Designated Event" (as such term is defined below) not
approved in advance by the Board of Directors of the Company or any
"Call Event" or any "Acceleration Event", as such terms are defined
below;
(ii) During any period of two consecutive years (not including
any period prior to the execution of this Investment Option Agreement),
individuals who at the beginning of such period constituted the Board of
Directors of the Company and any new directors, whose election by the
Board of Directors of the Company or nomination for election by the
Company's stockholders was approved by a vote of at least a majority of
the directors then still in office who either were directors at the
beginning of the period, or whose election or nomination for election
was previously so approved, cease to constitute a majority thereof; and
(iii) Any determination by the Board of Directors of the
Company, in its sole and absolute discretion, that there has occurred a
change in control of the Company.
For the purposes of (i) above and the definition of "Acquiring Person"
below, any transaction not approved in advance by the Board of Directors of the
Company is a transaction which has not obtained the concurrence of a majority of
Continuing Directors, where "Continuing Director" shall mean any member of the
Board of Directors of the Company (while such person is a member of the Board of
Directors of the Company) who is not an Acquiring Person (as defined below) or
an Affiliate (as defined below) or Associate (as defined below) of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, and who either (i) was a member of the Board of Directors of the
Company prior to the time that any person became an Acquiring Person or (ii)
became a member of the Board of Directors of the Company subsequent to the time
that any person became an Acquiring Person, if such person's nomination for
election or election to the Board of Directors of the Company was recommended or
approved by a majority of the Continuing Directors then in office and "Acquiring
Person" shall mean any person who or which, together with all Affiliates and
Associates of such Person, shall Beneficially Own a number of shares of voting
stock having in the aggregate 20% or more of the general voting power of the
Company, but shall not include (i) the Company, (ii) any subsidiary of the
Company, (iii) any employee benefit plan or employee stock plan of
<PAGE>
-2-
the Company or of any subsidiary of the Company or any person organized,
appointed, established or holding voting stock by, for or pursuant to, the terms
of any such plan, and (iv) any person who acquires a number of shares of voting
stock having in the aggregate 20% or more of the general voting power of the
Company in connection with a transaction or series of transactions approved
prior to such transaction or transactions by the Board of Directors of the
Company. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect as of the date of the
Indenture referred to below.
A person shall be deemed to "Beneficially Own" any securities of the
Company in accordance with Section 13 of the Securities Exchange Act of 1934 and
the Rules of the Securities and Exchange Commission thereunder (including Rule
13d-3, Rule 13d-5 or any successor provisions); provided, however, that a person
-------- -------
shall be deemed to Beneficially Own all securities that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time and without regard to the 60-day limitation referred to in
Rule 13d-3.
For the purposes of (i) above, the terms "Designated Event", "Call
Event" and "Acceleration Event" shall have the following meanings:
I. "Designated Event" means any one or more of the following events
----------------
which shall occur subsequent to the date of the issuance by PIP Funding I of its
Remarketed Notes (the "Notes") pursuant to the Indenture dated as of March 15,
1989 among the Company, PIP Funding I and Bankers Trust Company, as Trustee (the
"Indenture"):
(A) (1) the Company shall consolidate with or merge into any other
corporation or convey, transfer or lease all or substantially all of its assets
to any person (other than a wholly owned direct or indirect subsidiary of the
Company), or (2) any corporation shall consolidate with or merge into the
Company, in either event pursuant to a transaction in which any common stock of
the Company outstanding immediately prior to the effectiveness thereof is
changed into or exchanged for cash, securities or other property.
(B) any person (other than the Company or any direct or indirect
subsidiary of the Company or any employee benefit plan or employee stock plan of
the Company or of any direct or indirect subsidiary of the Company or any person
organized, appointed, established or holding voting securities by, for or
pursuant to, the terms of any such plan) shall purchase or otherwise acquire,
directly or indirectly, Beneficial Ownership
<PAGE>
-3-
of securities of the Company and, as a result of such purchase or acquisition,
such person (together with its "Associates" and "Affiliates') shall directly or
indirectly Beneficially Own in the aggregate (1) twenty percent (20%) or more of
the common stock of the Company, or (2) securities representing twenty percent
(20%) or more of the combined voting power of the Company's voting securities,
in each case under clause (1) or (2) outstanding on the date immediately prior
to the date of such purchase or acquisition (or, if there be more than one, the
last such purchase or acquisition); or
(C) on any day (a "Calculation Date") (1) the Company shall make any
distribution or distributions of cash, securities or other property (other than
regular periodic cash dividends at a rate which is substantially consistent with
past practice and other than common stock, or rights to acquire common stock or
preferred stock substantially equivalent to common stock) to holders of capital
stock, whether by means of dividend, reclassification, recapitalization or
otherwise, or (2) the Company or any direct or indirect subsidiary of the
Company shall purchase or otherwise acquire, directly or indirectly, Beneficial
Ownership of capital stock of the Company; and the sum of the Designated
Percentages of all such distributions, purchases and acquisitions which have
occurred an the Calculation Date and during the 365-day period immediately
preceding the Calculation Date shall equal or exceed thirty percent (30%).
"Designated Percentage" means (1) in the case of each distribution
---------------------
referred to in clause (C) of the definition of Designated Event, the percentage
determined as of the Calculation Date (as such term is defined in the definition
of Designated Event) of each such distribution by dividing the aggregate fair
market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be conclusive) of such distribution, by the
fair market value (based on the Current market Price) of all of the shares of
capital stock of the Company outstanding on the day immediately prior to such
Calculation Date, and (2) in the case of each purchase or acquisition referred
to in clause (C) of the definition of Designated Event, the percentage
determined as of the Calculation Date of each such purchase or acquisition by
dividing-all amounts expended by the Company and its direct or indirect
subsidiaries (the amount expended, if other than in cash, to be determined in
good faith by the Board of Directors of the Company, whose determination shall
be conclusive) in connection with the purchase or acquisition of any shares of
any class of capital stock of the Company by the fair market value (based on the
Current Market Price) of all of the shares of capital stock of the Company
outstanding on the day immediately prior to such Calculation Date.
"Current Market Price" means the average of the daily closing prices
--------------------
(or, if none, the average of the last daily bid and asked prices) of the
applicable class of capital stock as quoted by the Primary securities exchange
on which such stock is traded, or, if
<PAGE>
-4-
none, the primary interdealer quotation system which reports quotations for such
stock, for the trading days during the period of 90 consecutive calendar days
ending on the day immediately prior to the Calculation Date.
II. A "Call Event" shall have occurred in the event that both (A) a
----------
Designated Event occurs on or before April 3, 1996 and (B) on any date which
occurs during the period commencing 120 days prior to the public disclosure of
the occurrence of such Designated Event and ending 120 days after such public
disclosure, the rating of the Notes is downgraded to lower than BBB- by Standard
& Poor's Corporation and its successors or lower than Baa3 by Moody's investors
Service, Inc. and its successors, and if such downgrading occurs prior to such
public disclosure, the rating assigned by S&P or Moody's on the date of such
public disclosure remains lower than BBB- or lower than Baa3, respectively.
III. An "Acceleration Event" shall have occurred if both (i) an
------------------
"Event of Default" with respect to the Notes has occurred and is continuing and
(ii) the Trustee under the Indenture or the holders of the requisite percentage
of the Notes shall have declared the principal of all the Notes to be due and
payable immediately .
"Event of Default" means any one of the following events (whatever the
----------------
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Note when
it becomes due and payable and the continuance of such default for a
period of five days; or
(2) default in the payment of the principal on any Note at its
maturity; or
(3) failure by PIP Funding I to redeem any Notes that are
subject to mandatory redemption pursuant to the Indenture; or
(4) default in the performance, or breach, of any covenant of
PIP Funding I or the Company contained in Article Eight or Section 10.8
of the indenture; or
(5) default in the performance or breach of any covenant of PIP
Funding I or the Company contained in the indenture or in the Notes
(other than
<PAGE>
-5-
a default or breach which results specifically in an Event of Default
under a clause of this definition other than this clause (5)), and
continuance of such default or breach for a period of 30 days after
there has been given, by registered or certified mail, to PIP Funding I
by the Trustee under the Indenture or to PIP Funding I and such Trustee
by the holders of at least 25% in principal amount of the outstanding
Notes, a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
under the Indenture; or
(6) PIP Funding I or the Company 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,
(C) consents to the appointment of a custodian of it or
for all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
(7) a court of competent jurisdiction enters an order or decree
under any bankruptcy law that:
(A) is for relief against PIP Funding I or the Company in
an involuntary case and such order or decree shall continue for
a period of 60 days undismissed, undischarged or unbonded,
(B) appoints a custodian of PIP Funding I or the Company
or for all or substantially all of its property and such order
or decree shall continue for a period of 60 days undismissed,
undischarged or unbonded, or
(C) orders the liquidation of PIP Funding I or the Company
and such order remains unstayed and in effect for a period of 60
days undismissed, undischarged or unbonded.
<PAGE>
EXHIBIT 10(n)
AGREEMENT
---------
AGREEMENT (the "Agreement"), dated as of August 22, 1995, between
Tenet Healthcare Corporation, a Nevada corporation and stockholder
("Stockholder") of The Hillhaven Corporation, a Nevada corporation
("Hillhaven"), Hillhaven and Vencor, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Company and Hillhaven have entered into an Amended and
Restated Agreement and Plan of Merger, dated as of April 23, 1995 and as amended
and restated as of July 31, 1995 (as the same may be further amended from time
to time, the "Merger Agreement"), providing for the merger (the "Merger") of
Hillhaven with and into the Company pursuant to the terms and conditions of the
Merger Agreement, and setting forth certain representations, warranties,
covenants and agreements of the parties thereto in connection with the Merger;
and
WHEREAS, to facilitate the transactions contemplated by the Merger
Agreement, Stockholder, Hillhaven and the Company have agreed to the matters set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations of the Parties. (a) Stockholder represents and
------------------------------
warrants to the Company and Hillhaven that (i) Stockholder owns beneficially (as
such term is defined in the Securities Exchange Act of 1934, as amended (the
"1934 Act")) 8,878,147 shares of Hillhaven's Common Stock, par value $0.75 per
share (the "Hillhaven Common Stock"), 35,000 shares of Series C Preferred Stock,
par value $.15 per share (the "Series C Preferred Stock"), of Hillhaven and
65,430 shares of Series D Preferred Stock, par value $.15 per share (the "Series
D Preferred Stock"), of Hillhaven (collectively, the Series C Preferred Stock
and the Series D Preferred Stock the "Shares") free and clear of all liens,
claims, charges, security interests or other encumbrances and, except for this
Agreement and the Merger Agreement and except as set forth in publicly available
documents prior to the date hereof, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which
Stockholder is a party relating to the pledge, disposition or voting of any
shares of capital stock of Hillhaven and there are no voting trusts or voting
agreements with respect to such Shares, (ii) Stockholder does not beneficially
own any shares of Hillhaven Common Stock or Shares other than as set forth above
and does not have any options, warrants or other rights to acquire any
additional shares of capital stock of
<PAGE>
Hillhaven or any security exercisable for or convertible into shares of capital
stock of Hillhaven, and (iii) Stock holder has full power and authority to enter
into, execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by Stockholder
and constitutes the legal, valid and binding obligation of Stockholder in
accordance with its terms.
(b) The Company represents and warrants to Stockholder and Hillhaven
that the Company has full power and authority to enter into, execute and deliver
this Agreement and to perform fully its obligations hereunder. This Agreement
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company in accordance with its terms.
(c) Hillhaven represents and warrants to the Company and Stockholder
that (i) Hillhaven has full power and authority to enter into, execute and
deliver this Agreement and to perform its obligations hereunder and (ii)
Hillhaven has taken all action, including, without limitation, any action
required by its Board of Directors, so that this Agreement will not cause any
"fair price", "moratorium", "control share acquisition" or other similar
antitakeover statute or regulation enacted under any state or federal laws in
the United States applicable to Hillhaven (including, without limitation, the
Nevada Control Share Acquisition Act) to be applicable to the Merger or the
transaction contemplated by the Merger Agreement. This Agreement has been duly
executed and delivered by Hillhaven and constitutes the legal, valid and binding
obligation of Hillhaven in accordance with its terms.
2. Agreement to Vote Shares. Subject to the terms and conditions of
------------------------
this Agreement, Stockholder agrees during the term of this Agreement to vote the
Shares, and to cause any holder of record of such Shares to vote, in favor of
adoption and approval of the Merger Agreement and the Merger at every meeting of
the stockholders of Hillhaven at which such matters are considered and at every
adjournment thereof. Notwithstanding the foregoing, Stockholder shall be free to
vote its Hillhaven Common Stock in its sole discretion in connection with the
Merger.
3. No Voting Trusts. Stockholder agrees that it will not, nor will
----------------
it permit any entity under its control to, deposit any of the Shares in a voting
trust or subject any of the Shares to any arrangement with respect to the voting
of such Shares other than agreements entered into with the Company.
-2-
<PAGE>
4. No Proxy Solicitations. (a) Stockholder agrees that unless
----------------------
Hillhaven receives a proposal for a merger or consolidation that Stockholder
concludes is superior in its sole discretion to the Merger to Stockholder,
Stockholder will not, nor will it permit any entity under its control to, (i)
solicit proxies or become a "participant" in a "solicitation" (as such terms are
defined in Regulation 14A under the 1934 Act) in opposition to or competition
with the consummation of the Merger or (ii) become a member of a "group" (as
such term is used in Section 13(d) of the 1934 Act) with respect to any voting
securities of Hillhaven for the purpose of opposing or competing with the
consummation of the Merger.
(b) In consideration for the undertaking in 4(a) above, Hillhaven
agrees (i) not to set a record date or meeting date for a meeting (whether
annual or special) of stockholders for the election of directors prior to the
meeting of Hillhaven stockholders to consider the Merger Agreement and the
Merger and (ii) if the Agreement is not approved by Hillhaven shareholders or
the Merger Agreement is terminated, at the option of Hillhaven, to (x) waive the
existing advance notice provisions of Sections 1.10 and 1.11 of Hillhaven's
Amended and Restated By-Laws in connection with the next annual meeting of
Hillhaven stockholders for the election of directors and apply the provisions
relating to advance notice in connection with a special meeting for the election
of directors to such annual meeting or (y) provide Stockholder with sufficient
advance notice (whether orally or in writing) of the date of the next annual
meeting of Hillhaven's stockholders to permit Stockholder to comply with such
By-law Sections.
5. Transfer and Encumbrance. (a) Stockholder agrees not to transfer,
------------------------
sell, offer, exchange, pledge or otherwise dispose of or encumber (i) any of the
Shares, or any shares of common stock, par value $.25 per share, of the Company
(or any security into which such stock is converted or exchanged) (the "Company
Common Stock"), from and after the date hereof or (ii) any shares of Hillhaven
Common Stock from and after the date 30 days prior to the meeting of Hillhaven
stockholders to consider the Merger Agreement and, in each case, until such time
following the Merger as results covering at least 30 days of combined operations
of Hillhaven and the Company (the "Combined Operations Results") have been
published by the Company in the form of a quarterly earnings report, an
effective registration statement filed with the Securities and Exchange
Commission (the "Commission"), a report to the Commission on Form 10-K, 10-Q or
8-K, or any other public filing or announcement which includes such combined
results of operations (the
-3-
<PAGE>
"Expiration Date"). The Company agrees that if requested to do so by
Stockholder within five business days after the Effective Date of the Merger,
the Company will publish the Combined Operations Results not later than 90 days
after the Effective Date of the Merger (such request shall be a "Request Event"
for purposes of this agreement). Notwithstanding the foregoing, Stockholder may
tender its shares of Hillhaven Common Stock into a tender offer that Stockholder
concludes is superior in its sole discretion to the Merger to Stockholder.
Stockholder agrees not to exercise in connection with the Merger any appraisal
or similar rights with respect to any Hillhaven Common Stock.
(b) Stockholder agrees that after the time of any Request Event and
for so long as it is the beneficial owner of more than 5% of the issued and
outstanding Company Common Stock it shall not transfer, sell, offer, exchange,
or otherwise dispose of any of the Company Common Stock except pursuant to (i) a
bona fide public offering of the Company Common Stock, registered under the
Securities Act of 1933, as amended (the "1933 Act"), with the lead manager of
such public offering being selected by Stockholder and the co-manager of such
public offering being selected by the Company, if such offering shall be an
underwritten offering; (ii) a private placement exempt from registration under
federal securities laws, and (iii) the issuance by Stockholder (or an affiliate
of Stockholder or an entity established by or at the request of Stockholder) of
debt or equity securities of Stockholder (or an affiliate of Stockholder or an
entity established by or at the request of Stockholder) that would be
exchangeable or convertible into shares of Company Common Stock in a transaction
in which the lead manager or lead placement agent is selected by the Stockholder
and the co-manager or co-placement agent shall be selected by the Company;
provided, however, that no sales or series of sales of more than 2.5% of the
-------- -------
voting power of the then outstanding Company Common Stock shall be made to any
person or related group of persons who would immediately thereafter own or have
the right to acquire more than 5% of the voting power of the then outstanding
Company Common Stock. Stockholder agrees that after the time of any Request
Event it will not pledge or encumber any shares of Company Common Stock except
in a bona fide financing transaction with a person or persons who are regularly
engaged in the business of entering into such transaction.
6. Additional Purchases. Stockholder agrees that it will not
--------------------
purchase or otherwise acquire (except for shares of Series D Preferred Stock
acquired as a dividend from Hillhaven in accordance with the terms hereof)
beneficial ownership of any shares of Series C Preferred
-4-
<PAGE>
Stock or Series D Preferred Stock after the execution of this Agreement ("New
Shares"). Stockholder also agrees that any New Shares acquired or purchased by
it shall be subject to the terms of this Agreement to the same extent as if they
constituted Shares.
7. Litigation. Stockholder and Hillhaven are parties to Stipulation
----------
re: Stay of Present Action in National Medical Enterprises, Inc. v. The
---------------------------------- ---
Hillhaven Corporation (Case No. BC 122083, Los Angeles County Superior Court),
---------------------
filed March 24, 1995 (the "Stipulation"). Stockholder and Hillhaven agree to
extend the Stipulation during the term of this Agreement, provided that all
parties in all actions pending against Hillhaven and certain of its directors in
other courts in other jurisdictions as well as an action by Hillhaven pending
against Horizon Healthcare Corporation in Nevada Federal District Court agree to
stay all litigation against and by Hillhaven and its directors on the terms set
forth in the Stipulation. Stockholder and Hillhaven further agree that upon
consummation of the Merger each shall voluntarily dismiss with prejudice any and
all pending claims, litigation or court proceedings it may have against the
other or any of its respective subsidiaries, directors or executive officers
with respect to the matters relating to the acquisition proposal of Horizon
Healthcare Corporation or the Merger.
8. Certain Actions. Stockholder agrees that after any Request Event,
---------------
subject to the terms and conditions of this Agreement, for the period ending
seven years following the consummation of the Merger neither it nor any of its
Affiliates (as such term is defined in Rule 12b-2 under the 1934 Act) at such
time, regardless of whether such person or entity is an Affiliate on the date
hereof, will, directly or indirectly, alone or in concert with others (a)
acquire, offer to acquire, or agree to acquire, by purchase, gift or otherwise,
any Company Common Stock or direct or indirect rights, securities or options to
acquire (through purchase, exchange, conversion or otherwise) any Company Common
Stock (collectively, including such rights, securities and options, the "Voting
Securities") or seek to advise, encourage or influence any person or entity with
respect to the acquisition of Voting Securities of the Company, (b) make, or in
any way participate in, any "solicitation" of "proxies" (as such terms are
defined in Regulation 14A promulgated by the Commission pursuant to Section 14
of the 1934 Act) to vote, or communicate with or seek to advise, encourage or
influence any person or entity with respect to the voting of, any Voting
Securities, (c) form, join or in any way participate in a "group" within the
meaning of Section 13(d)(3) of the 1934 Act with respect to
-5-
<PAGE>
any Voting Securities, (d) deposit any Voting Securities into a voting trust or
subject any such securities to any arrangement or agreement with respect to the
voting thereof, except as provided herein, (e) otherwise act to seek, or to
assist or encourage in any respect any other person or entity to seek, to
control or influence in any manner the management, Board of Directors, policies
or affairs of the Company, or (f) request that the Company waive or amend any
provisions of this Section 8. Notwithstanding the foregoing, if Stockholder
acquires Voting Securities as a result of the acquisition of an entity that
beneficially owns Voting Securities, then Stockholder shall be permitted to
dispose of such Voting Securities as promptly as is practicable.
9. Consent. (a) At the effective time of the Merger (the "Effective
-------
Time"), (i) the Company hereby agrees to assume all of the obligations of
Hillhaven under the Guarantee Reimbursement Agreement, dated as of January 31,
1990, as amended from time to time, between Stockholder and Hillhaven (the
"Guarantee Agreement") and to deliver to Stockholder a certificate of the Chief
Financial Officer of the Company to the effect that no Default (as such term is
defined in the Guarantee Agreement) or Event of Default (as such term is defined
in the Guarantee Agreement) has occurred or is continuing or shall have occurred
after giving effect to the Merger, and (ii) Stockholder hereby agrees (A) to
consent to the assignment of the Guarantee Agreement to the Company, (B) that
such assignment will not constitute an Event of Default under the Guarantee
Agreement, (C) to waive any rights it may have to terminate the Guarantee
Agreement as a consequence of the Merger or such assignment and (D) to consent
to the Company's entering into a credit facility pursuant to which the Company
will incur indebtedness secured by a first lien on certain assets and properties
of the Company, as described in the Registration Statement on Form S-4 (File No.
33-59345).
(b) At the Effective Time, (i) the Company hereby agrees to assume
all of the obligations of Hillhaven under the Services Agreement, dated as of
January 31, 1990, as amended from time to time, between Stockholder and
Hillhaven (the "Services Agreement") and (ii) Stockholder hereby agrees (A) to
consent to the assignment of the Services Agreement to the Company and (B) to
waive any rights it may have to terminate the Services Agreement as a
consequence of the Merger or such assignment.
10. Specific Performance. Each party hereto acknowledges that it
--------------------
will be impossible to measure in money the damage to the other party if a party
hereto fails to
-6-
<PAGE>
comply with any of the obligations imposed by this Agreement, that every such
obligation is material and that, in the event of any such failure, the other
party will not have an adequate remedy at law or damages. Accordingly, each
party hereto agrees that injunctive relief or any other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law.
11. Other Agreements. (a) Tax Matters. (i) With respect to the Tax
---------------- -----------
Sharing Agreement between Stockholder and Hillhaven dated as of January 31, 1990
(the "Tax Sharing Agreement"), Stockholder agrees that:
(A) Sections 2.1, 2.2, 3.2(b) and 4.1 of the Tax Sharing Agreement
shall have no effect with respect to any Taxes or Tax Returns (as such
terms are defined in the Tax Sharing Agreement) for any taxable period
that ends after the closing date of the Merger Agreement,
(B) anything in the Tax Sharing Agreement to the contrary
notwithstanding, the Tax Sharing Agreement shall not restrict the
Surviving Corporation (as defined in the Merger Agreement) from taking
or omitting to take any action with respect to the Surviving
Corporation's Taxes or Tax Returns for any taxable period that ends
after the closing date of the Merger Agreement,
(C) unless otherwise required by applicable law or pursuant to a
settlement with any Tax authority, Stockholder shall not, on or after
the date hereof, change any election referred to in Section 2.1 of the
Tax Sharing Agreement or make any additional elections thereunder,
(D) to the extent that any refund claim or suit referred to in
Section 3.2(b) of the Tax Sharing Agreement as modified by Section
11(a)(i)(A) hereof, effects any material Tax Item (as defined in the
Tax Sharing Agreement) of the Surviving Corporation, Stockholder
agrees to consult in good faith with, and keep reasonably informed,
the Surviving Corporation and the Company, in regard to such refund
claims, or suits; provided, however, that any such refund claims or
-------- -------
suits shall be contested, negotiated, and settled under the control,
and at the sole discretion, of Stockholder, and
-7-
<PAGE>
(E) anything in Section 4.1(b) of the Tax Sharing Agreement to the
contrary notwithstanding, the Company or Surviving Corporation shall
not be liable for any outside professional fees or similar third party
costs reasonably incurred in the course of any Tax controversy which
is controlled by Stockholder, provided that (w) Surviving Corporation
shall, and the Company shall cause Surviving Corporation to, make its
records available to Stockholder during normal business hours and
permit Stockholder to make copies thereof to the extent reasonably
necessary to contest, negotiate, and settle such Tax controversy, (x)
the Company and Surviving Corporation shall make their employees
available to render any assistance during normal business hours that
may be reasonably requested by Stockholder in preparation for or
during the course of such Tax controversy at no charge to Stockholder,
(y) Stockholder shall have the opportunity to review and approve any
material outside professional fees or similar third party costs, as
described above, that are proposed to be incurred by the Company or
Surviving Corporation, which approval shall not be unreasonably
withheld, and (z) the Company and Surviving Corporation shall not be
entitled to any reimbursement from Stockholder pursuant to this
Section 11(a)(i)(E) for any outside professional fees or similar third
party costs incurred in connection with services that could be
reasonably rendered by employees of the Company or Surviving
Corporation.
(ii) Stockholder agrees to permit the Surviving Corporation and its
representatives reasonable access to the records (other than records that are
subject to an attorney-client privilege) of Stockholder to facilitate an
understanding of matters relating to the spin-off of Hillhaven from Stockholder,
provided that the Surviving Corporation executes a customary form of
confidentiality agreement.
(b) Registration Rights. The Company agrees after the Effective Time
-------------------
of the Merger to provide Stock holder with registration rights for all shares of
Company Common Stock received by Stockholder (or its subsidiaries) in the Merger
(whether offered for sale directly or in connection with the issuance of debt or
equity securities of Stockholder (or an affiliate of Stockholder or an entity
established by or at the request of Stockholder) that would be exchangeable or
convertible into shares of Company Common
-8-
<PAGE>
Stock) on (except as contemplated by Section 5(b) of this Agreement) the same
terms and subject to the same conditions as exist in the Warrant and
Registration Rights Agreement, dated as of January 30, 1990, between Hillhaven
and Stockholder. In addition to its obligations under the Warrant and
Registration Rights Agreement, the Company agrees upon the request of
Stockholder to cause its executive officers to be available for a reasonable
period of time for meetings with investors and potential investors in any such
offering of Company Common Stock and to otherwise use its reasonable efforts to
assist in the orderly distribution of Company Common Stock received in the
Merger (any such request shall be a "Request Event" for purposes of this
Agreement).
12. Representation Letter. Stockholder agrees to provide the Company
---------------------
and Hillhaven, at or before the Effective Time of the Merger, with the
representation letter previously agreed upon between the parties stating that
Stockholder has no present plan or intention to dispose of any Company Common
Stock which Stockholder receives in the Merger, if such letter will be required
in order for the Company's or Hillhaven's counsel to provide the tax opinion
required under Section 8 of the Merger Agreement.
13. Entire Agreement. This Agreement supersedes all prior
----------------
agreements, written or oral, among the parties hereto with respect to the Merger
Agreement and the Merger and contains the entire agreement among the parties
with respect to the Merger Agreement and the Merger. This Agreement may not be
amended, supplemented or modified, and no provisions hereof may be modified or
waived, except by an instrument in writing signed by all the parties hereto. No
waiver of any provisions hereof by any party shall be deemed a waiver of any
other provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.
14. Notices. All notices, requests, claims, demands or other
-------
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by Federal
Express, Express Mail or other reputable overnight courier service to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
-9-
<PAGE>
If to the Company:
Vencor, Inc.
1300 Providian Center
4000 West Market Street
Louisville, Kentucky 40202
Attention: Jill L. Force
Telecopy: (502) 569-1104
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Joseph B. Frumkin
Telecopy: (212) 558-3588
If to Stockholder:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Attention: General Counsel
Telecopy: (310) 998-6956
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Attention: Brian J. McCarthy
Telecopy: (213) 687-5600
If to Hillhaven:
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: Richard P. Adcock, Sr. V.P. and
General Counsel
Telecopy: (206) 502-3623
-10-
<PAGE>
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attention: Peter Golden
Telecopy: (212) 859-4000
15. Miscellaneous.
-------------
(a) This Agreement shall be deemed a contract made under, and
for all purposes shall be construed in accordance with, the laws of the State of
Delaware.
(b) If any provision of this Agreement or the application of
such provision to any person or circum stances shall be held invalid or
unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability and the remainder of the provision held invalid or
unenforceable and the application of such provision to persons or circumstances,
other than the party as to which it is held invalid, and the remainder of this
Agreement, shall not be affected.
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) This Agreement shall terminate upon the earlier to occur of
(i) termination of the Merger Agreement in accordance with its terms, (ii) by
Stockholder, if the Merger has not been consummated by December 31, 1995, (iii)
by Stockholder, if the product of the Parent Average Price (as defined in the
Merger Agreement) times the Conversion Number (as defined in the Merger
Agreement) is less than $31 per share, provided, however, that Stockholder may
not terminate if Hillhaven has been advised in writing by the Company that the
Conversion Number shall be determined by dividing $31 by the Parent Average
price (without regard to any maximum imposed on the Conversion Number absent
this clause by Section 1.02(b) of the Merger Agreement), (iv) when Stockholder
no longer owns Voting Securities, and (v) the date specified in a written
agreement duly executed and delivered by the Company, Hillhaven and Stockholder;
provided that Sections 8 and 11(a) of this Agreement shall survive any
termination of this Agreement pursuant to clause (iv) above.
-11-
<PAGE>
(e) All Section headings herein are for convenience of reference
only and are not part of this Agreement, and no construction or reference shall
be derived therefrom.
(f) The parties agree that there is not and has not been any
other agreement, arrangement or understand ing between the parties hereto with
respect to the matters set forth herein.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
VENCOR, INC.
By: /s/ W. Earl Reed, III
------------------------------
Vice President, Finance
and Development
TENET HEALTHCARE CORPORATION
By: /s/ Raymond L. Mathiasen
------------------------------
Senior Vice President
THE HILLHAVEN CORPORATION
By: /s/ Bruce L. Busby
------------------------------
Chairman and Chief
Executive Officer
-13-
<PAGE>
EXHIBIT 10(o)
ASIA STOCK PURCHASE AGREEMENT
dated as of
May 24, 1995,
between
NATIONAL MEDICAL ENTERPRISES, INC.
and
PARKWAY HOLDINGS LIMITED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
Recitals
ARTICLE I
PURCHASE AND SALE; CLOSING...................... 2
1.1 Sale and Purchase of Stock........................................ 2
--------------------------
1.2 Purchase Price.................................................... 2
--------------
1.3 The Closing....................................................... 2
-----------
1.4 Miscellaneous Assets.............................................. 3
--------------------
1.5 Release and Waiver................................................ 3
------------------
1.6 Transfer of MEHH Stock............................................ 4
----------------------
1.7 Deposit........................................................... 4
-------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER............... 5
2.1 Companies and Subsidiaries; Organization and Related
----------------------------------------------------
Matters........................................................... 5
-------
2.2 Stock ............................................................ 5
-----
2.3 Financial Statements; Changes; Contingencies...................... 6
--------------------------------------------
2.4 Tax Matters....................................................... 8
-----------
2.5 Material Contracts................................................ 9
------------------
2.6 Real Property..................................................... 11
-------------
2.7 Assets Other than Real Property................................... 11
-------------------------------
2.8 Authorization; No Conflicts....................................... 12
---------------------------
2.9 Legal Proceedings................................................. 13
-----------------
2.10 Dividends and Other Distributions................................. 13
---------------------------------
2.11 Insurance......................................................... 13
---------
2.12 Compliance with Law............................................... 14
-------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
2.13 Environmental Matters............................................. 14
---------------------
2.14 Intellectual Property............................................. 15
---------------------
2.15 Benefit Plans..................................................... 15
-------------
2.16 Employee and Labor Matters........................................ 16
--------------------------
2.17 Certain Interests................................................. 16
-----------------
2.18 Bank Accounts, Powers, etc........................................ 17
--------------------------
2.19 No Brokers or Finders............................................. 17
---------------------
2.20 True and Complete Copies of Documents............................. 17
-------------------------------------
2.21 Overhead Expense.................................................. 18
----------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER............... 18
3.1 Organization and Related Matters.................................. 18
--------------------------------
3.2 Authorization..................................................... 18
-------------
3.3 No Conflicts; Consents and Approvals.............................. 18
------------------------------------
3.4 No Brokers or Finders............................................. 19
---------------------
3.5 Legal Proceedings................................................. 19
-----------------
3.6 Investment........................................................ 19
----------
3.7 Funds Available................................................... 19
---------------
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT
PRIOR TO CLOSING........................... 19
4.1 Access............................................................ 19
------
4.2 Material Adverse Changes.......................................... 20
------------------------
4.3 Conduct of Business............................................... 20
-------------------
4.4 Permits and Approvals............................................. 23
---------------------
4.5 Confidentiality................................................... 24
---------------
4.6 No Other Bids..................................................... 24
-------------
4.7 Insurance Proceeds................................................ 25
------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
4.8 Amounts Due to Seller............................................. 25
---------------------
4.9 Proprietary Information........................................... 25
-----------------------
4.10 Release of Guarantees............................................. 25
---------------------
4.11 Loans to International - NME...................................... 26
----------------------------
ARTICLE V
ADDITIONAL CONTINUING COVENANTS AND INDEMNITIES........... 26
5.1 Cooperation in Audits............................................. 26
---------------------
5.2 Tax Matters....................................................... 26
-----------
5.3 Access............................................................ 31
------
5.4 Use of and Right to Names......................................... 31
-------------------------
5.5 Employment Matters................................................ 31
------------------
5.6 Records........................................................... 32
-------
5.7 Agreement Not to Compete.......................................... 33
------------------------
5.8 Technical Services Agreement...................................... 34
----------------------------
ARTICLE VI
CONDITIONS OF PURCHASE........................ 36
6.1 General Conditions................................................ 36
------------------
6.2 Conditions to Obligations of Buyer................................ 36
----------------------------------
6.3 Conditions to Obligations of Seller............................... 38
-----------------------------------
ARTICLE VII
TERMINATION OF OBLIGATIONS; INDEMNIFICATION;
SURVIVAL............................... 39
7.1 Termination of Agreement.......................................... 39
------------------------
7.2 Effect of Termination............................................. 40
---------------------
7.3 Indemnification................................................... 40
---------------
7.4 Survival of Representations....................................... 46
---------------------------
7.5 Separate Closings; Adjustment to Purchase Price................... 46
-----------------------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII
GENERAL............................... 47
8.1 Amendments; Waivers............................................... 47
-------------------
8.2 Schedules; Exhibits; Integration.................................. 47
--------------------------------
8.3 Reasonable Best Efforts; Further Assurances....................... 48
-------------------------------------------
8.4 Governing Law; Arbitration........................................ 48
--------------------------
8.5 No Assignment..................................................... 49
-------------
8.6 Headings.......................................................... 49
--------
8.7 Counterparts...................................................... 49
------------
8.8 Publicity and Reports............................................. 49
---------------------
8.9 Remedies Cumulative............................................... 50
-------------------
8.10 Parties in Interest............................................... 50
-------------------
8.11 Notices........................................................... 50
-------
8.12 Stamp Duties...................................................... 51
------------
8.13 Expenses and Attorneys Fees....................................... 51
---------------------------
8.14 Severability...................................................... 52
------------
8.15 Dollars........................................................... 52
-------
ARTICLE IX
DEFINITIONS............................. 52
9.1 Definitions....................................................... 52
-----------
</TABLE>
iv
<PAGE>
Exhibits
--------
EXHIBIT A Allocation of Purchase Price
v
<PAGE>
ASIA STOCK PURCHASE AGREEMENT
This Asia Stock Purchase Agreement is entered into as of May 24, 1995,
between Parkway Holdings Limited, a Singapore corporation ("Buyer"), and
National Medical Enterprises, Inc., a Nevada corporation ("Seller").
R E C I T A L S
WHEREAS, Seller, directly and indirectly through its subsidiaries and
affiliates, owns and operates an international hospital, diagnostic, pathology,
radiology and related healthcare services business currently operating in
Singapore and Malaysia and holds interests in certain activities in Thailand
(such operations and interests, as currently conducted, are hereinafter referred
to as the "Business");
WHEREAS, the Business is conducted by Seller through NME Asia Pte
Ltd., a Singapore corporation ("NME Asia"), Pacific Medical Enterprises Sdn.
Berhad, a Malaysian corporation ("PME"), Subang Jaya Medical Centre Sdn Bhd, a
Malaysian corporation ("SJMC"), and Bumrungrad Medical Center Limited, a
Thailand corporation ("BMC" and together with NME Asia, (PME and SJMC, the
"Companies"), and the Subsidiaries of the Companies;
WHEREAS, Seller desires to sell, and Buyer desires to buy, the
Business; and
WHEREAS, pursuant to this Agreement, Seller desires to sell, and Buyer
desires to buy, all (or, with respect to Malaysia, all of Seller's interest in)
the outstanding capital stock of the Companies and, if Section 7.5(b) is
applicable, all of Seller's interest in the Thai Business (collectively, the
"Stock") for the consideration described herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and intending
to be legally bound the parties agree as follows (except as otherwise expressly
provided, all defined terms in this Agreement shall have the meanings assigned
to them in Article IX hereof):
<PAGE>
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1 SALE AND PURCHASE OF STOCK.
--------------------------
Subject to the terms and conditions of this Agreement, Seller agrees
to, or to cause each Seller Entity to, sell the Stock and convey, transfer,
assign and deliver the certificates evidencing the Stock to Buyer at the
Closing, and Buyer agrees to purchase the Stock from Seller. Section 1.1 of the
Disclosure Schedule sets forth each of the Seller Entities and the Stock owned
thereby. The certificates will be accompanied by a board resolution of the
applicable Company irrevocably approving the registration and transfer in favor
of the Buyer subject to the transfer being duly stamped, and properly endorsed
for transfer to or accompanied by a duly executed stock power or transfer form
in favor of Buyer or its nominee as Buyer may have directed prior to the Closing
Date and otherwise in a form acceptable for transfer on the books of the Company
in which they evidence an interest.
1.2 PURCHASE PRICE.
--------------
Subject to the terms and conditions of this Agreement, Buyer agrees to
pay to Seller or its order at the Closing in exchange for the Stock an amount
equal to (i) U.S.$352,000,000 less (ii) the U.S. dollar amount determined by
converting S$120,000,000 (which represents the amount of indebtedness of the
Business at February 28, 1995) less S$10,627,340 and MR1,429,792 (which
represents cash and cash equivalents of the Business at February 28, 1995) into
U.S. dollars at the average of the Singapore Dollar/U.S. Dollar and Malaysian
Ringgit/U.S. Dollar exchange rates published in the "Currency Rates in New York"
section of the Asian Wall Street Journal for the ten business day period ending
two business days prior to the Closing Date (the "Purchase Price"); provided,
however, that the Purchase Price may be adjusted or partially paid in accordance
with Sections 1.6, 1.7, 4.11 and 7.5 hereof. The Purchase Price shall be paid
in cash (in funds immediately available in Hong Kong). The Purchase Price shall
be allocated among the Stock of each Company and certain Subsidiaries as set
forth in Exhibit A.
1.3 THE CLOSING.
-----------
(a) The Closing shall take place at the offices of O'Melveny & Myers
in Hong Kong, on the later of June 29, 1995 and the tenth business day
after the satisfaction of the conditions specified in Sections 6.1(b),
6.2(c) and 6.3(b), or at such other place or on such other date as Seller
and Buyer may agree, subject to Section 1.3(b). The parties shall use
their reasonable best efforts to effectuate the Closing by June 29, 1995.
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(b) In the event that pursuant to Section 7.5, the Closings in
respect of the Malaysian Business and the Thai Business do not occur
concurrently with the Closing in respect of the Core Business, the Closing
in respect of either the Malaysian Business or the Thai Business, as the
case may be, shall thereafter take place at the offices of O'Melveny &
Myers in Hong Kong on the fifth business day after the satisfaction of the
conditions specified in Sections 6.1(b), 6.2(c) and 6.3(b) (insofar as such
conditions relate to the Malaysian Business or the Thai Business, as the
case may be ), or at such other place or on such other date as Seller and
Buyer may agree.
1.4 MISCELLANEOUS ASSETS.
--------------------
At the Closing, Seller shall convey or shall cause the Seller Entities
to convey to Buyer or Buyer's designee all assets owned by Seller or any of its
Affiliates (other than the Companies or the Subsidiaries) used in the Business
at no additional consideration, including the assets set forth in Section 1.4 of
the Disclosure Schedule, other than the assets identified in Section 2.1 (III)
of the Disclosure Schedule. In connection with the sale of the Malaysian
Business, Seller shall convey or shall cause the Seller Entities to convey to
Buyer or Buyer's designee all of Seller's or the Seller Entity's rights to
receive from Subang Jaya Medical Centre the principal amount of MR13,090,640 and
all of its other rights in respect thereof. In connection with the sale of the
Thai Business, Seller shall convey or shall cause the Seller Entities to convey
to Buyer the Thai Promissory Note and any other instrument or instruments
evidencing any rights of the Seller Entities in the Thai Business. The sale,
conveyance, transfer, assignment and delivery by the Seller Entities to Buyer
shall be effected on the Closing Date by such deeds, bills of sale,
endorsements, stock powers, transfer forms, assignments and other instruments of
transfer and conveyance as are reasonably satisfactory in form and substance to
counsel for Buyer (the "Conveyancing Documents").
1.5 RELEASE AND WAIVER.
------------------
Except as expressly provided for in this Agreement or as set forth in
Section 1.5 of the Disclosure Schedule, the Closing shall constitute an
unconditional release and waiver by Seller and its subsidiaries and Affiliates
(other than the Companies and the Subsidiaries) of, and Seller thereby covenants
to cause its subsidiaries and Affiliates to unconditionally release and waive,
any and all claims it or any of its subsidiaries or Affiliates may have against
or with respect to any of the Companies, the Subsidiaries or any other assets
constituting part of the Business or described in Section 1.4 hereof.
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1.6 TRANSFER OF ASSETS.
------------------
Prior to the Closing, Seller shall cause International-NME, Inc.
("International-NME"), a California corporation and a wholly owned subsidiary of
Seller, to transfer to NME Asia all of its 19.46% interest in the outstanding
capital stock of Mount Elizabeth Healthcare Holdings Ltd., a Singapore
corporation, as set forth in Section 2.1 of the Disclosure Schedule. In
consideration of the foregoing, NME Asia shall transfer the Thai Business
(including the Promissory Note, dated July 22, 1993, in the principal amount of
U.S. $8,900,000 payable on demand by BMC to NME Asia (the "Thai Promissory
Note")) to International-NME. The portion of the Purchase Price allocated to the
Core Business will be reduced by the amount of any loans or other contributions
made by NME Asia or any of its Subsidiaries to the Thai Business after February
28, 1995 in excess of S$1,601,040, translated into U.S. Dollars in the manner
set forth in Section 1.2 (the "Reduction Amount"). The Reduction Amount will be
added to the portion of the Purchase Price allocated to the Thai Business.
1.7 DEPOSIT.
-------
On or prior to the close of business in Los Angeles on May 30, 1995,
Buyer shall cause to be wire transferred to an interest bearing account of
Seller designated by Seller to Buyer, U.S. $5,000,000 (the "Deposit"). If the
Closing with respect to the Core Business does not occur on or prior to July 31,
1995 solely as a result of the failure of the condition set forth in Section
6.3(c), the Deposit shall be forfeited and Buyer shall have no further right or
interest with respect thereto. If the Closing with respect to the Core Business
occurs on or prior to July 31, 1995, the amount of the Deposit, together with
all accrued and unpaid interest thereon, shall be applied in full against the
Purchase Price. If the Closing with respect to the Core Business does not occur
for any reason other than the failure to satisfy the condition set forth in
Section 6.3(c)(even if the condition set forth in Section 6.3(c) has not been
satisfied), the Deposit, together with all accrued and unpaid interest thereon,
will be returned by Seller to Buyer within two (2) business days after the
earlier of August 1, 1995 and the termination of this Agreement with respect to
the Core Business pursuant to Section 7.1. Seller should not be permitted to,
and hereby waives, any right to exercise or claim any right of set-off,
recoupment counterclaim or any similar right with respect to the Deposit or any
of the accrued and unpaid interest thereon. Seller will place the Deposit in an
interest-bearing account with Bank of America in Los Angeles and the Deposit
shall thereafter accrue interest at the rate provided for such account.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller has invited Buyer to perform and Buyer has performed due
diligence and business investigations with respect to each Company and
Subsidiary (other than the Malaysian Business), with the intention that Buyer
form its own conclusions regarding the condition and value of the Business
pursuant to the parties' express intention that the sale of the Business be
without representation or warranty by Seller, express or implied, except as set
forth in this Agreement and the Disclosure Schedule, which representations and
warranties Seller acknowledges Buyer is relying upon in entering into this
Agreement. Seller represents and warrants to Buyer as follows:
2.1 COMPANIES AND SUBSIDIARIES; ORGANIZATION AND RELATED MATTERS.
------------------------------------------------------------
Section 2.1 of the Disclosure Schedule lists all Companies and all
Subsidiaries of each Company and correctly sets forth the capitalization of each
Company and Subsidiary, the jurisdiction in which each Company and each
Subsidiary is organized and each jurisdiction in which each Company and
Subsidiary is qualified or licensed to do business as a foreign person. Each
Seller Entity and each Company and its Subsidiaries are corporations duly
organized and validly existing under the respective laws of the jurisdiction of
their incorporation or organization. Each Seller Entity has all necessary
corporate power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated by this Agreement. Each Company and
its Subsidiaries have all necessary corporate power and authority to own or
lease their respective properties and assets and to carry on their respective
businesses as now conducted and, in the case of BMC, as the Thai Business is
contemplated to be conducted. Section 2.1 of the Disclosure Schedule correctly
lists the current directors and executive officers of each Company and
Subsidiary. Copies of the respective charter documents of each Company and
Subsidiary, which have been delivered to Buyer, are true, correct and complete.
The Companies and their respective Subsidiaries constitute all the entities
through which Seller conducts the Business, and, except as set forth in Sections
1.4 or 2.1 of the Disclosure Schedule, the assets and properties owned or leased
by the Companies and their respective Subsidiaries constitute all the material
assets, properties and rights used by Seller and its subsidiaries and Affiliates
in connection with the conduct of the Business.
2.2 STOCK.
-----
(a) Except as described in Section 2.1 of the Disclosure Schedule,
Seller owns through one or more Seller Entities all of the outstanding
Equity Securities of each
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Company beneficially and of record. Except as described in Section 2.1 of
the Disclosure Schedule, each Company owns directly or indirectly through
its Subsidiaries all of the outstanding Equity Securities of each of its
Subsidiaries, beneficially and of record. Except as described in Section
2.2 of the Disclosure Schedule, all of such Equity Securities of the
Companies and the Subsidiaries are owned free and clear of any Encumbrance.
At the Closing, Buyer will acquire good and valid title to and complete
ownership of the Stock, with all rights attaching thereto as of the Closing
Date, free and clear of any Encumbrance. The authorized, issued and
outstanding capital stock of each Company and Subsidiary is described in
Section 2.1 of the Disclosure Schedule. Except as described in Section 2.2
of the Disclosure Schedule, there are no outstanding Contracts or other
rights to subscribe for or purchase, or Contracts or other obligations to
issue or grant any rights to acquire, any Equity Securities of any Company
or Subsidiary, or to restructure or recapitalize any Company or Subsidiary.
Other than this Agreement and except as set forth in Sections 2.2 or 2.8 of
the Disclosure Schedule, neither the Stock nor the Equity Securities of any
Subsidiary owned by any of the Companies or any Subsidiary is subject to
any voting trust agreement or other Contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the
voting, dividend rights or disposition thereof.
(b) Except as set forth in Section 2.2 of the Disclosure Schedule, no
Company or Subsidiary directly or indirectly owns any Equity Securities of
any Person and no Company or Subsidiary is a member of or participant in
any partnership, joint venture or similar Person, including, to the
knowledge of Seller, all joint ventures entered into with doctors in the
ordinary course of Business (other than passive investment holdings in
amounts not material in the aggregate and other than Equity Securities of
Subsidiaries or other Subsidiaries).
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
--------------------------------------------
(a) Seller has delivered to Buyer a consolidated balance sheet for
the Business at each of May 31, 1994 and 1993 and the related consolidated
statements of operations, changes in owner's equity and changes in
financial position or cash flow (including the notes thereto and the
consolidating schedules) for the periods ended May 31, 1994, 1993 and 1992,
a true and correct copy of each of which has been provided to Buyer by
Seller. All such financial statements have been audited by the Auditors
whose reports thereon are included with such financial statements. Such
statements of operations and cash flow present fairly in all
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material respects the results of operations and cash flows of the Business
for the respective periods covered, and the balance sheets present fairly
in all material respects the financial condition of the Business as of
their respective dates, in all cases in conformity with GAAP applied on a
consistent basis (except for changes, if any, required by GAAP and
disclosed therein).
(b) Seller has delivered to Buyer a consolidated balance sheet for the
Business at each of February 28, 1995 (the "Balance Sheet") and 1994, and
the related consolidated statements of operations, changes in owner's
equity and changes in financial position or cash flow for the periods then
ended; a true and correct copy of each of which has been provided to Buyer.
Such statements of operations and cash flows present fairly in all material
respects the results of operations and cash flows of the Business for the
respective periods covered, and the balance sheets present fairly in all
material respects the financial condition of the Business as of their
respective dates, in all cases in conformity with GAAP applied on a
consistent basis as applied in the audited financial statements referred to
in Section 2.3(a), except for changes, if any, required by GAAP and
disclosed therein (except for the absence of notes and normal recurring
year-end adjustments).
(c) Except as described in Section 2.3 of the Disclosure Schedule,
since February 28, 1995, whether or not in the ordinary course of business,
there has not been, occurred or arisen:
(i) any change in or event or a series of connected events
affecting the Business that has had or is reasonably expected to have
an impact of $250,000 individually or $750,000 in the aggregate with
all other such changes, events or series of events or otherwise has
had or is reasonably expected to have a Material Adverse Effect,
except for changes reflected in the financial statements referred to
in this Section 2.3 and changes affecting generally the Singapore,
Thailand or Malaysia health care industry, each as a whole (it being
understood that Buyer assumes the risks of changes of such type);
(ii) any casualty, loss, damage or destruction of any property
of any Company or Subsidiary or that has involved a loss to any
Company or Subsidiary that has had or is reasonably expected to have
an impact in excess of $250,000 individually or $750,000 in the
aggregate with all other such casualties, losses, damages or
destruction, or otherwise has had or is reasonably expected to have a
Material Adverse Effect; or
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(iii) any of the events described in Section 4.3 hereof.
(d) Except as set forth in Section 2.3 of the Disclosure Schedule,
none of the Companies or Subsidiaries has any liability or obligation of
any nature (whether known or unknown, absolute, accrued, contingent or
otherwise) or has engaged in other types of financing transactions that
would have or would reasonably be expected to have an impact of $250,000
individually or $750,000 in the aggregate with all other such liabilities
or obligations or otherwise has had or is reasonably expected to have a
Material Adverse Effect, other than (i) as disclosed, reflected or reserved
against in the financial statements referred to in this Section 2.3 and the
notes thereto and (ii) liabilities and obligations incurred in the ordinary
course of business consistent with past practices since the date of the
Balance Sheet and not in violation of this Agreement.
2.4 TAX MATTERS.
-----------
(a) Except as set forth in Section 2.4 of the Disclosure Schedule, as
of the Closing Date (i) each Company and each Subsidiary has timely filed
(or, where permitted or required, its respective direct or indirect parents
have timely filed) all material required Tax Returns, (ii) each such Tax
Return correctly sets forth the Tax liability required to be set forth
therein (other than Taxes contested in good faith) and is otherwise true
and correct in all material respects; (iii) all Taxes shown to be due on
the Tax Returns referred to in clause (i) have been timely paid in full,
other than Taxes contested in good faith, (iv) except with respect to BMC
and SJMC, no material tax liens have been filed with respect to Taxes of
any of the Companies or any Subsidiary; (v) no Governmental Entity has,
during the past three years, examined or is in the process of examining any
Tax Returns of any Company or Subsidiary, and (vi) no Governmental Entity
has proposed in writing any deficiency, assessment or claim for Taxes of
any Company or Subsidiary.
(b) Except as set forth in Section 2.4 of the Disclosure Schedule,
during the period from March 1, 1995 through the Closing Date (the "Interim
Period"), none of the Companies or Subsidiaries will have (i) engaged in
any transaction, other than in the ordinary course of business, that will
cause the effective Tax rate of the Companies and the Subsidiaries for
Taxes for the Interim Period to be materially greater than the effective
Tax rate of the Companies and the Subsidiaries for Taxes for the year ended
May 31, 1994 as adjusted for changes in Tax law and other events beyond the
control of Seller or (ii) made or changed any election, changed any annual
accounting period, or
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adopted or changed any accounting method that would have the effect of
increasing the Tax liability of any Company or Subsidiary.
2.5 MATERIAL CONTRACTS.
------------------
Except as set forth in Section 2.5 of the Disclosure Schedule, no
Company or Subsidiary is a party to or bound by any Contract which is an:
(i) employment agreement, employment contract or consultancy or other
similar service agreement;
(ii) employee collective bargaining agreement or other contract with
any labor union;
(iii) agreement or covenant of any Company or Subsidiary not to
compete or other covenant of any Company or Subsidiary restricting the
development, manufacture, marketing or distribution of the products and
services of the Business, which in each case is material in respect of any
portion of the Territory;
(iv) agreement, contract or other arrangement (including management
agreements) with (A) Seller or any Affiliate of Seller (other than any
Company or Subsidiary) or (B) any current or former officer, director or
employee of Seller, any Company, any Subsidiary or any Affiliate of Seller
(other than employment agreements covered by clause (i) above);
(v) lease, sublease or similar agreement with any Person under which
any Company or Subsidiary is a lessor or sublessor of, or makes available
for use to any Person (other than any other Company or Subsidiary), a
portion of the real property assets of such Company or Subsidiary (other
than real property leases with doctors or clinics entered into in the
ordinary course of the Business consistent with past practices);
(vi) agreement, contract or other instrument under which any Company
or Subsidiary has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any Person (other than a
Company or a Subsidiary) or any other note, bond, debenture or other
evidence of indebtedness issued to any Person (other than a Company or a
Subsidiary) which individually is in excess of $250,000 or in the aggregate
are in the excess of $750,000;
(vii) agreement, contract or other instrument (including so-called
keepwell agreements, letters of comfort or letters of moral intent) under
which (A) any Person (including any Company or Subsidiary) has directly or
indirectly guaranteed
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indebtedness, liabilities or obligations of the Business or any Company or
its Subsidiaries or (B) any Company or its Subsidiaries has directly or
indirectly guaranteed indebtedness, liabilities or obligations of any
Person (in each case other than endorsements for the purpose of collection
in the ordinary course of business), which individually is in excess of
$250,000 or in the aggregate are in the excess of $750,000;
(viii) agreement, memorandum of understanding, letter of intent,
contract or other instrument under which any Company or Subsidiary has made
or will make, directly or indirectly, any advance, loan, extension of
credit or capital contribution to, or other investment in, any Person
(other than to doctors in the ordinary course of business consistent with
past practice which do not exceed in the aggregate S$500,000), which
individually is in excess of $250,000 or in the aggregate are in the excess
of $750,000;
(ix) material mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other Encumbrance upon any of the
Company Real Properties;
(x) powers of attorney (other than powers of attorney given to
officers or other representatives of the Companies or Subsidiaries in the
ordinary course of the Business with respect to routine tax, securities and
shareholder matters);
(xi) letter of intent, memorandum of understanding or agreement to
acquire or develop any hospital or other medical-related property or
business;
(xii) any agreement or Contract relating to the trading, hedging,
exchange or sale or purchase of securities, indices, currencies, interest
rates, futures or any financial or derivative instruments of any nature
whatsoever; or
(xiii) other agreement, contract, lease, license, commitment or
instrument to which any Company or Subsidiary is a party or by or to which
it or any of its assets or business is bound or subject which has an
aggregate future liability to any Person or Persons in excess of
U.S.$250,000.
Except as set forth in Section 2.5 of the Disclosure Schedule, each Contract of
any Company or Subsidiary listed in the Disclosure Schedule is valid, binding
and in full force and effect and is enforceable, as applicable, by the relevant
Company or Subsidiary and, to the knowledge of Seller, each of the other parties
to the Contract in accordance with its terms. Except as set forth in Section
2.5 of the Disclosure Schedule, each relevant Company or Subsidiary has
performed all obligations
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required to be performed by it to date under the Contracts and no Company or
Subsidiary or, to the knowledge of Seller, any other party to any of the
Contracts (with or without the lapse of time or the giving of notice, or both)
is in breach or default thereunder, except where such failure to perform or
breach has not and would not reasonably be expected to result in a liability to
any Company or Subsidiary individually in excess of $250,000 and $750,000 in the
aggregate together with all such other failures or has not had and would not
otherwise be expected to have a Material Adverse Effect.
2.6 REAL PROPERTY.
-------------
(a) Section 2.6 of the Disclosure Schedule sets forth a complete
and accurate description of the real immovable property owned in fee simple
by each Company and each Subsidiary (the "Owned Real Property") and a
complete list of all real property and interests in real property leased by
each Company and each Subsidiary (the "Leased Real Property").
(b) Each Company and each Subsidiary has (i) good and valid fee title
to all Owned Real Property and (ii) good and valid title to the leasehold
estates in all Leased Property (an Owned Real Property or Leased Real
Property being sometimes referred to herein, collectively, as "Company Real
Properties"), in each case free and clear of all Encumbrances, leases,
assignments, subleases, easements, covenants, rights-of-way and other
similar restrictions of any nature whatsoever, except (A) such as are set
forth in Section 2.6 of the Disclosure Schedule; (B) leases, subleases and
similar agreements set forth in Section 2.5 of the Disclosure Schedule or
not required to be disclosed therein; and (C) Permitted Encumbrances.
Except as set forth in Sections 2.3(II) and 2.6 of the Disclosure Schedule,
the Company Real Properties have been maintained in all material respects
in accordance with the past practices of the Business and consistent with
industry practice and are in good operating condition and repair, ordinary
wear and tear excepted. The current use by the Companies and the
Subsidiaries of the plants, offices and other facilities located on Company
Real Property does not constitute a material violation of any material
local zoning or similar land use or government regulations. Each Company
and each Subsidiary has all necessary material Approvals and Permits that
are required to be obtained by it as of the date of this Agreement for any
development or building projects currently in process.
2.7 ASSETS OTHER THAN REAL PROPERTY.
-------------------------------
Each Company and each Subsidiary has good and valid title to all (a)
its assets reflected on the Balance Sheet and
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(b) its assets thereafter acquired, which in each case are material to the
Business, except those sold or otherwise disposed of since the date of the
Balance Sheet in the ordinary course of business consistent with past practice
and not in violation of this Agreement, in each case free and clear of all
Encumbrances except (i) such as are set forth in Section 2.7 of the Disclosure
Schedule and (ii) Permitted Encumbrances.
All the tangible personal property of each Company and each Subsidiary
that is material to the Business has been maintained in all material respects in
accordance with the past practices of the Business and consistent with industry
practice. The tangible personal property of each Company and each Subsidiary is
in good operating condition and repair, ordinary wear and tear excepted,
consistent with industry practice. All leased personal property of each Company
and each Subsidiary is in all material respects in the condition required of
such property by the terms of the lease applicable thereto during the term of
the lease and upon the expiration thereof.
This Section 2.7 does not relate to Company Real Property or interests
therein, such items being the subject of Section 2.6.
2.8 AUTHORIZATION; NO CONFLICTS.
---------------------------
The execution and delivery of this Agreement by Seller and the
performance of this Agreement by each Seller Entity and the consummation of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of each Seller Entity.
This Agreement constitutes the legally valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally. The execution, delivery and, upon receipt
of the Permits and Approvals listed in Sections 2.8(II) and 6.1(III) of the
Disclosure Schedule, performance of this Agreement by Seller and each Seller
Entity will not (i) violate, or constitute a breach or default under the charter
documents or by-laws of any Seller Entity, Company or Subsidiary or (ii)
violate, or constitute a material breach or material default or result in the
acceleration of or permit the acceleration of any material obligation (whether
upon lapse of time and/or the occurrence of any act or event or otherwise)
under, any material Contract of any of such entities, or cause or give rise to a
right of termination of or adverse change in the terms of any material Contract,
or result in the imposition of any material Encumbrance against any asset or
properties of any Company or Subsidiary, or violate any Law or any material
Permit or material Approval or cause any material Permit or material Approval to
be revoked, withdrawn or modified. Section 2.8 of the Disclosure Schedule
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lists all material Permits and Approvals in connection with the operation of the
Business as presently conducted, and such Permits and Approvals constitute all
the material Permits and Approvals necessary to conduct the Business. Sections
6.1 and 2.8 (II) of the Disclosure Schedule lists all material Permits and
Approvals that are required to be obtained by any Seller Entity or any Company
or Subsidiary, or filings or registrations with any third party or Governmental
Entity required for any Seller Entity or any Company or Subsidiary, to
consummate the transactions contemplated by this Agreement.
2.9 LEGAL PROCEEDINGS.
-----------------
Except as set forth in Section 2.9 of the Disclosure Schedule, there
is no Order or Action pending, or, to the best knowledge of Seller, threatened,
against or affecting any Company or Subsidiary or any of their respective
properties or assets that has resulted or is reasonably expected to result in a
liability in excess of $250,000 individually or $750,000 in the aggregate
together with all other such Orders or Actions, or that has had or is reasonably
expected to have, individually or in the aggregate together with all other such
Orders and Actions, a Material Adverse Effect.
Section 2.9 of the Disclosure Schedule sets forth a list of all Orders
and Actions pending or, to the best knowledge of Seller, threatened against any
Company or Subsidiary (i) brought by any Government Entity, (ii) in which money
damages in excess of $250,000 individually or $750,000 in the aggregate with all
such other Orders and Actions are sought against any Company or any Subsidiary
or (iii) seeking injunctive relief against any Company or Subsidiary that could
reasonably be expected to result in a Material Adverse Effect.
2.10 DIVIDENDS AND OTHER DISTRIBUTIONS.
---------------------------------
Except as described in Section 2.10 of the Disclosure Schedule, there
has been no dividend or other distribution of assets, whether consisting of
money, securities, property or any other thing of value, declared, issued, paid,
made or set aside by any Company or Subsidiary subsequent to the date of the
Balance Sheet.
2.11 INSURANCE.
---------
Section 2.11 of the Disclosure Schedule lists all insurance policies
and bonds that are maintained by or for the benefit of the Companies and the
Subsidiaries in connection with, and which are material to, the Business. All
such policies and bonds are in full force and effect and, to the best knowledge
of Seller, there is no threat by any of the insurers to terminate or not renew,
or materially increase the premiums payable under, any of such policies or
bonds. Except as set forth in Section 2.11
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of the Disclosure Schedule, all insurance policies maintained for the benefit of
the Business, the Companies and the Subsidiaries or their respective employees
are maintained directly by the Companies and/or the Subsidiaries and not by
Seller or any of Seller's other subsidiaries. Except as set forth in Section
2.11 of the Disclosure Schedule, all such insurance policies will remain in full
force and effect from and after, and will not be modified or amended as a result
of, the Closing.
2.12 COMPLIANCE WITH LAW.
-------------------
Each Company and each Subsidiary has conducted its respective business
in all material respects in accordance with applicable Laws. The procedures and
practices of each Company and its Subsidiaries are in compliance in all material
respects with all such Laws. To the best knowledge of Seller, no suspension,
cancellation or termination of any Permits or Approvals required by any
Governmental Entity to permit the Business to be conducted as it is currently
conducted is threatened or imminent that could reasonably be expected to be
material to the Business.
2.13 ENVIRONMENTAL MATTERS.
---------------------
(a) Each Company and each Subsidiary has obtained and maintained
in effect all material licenses, Permits, Approvals and other
authorizations required under all applicable Laws of all applicable
Governmental Entities or regulatory authorities relating to pollution, the
disposition, storage or handling of medical waste, radioactive material or
other materials which are classified under such Laws as harmful to the
environment or to human health ("Hazardous Substance"), or to the
protection of the environment ("Environmental Laws") and is in compliance
in all material respects with all Environmental Laws and with all such
licenses, Permits, Approvals and authorizations.
(b) The properties presently or formerly owned or operated by
any of the Companies or Subsidiaries (including without limitation, soil,
groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) (the "Properties") do not contain any Hazardous
Substance other than as permitted under any applicable Environmental Law
(provided, however, that with respect to Properties formerly owned or
operated by any of the Companies or Subsidiaries, such representation is
limited to actions taken by any of the Companies or Subsidiaries during the
period the Companies or the Subsidiaries owned or operated such
Properties).
(c) None of the Companies or Subsidiaries has incurred, and, to
the knowledge of Seller, none of the Properties are presently subject to,
any material
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liabilities (fixed or contingent) or clean-up obligations relating to
Hazardous Substances or Environmental Laws.
2.14 INTELLECTUAL PROPERTY.
---------------------
Except as set forth in Section 2.14 of the Disclosure Schedule, each
Company and Subsidiary has all necessary rights to and in all material patents,
trademarks (registered or unregistered), trade names, service marks and
copyrights ("Intellectual Property") owned, used, filed by or licensed to such
Company or Subsidiary in connection with the Business. Section 2.14 of the
Disclosure Schedule sets forth a list of all jurisdictions in which registered
trademarks are registered or applied for and all registration and application
numbers. Except as set forth in Section 2.14 of the Disclosure Schedule, Seller
does not know, and has received no notice, of any conflict with the asserted
rights of others with respect to any Intellectual Property except where such
conflict would not be material to the Business.
2.15 BENEFIT PLANS.
-------------
(a) Section 2.15 of the Disclosure Schedule contains a list of all
retirement, pension, profit sharing, trust fund, bonus, stock option or
other equity-based compensation, stock purchase, severance, deferred
compensation, central provident fund, skills development fund and other
employee fringe benefit plans (all the foregoing being herein called
"Benefit Plans") maintained, or contributed to, by Seller, any Company or
any Subsidiary for the benefit, or on the account, of any officers or
employees of any Company or Subsidiary. Seller has delivered to Buyer
true, complete and correct copies of (i) each Benefit Plan (or, in the case
of any unwritten Benefit Plans, descriptions thereof), (ii) the most recent
summary plan description for each Benefit Plan for which a summary plan
description is required and (iii) each trust agreement and group annuity
contract relating to any Benefit Plan. Except as set forth in Section 2.15
of the Disclosure Schedule, none of Seller and its subsidiaries (other than
any Company or Subsidiary) maintains any Benefit Plan with, or for the
benefit of, any officer or employee of any Company or any Subsidiary,
including any employee referred to in Section 5.6. Except as set forth in
Section 2.15 of the Disclosure Schedule, none of the Benefit Plans are
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). None of the Companies nor any of the
Subsidiaries has or will have any obligation or liability of any kind with
respect to any of the Benefit Plans which are or may be subject to ERISA
set forth in Section 2.15 of the Disclosure Schedule.
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(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms. All the Benefit Plans are in compliance in
all material respects with the applicable provisions of applicable Law.
Furthermore, each Company and Subsidiary is in compliance in all material
respects with the applicable laws, regulations and provisions contained in
each of its collective bargaining agreements. Except as set forth in
Section 2.15 of the Disclosure Schedule, all payments and deductions from
wages, material reports, returns and similar documents with respect to the
Benefit Plans required to be filed with or paid to any Governmental Entity
or Benefit Plan or distributed to any Benefit Plan participant have been
duly and timely filed, distributed or paid. Except as set forth in Section
2.15 of the Disclosure Schedule, there is no pending or, to the knowledge
of Seller, threatened litigation by any employee or former employee of the
Business relating to any Benefit Plan, other than routine claims for
benefits.
2.16 EMPLOYEE AND LABOR MATTERS.
--------------------------
Except as set forth in Section 2.16 of the Disclosure Schedule, (i)
there is, and during the past two years there has been, no labor strike,
dispute, work stoppage or lockout pending, or, to the knowledge of Seller,
threatened, against or affecting any Company or Subsidiary; (ii) to the
knowledge of Seller, no union organizational campaign is in progress with
respect to the employees of any Company or Subsidiary and no question concerning
representation exists respecting such employees; (iii) there is no unfair labor
practice charge or complaint against any Company or Subsidiary pending, or, to
the knowledge of Seller, threatened, before any Governmental Entity; (iv) there
are no pending, or, to the knowledge of Seller, threatened, union grievances
against the Company or a Subsidiary which are reasonably likely to have a
Material Adverse Effect; and (v) none of Seller, any Company or any Subsidiary
has received notice during the past two years of the intent of any Governmental
Entity responsible for the enforcement of labor or employment laws to conduct an
investigation of any Company or any Subsidiary and, to the knowledge of Seller,
no such investigation is in progress.
2.17 CERTAIN INTERESTS.
-----------------
(a) Except as set forth in Section 2.17 of the Disclosure Schedule,
after the Closing neither Seller nor any Affiliate thereof, nor any officer
or director of any thereof will have any interest in any property of the
Business; and no Company or Subsidiary will be indebted to or otherwise
obligated to any such Person, except for amounts due under normal
arrangements applicable to all employees generally as to salary or
reimbursement of
16
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ordinary business expenses not unusual in amount or significance.
(b) Except as set forth in Section 2.17 of the Disclosure Schedule,
after the Closing none of the agreements, contracts or other arrangements
set forth in Section 2.5 of the Disclosure Schedule between any Company or
Subsidiary, on the one hand, and Seller or any of its Affiliates, on the
other hand, will continue in effect, and there will remain thereafter no
outstanding obligation or liability in respect of any such agreement,
contract or other arrangement.
2.18 BANK ACCOUNTS, POWERS, ETC.
---------------------------
Section 2.18 of the Disclosure Schedule lists each bank, trust
company, savings institution, brokerage firm, mutual fund or other financial
institution with which any Company or Subsidiary has an account or safe deposit
box and the names and identification of all Persons authorized to draw thereon
or to have access thereto.
2.19 NO BROKERS OR FINDERS.
---------------------
Except as set forth in Section 2.19 of the Disclosure Schedule, no
agent, broker, finder, or investment or commercial banker, or other Person or
firm (collectively, "Investment Bankers") engaged by or acting on behalf of
Seller, any Company or Subsidiary or any of their respective Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of this
Agreement or such transactions.
2.20 TRUE AND COMPLETE COPIES OF DOCUMENTS.
-------------------------------------
Copies of all leases, insurance policies, agreements, contracts and
other documents and instruments which are listed or referred to on the
Disclosure Schedule and which have been delivered to, or made available for
inspection by, Buyer are true and complete in all respects. Such documents,
together with this Agreement and all certificates, exhibits, schedules and other
instruments furnished by or on behalf of Seller pursuant to this Agreement,
taken as a whole, do not as of the date hereof, and will not as of the Closing
Date, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they are made, not
misleading, except where such misstatements or omissions reflect facts, events
or circumstances, or series of related facts, events or circumstances that would
not have and would not reasonably be expected to have a Material Adverse Effect.
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2.21 OVERHEAD EXPENSE.
----------------
The expense of overhead, comprising certain administrative,
logistical, legal and other services, provided by Seller to the Business since
February 28, 1995 that has been paid or accrued by the Companies and
Subsidiaries or that has otherwise been allocated to the Business (the "Overhead
Expense") does not in the aggregate exceed the amounts set forth in Section 2.21
of the Disclosure Schedule for the Business for the fiscal years ending May 31,
1995 and 1996, as prorated through the date of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 ORGANIZATION AND RELATED MATTERS.
--------------------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of Singapore. Buyer has all necessary corporate power
and authority to carry on its business as now being conducted. Buyer has the
necessary corporate power and authority to execute, deliver and perform this
Agreement and any transactions contemplated by this Agreement.
3.2 AUTHORIZATION.
-------------
The execution, delivery and performance of this Agreement by Buyer,
and the consummation by Buyer of the transactions contemplated under this
Agreement, have been duly and validly authorized by the Board of Directors of
Buyer and by all other necessary corporate action on the part of Buyer. This
Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting creditors' rights
generally.
3.3 NO CONFLICTS; CONSENTS AND APPROVALS.
------------------------------------
The execution, delivery and performance of this Agreement by Buyer
will not (a) violate or constitute a breach or default under the charter
documents or by-laws of Buyer or (b) violate or constitute a breach or default
(whether upon lapse of time and/or the occurrence or any act or event or
otherwise) under (i) any Law to which Buyer is subject or (ii) any Contract to
which Buyer is a party, except (in the case of clause (b)) as is not reasonably
be expected to materially and adversely affect the ability of Buyer to
consummate the transactions contemplated by, or perform its obligations under,
this Agreement. Sections
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6.1 (I) and (II) and 3.3 of the Disclosure Schedule lists all material Permits
and Approvals which are required to be obtained by Buyer, or filings or
registrations with any third party or Governmental Entity required for Buyer to
consummate the transactions contemplated by this Agreement.
3.4 NO BROKERS OR FINDERS.
---------------------
Except as set forth in Section 3.4 of the Disclosure Schedule, no
Investment Banker engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions.
3.5 LEGAL PROCEEDINGS.
-----------------
There is no Order or Action pending or, to the best knowledge of
Buyer, threatened, against or affecting Buyer that individually or when
aggregated with one or more other Actions has, or is reasonably be expected to,
materially and adversely effect Buyer's ability to consummate the transactions
contemplated by, or perform its obligations under, this Agreement.
3.6 INVESTMENT.
----------
Buyer is acquiring the Stock for Buyer's own account, or for the
account of Buyer and one or more of its Affiliates, for investment purposes only
and not with a view to or for sale in connection with the public distribution
thereof.
3.7 FUNDS AVAILABLE.
---------------
Buyer has sufficient cash, lines of credit, commitment letters or
other sources of available funds to enable it to make the payments contemplated
by Section 1.2.
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT
PRIOR TO CLOSING
4.1 ACCESS.
------
Subject to applicable laws and contractual confidentiality and privacy
obligations with respect to the Malaysian Business and Thai Business, as
modified by the letter dated, May 24, 1995 from Khun Chai Sophonpanich to Buyer,
and to the terms of the Letter Agreement, dated March 17, 1995 (the "Letter
Agreement"), entered into between Seller and Buyer, Seller shall cause each
Company and its Subsidiaries and the
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Seller Entities (but only with respect to the Business) to authorize and permit
Buyer, Buyer's Affiliates (subject to the execution of customary confidentiality
agreements) and their representatives (which term shall be deemed to include its
independent accountants, counsel, financial advisors, and bankers (including,
without limitation, potential lenders)) to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, to all
of their respective properties, books, records, board and shareholder minutes
(including agenda for meetings), accounts, ledgers, budgets, operating
instructions and procedures, Tax Returns (provided, however, that to the extent
that such Tax Returns are combined or consolidated returns, Buyer's access will
be limited to information pertaining to each Company and its Subsidiaries only)
and all other information with respect to the Business as Buyer may from time to
time request. Without limiting the foregoing, Seller agrees to provide Buyer
and its Affiliates and their representatives with such access, subject to the
terms of this Section 4.1, to the extent necessary in connection with any
proposed financings (including any public securities offering) by any of Buyer
and its Affiliates. Buyer agrees that it will with reasonable expedition inform
Seller prior to the Closing if Buyer has obtained knowledge that the covenants,
representations or warranties of Seller hereunder have been breached. For
purposes of the preceding sentence only, the knowledge of Buyer shall mean the
actual knowledge of Tony Tan Choon Keat, Managing Director, or Tan Kai Seng,
Finance Director, of Buyer or Dr. Lim Cheok Peng, Managing Director of
Gleneagles Hospital.
4.2 MATERIAL ADVERSE CHANGES.
------------------------
Seller will promptly notify Buyer of any event of which Seller obtains
knowledge which has had or might reasonably be expected to have a Material
Adverse Effect or which, if known as of the date hereof, would have been
required to be disclosed to Buyer, or which constitutes a breach of any
representation, warranty, obligation, covenant or undertaking under this
Agreement. For purposes of the preceding sentence only, the knowledge of Seller
shall mean the actual knowledge of Jeffrey C. Barbakow, Chief Executive Officer,
Maris Andersons, Senior Vice President and Treasurer, or T.P. McMullen, Vice
President of Seller.
4.3 CONDUCT OF BUSINESS.
-------------------
Except as set forth in Section 4.3 of the Disclosure Schedule or
otherwise expressly permitted by the terms of this Agreement, from the date
hereof to the Closing, Seller shall cause the Business (except that with respect
to the Malaysian Business and Thai Business, Seller shall use its reasonable
best efforts consistent with the operative documents of those joint ventures) to
be conducted in the ordinary course of business
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consistent with past practice (including with respect to advertising,
promotions, capital expenditures and inventory levels) and shall make all
reasonable best efforts consistent with past practices to preserve the
Business's structure and organization and its relationships with its customers,
doctors, employees, suppliers and others with whom the Companies and
Subsidiaries deal. Seller shall not, and shall not permit any Company or any
Subsidiary (except that with respect to the Malaysian Business and Thai
Business, Seller shall use its reasonable best efforts consistent with the
operative documents of those joint ventures) to, take any action that would, or
that could reasonably be expected to, cause Seller, any Company or any
Subsidiary to be in breach of any representations, warranties, covenants or
agreements contained in this Agreement or otherwise result in any of the
conditions to Closing not being satisfied.
In addition, between the date of this Agreement and the Closing Date,
except as set forth in Section 4.3 of the Disclosure Schedule or as specifically
contemplated by this Agreement, Seller covenants and agrees that no Company or
Subsidiary (except that with respect to the Malaysian Business and Thai
Business, Seller shall use its reasonable best efforts consistent with the
operative documents of those joint ventures) shall without the prior consent in
writing of Buyer:
(a) change or amend its charter documents or by-laws (or their
equivalents);
(b) declare, issue, make, pay or set aside any dividend or other
distribution of assets, whether consisting of money or property, to its
shareholders, or split, combine or reclassify any shares of its Equity
Securities;
(c) make any capital expenditures not contemplated in Seller's
capital expenditure budget delivered to Buyer prior to the date hereof;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for property not material in amount, (ii) in the
ordinary course of business consistent with past practice, or (iii) as
contemplated by this Agreement;
(e) redeem or otherwise acquire any shares of its Equity Securities
or issue any Equity Securities or any option, warrant or right relating
thereto or any securities convertible into or exchangeable for any shares
of Equity Securities;
(f) adopt or amend in any respect any Benefit Plan or collective
bargaining agreement, except as required by applicable Law or as may be
required under existing agreements and except with respect to Benefit Plans
which
21
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are not obligations of any of the Companies or any of the Subsidiaries and
which will not result in any obligation or liability of any kind whatsoever
to any Company or Subsidiary or the Business;
(g) grant to any executive officer or employee any increase in
compensation or benefits, including grant of any options, except as may be
required under existing agreements or applicable Law and except for any
increases for which Seller shall be solely obligated;
(h) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee, or issue any letters of comfort or letters of
moral intent or enter into any keepwell agreement or similar arrangement
relating to, any such liabilities, obligations or indebtedness, other than
borrowing under existing lines of credit in the ordinary course of business
consistent with past practice; provided that in no event shall any Company
--------
or any Subsidiary incur, assume or guarantee any long-term indebtedness for
borrowed money;
(i) permit, allow or suffer any of its assets to become subjected to
any mortgage, lien, security interest, encumbrance, easement, covenant,
right-of-way or other similar restriction of any nature whatsoever, except
immaterial items in the ordinary course of business consistent with past
practice;
(j) forgive any indebtedness or waive any claims or rights of value
other than in the ordinary course of business consistent with past practice
and in amounts that are not material in the aggregate;
(k) pay, loan or advance any amount to, or sell, transfer or lease
any of its assets to, or enter into any agreement or arrangement with,
Seller or any of its Affiliates (other than any Company or Subsidiary),
except cash management activities in the ordinary course of business
consistent with past practice;
(l) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(m) change any tax accounting method, principle or practice;
(n) acquire by merging or consolidating with, or by purchasing the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets (other than inventory in the ordinary
22
<PAGE>
course of business consistent with past practice) which are material,
individually or in the aggregate, to the Business;
(o) terminate or materially change any of the insurance policies
(other than insurance policies of Seller) as they existed on the date of
this Agreement;
(p) enter into any new service or employment agreement, or any
renewals thereof, with any employee except for agreements for which Seller
will be solely obligated and which will not result in any obligation or
liability of any kind whatsoever to any Company or Subsidiary or the
Business;
(q) allow or cause to lapse any right under any material Contract or
Intellectual Property or cause to expire any Approvals or Permits relating
to the Business;
(r) enter into any transaction other than on arm's length terms in
the ordinary course of business consistent with past practice, between any
of the Companies or Subsidiaries, on the one hand, and any director,
officer, stockholder or Affiliate thereof, on the other hand;
(s) otherwise enter into a transaction or a series of connected
transactions which would have, or is reasonably expected to have, a value
in excess of $100,000 or which would otherwise be reasonably expected to
have a Material Adverse Effect;
(t) pay Overhead Expense in the aggregate exceeding the amounts set
forth in Section 2.21 of the Disclosure Schedule for the Business for the
fiscal years ending May 31, 1995 and 1996, as prorated through the date of
the Closing; or
(u) agree, whether in writing or otherwise, to do any of the
foregoing.
4.4 PERMITS AND APPROVALS.
---------------------
Seller and Buyer each agrees to, and to cause its subsidiaries and
Affiliates to, cooperate and use its reasonable best efforts to obtain or
transfer, and will promptly prepare all registrations, filings and applications,
requests and notices preliminary to, all Approvals and Permits that may be
necessary to consummate the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, Seller and Buyer shall consult with
each other in advance regarding how to obtain or transfer, and shall cooperate
in obtaining or transferring, the Approvals and Permits referred to in Sections
2.8, 3.3 and 6.1 of the Disclosure Schedule. Seller and Buyer shall permit each
other to review and comment upon all such
23
<PAGE>
registrations, filings, applications, requests and notices prior to submitting
any of the foregoing.
4.5 CONFIDENTIALITY.
---------------
(a) In the event that the Closing occurs, Seller shall, and shall
cause its subsidiaries, Affiliates, directors, officers and representatives
to, keep confidential all information, documents and other materials
relating to the Business (whether or not any such information remains in
their possession), except to the extent that disclosure is required by
applicable Law or stock exchange rules. From and after the Closing, the
Letter Agreement (solely as it relates to the Business) shall terminate and
shall thereafter be null and void, and no party shall have any liability or
obligation thereunder. Unless and until the Closing occurs, the terms of
the Letter Agreement shall apply to the transaction contemplated by, and
all discussions and negotiations in connection with, this Agreement.
(b) In the event that pursuant to Section 7.5 the Closing in respect
of either the Malaysian Business or the Thai Business does not occur
concurrently with the Closing in respect of the Core Business, the first
sentence of clause (a) of this Section 4.5 shall apply only with respect to
those portions of the Business transferred at the Closing. Such clause (a)
shall apply to the portions of the Business thereafter remaining with
Seller when, if and to the extent such portions of the Business are
subsequently transferred to Buyer in separate Closings in accordance with
Section 7.5.
4.6 NO OTHER BIDS.
-------------
After the date of this Agreement, Seller shall not, nor shall it
authorize or permit any Seller Entity, Company or Subsidiary, or any officer,
director or employee of the foregoing, or any investment banker, attorney,
accountant or other representative retained by any of the foregoing to, (i)
solicit or encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a takeover proposal, or
agree to endorse any takeover proposal, (ii) to participate in any negotiations
regarding a takeover proposal or (iii) provide any non-public information
regarding the Business or the transactions contemplated hereby to any Person in
connection with a takeover proposal. Seller shall promptly advise Buyer of any
written takeover proposal received by it or any Seller Entity or any of their
representatives from any Person, other than a Person who has executed an
agreement similar to the Letter Agreement, and will provide Buyer with a copy of
such takeover proposal. As
24
<PAGE>
used in this Section, "takeover proposal" shall mean any proposal for a merger
or other business combination involving any Company or Subsidiary or any
proposal to acquire in any manner any Equity Securities or any significant
amount of assets of any Company or Subsidiary or of the Business, other than the
transactions contemplated by this Agreement or the right of first refusal
provisions of the agreements governing Seller's interest in the Malaysian
Business and Thai Business.
4.7 INSURANCE PROCEEDS.
------------------
If prior to any relevant Closing Date the Business shall suffer any
loss that is covered by insurance carried by any Seller or any of its Affiliates
(other than any Company or Subsidiary), Seller shall, or shall cause such
Affiliate to, make a claim under its insurance policy for recovery in respect of
such loss and to pursue such claim actively. If Seller or such Affiliate, as
the case may be, receives insurance proceeds in respect of such loss, Seller
shall, or cause such Affiliate to, remit promptly such proceeds to the
applicable Company or Subsidiary.
4.8 AMOUNTS DUE TO SELLER.
---------------------
The Companies and the Subsidiaries shall repay to Seller and its
Affiliates at the Closing in respect of the Core Business the liability set
forth in Section 4.8 of the Disclosure Schedule.
4.9 PROPRIETARY INFORMATION.
-----------------------
Prior to the Closing in respect of the Core Business, Seller shall
request the recovery, or shall request the destruction (and request written
notice of such destruction), of all Proprietary Information (as defined in the
Letter Agreement) made available to or otherwise in possession of any potential
acquirors or bidders relating to the Proposed Acquisition (as defined in the
Letter Agreement but only as it relates to the Business).
4.10 RELEASE OF GUARANTEES.
---------------------
Buyer agrees that it will use its reasonable best efforts to cause
Seller and each of its Affiliates (other than any Companies or Subsidiaries
acquired by Buyer) to be fully and unconditionally released, effective upon the
Closing of the Core Business or, as to the item listed in Section 4.10(II) of
the Disclosure Schedule, the Thai Business, by a document or documents in form
and substance reasonably satisfactory to Seller, from all its obligations and
liabilities, primary or contingent, to the lenders thereunder relating to its
guarantees or obligations relating to the indebtedness and other obligations
that are listed in Section 4.10 of the Disclosure Schedule.
25
<PAGE>
4.11 LOANS TO INTERNATIONAL-NME.
--------------------------
Prior to the Closing in respect of the Core Business, Mount Elizabeth
Hospital, Ltd. shall lend to International-NME the principal amount of up to
S$5,600,000 with interest at the rate of 3% per annum, to be evidenced by a
promissory note (the "First Note"). Prior to the Closing in respect of the Core
Business, Mount Elizabeth Hospital, Ltd. shall also lend to International-NME
any amounts in Singapore Dollars required by International-NME from time to time
to fund its capital contribution obligations to the Thai Business, such loan to
carry interest at the rate of 3% per annum and to be evidenced by a promissory
note (the "Second Note"). At the Closing of the Core Business, Buyer shall
assume all of International-NME's obligations and liabilities under each of the
First Note and the Second Note and Mount Elizabeth Hospital, Ltd. shall fully
and unconditionally release International-NME from all obligations and
liabilities relating to such notes. In consideration of the foregoing, the
portion of the Purchase Price allocated to the Core Business shall be reduced by
an amount equal to the sum of the aggregate amounts due under the First Note and
the Second Note on the Closing Date of the Core Business. Any conversion of
Singapore Dollars or Malaysian Ringgit to U.S. Dollars shall be made in the
manner set forth in Section 1.2.
ARTICLE V
ADDITIONAL CONTINUING COVENANTS AND INDEMNITIES
5.1 COOPERATION IN AUDITS.
---------------------
Subject to execution of customary confidentiality agreements, Buyer
will cause each Company and its Subsidiaries to cooperate in all reasonable
respects during normal business hours and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, in an
audit, at Seller's cost, by Seller's independent accountants of the financial
statements of each Company and its Subsidiaries through periods ending on or
prior to the fiscal year of Seller first ending on or after the Closing Date
(and, if desired, as of the Closing Date). Without limiting the foregoing, such
cooperation shall include providing access to records and personnel, cooperating
in verification of accounts receivable and such access to the premises of such
Company and Subsidiaries, in each case as is reasonable and customary in an
audit.
5.2 TAX MATTERS.
-----------
(a) Seller agrees to indemnify, defend and hold harmless Buyer and
each Company and Subsidiary against (i) any Tax payable by or on behalf of
Seller or any of its Affiliates, any Company or any of the Subsidiaries for
the
26
<PAGE>
Pre-Closing Tax Period except to the extent adequate provision for such Tax
has been made in the financial statements referred to in Section 2.3(a) or
(b) hereof; (ii) any deficiencies in any Tax payable by or on behalf of
Seller or any of its Affiliates, any Company or any of the Subsidiaries
arising from any audit by a Governmental Entity with respect to the Pre-
Closing Tax Period except to the extent adequate provision for such Tax has
been made in the financial statements referred to in Section 2.3(a) or (b)
hereof; (iii) Taxes of any member of a consolidated, combined or unitary
tax group of which Seller or any of its Affiliates, any Company or any
Subsidiary, is or was at any time, part, of which a Company and/or any
Subsidiary is jointly or severally liable as a result of its inclusion in
such group at any time or on or prior to the Closing Date, except to the
extent adequate provision for such Taxes has been made in the financial
statements referred to in Section 2.3 hereof; and (iv) any Tax liability
arising from, relating to or otherwise in respect of any breach of the
representations and warranties contained in Section 2.4 of this Agreement.
Seller's indemnity hereunder with respect to Taxes of SJMC shall apply only
to 30% of such Taxes.
(b) Buyer agrees to indemnify, defend and hold harmless Seller and
its Affiliates against (i) any Tax payable by or on behalf of Buyer or any
of its Affiliates, any Company or any of the Subsidiaries for any taxable
period other than the Pre-Closing Tax Period; (ii) any deficiencies in any
Tax payable by or on behalf of Buyer or any of its Affiliates, any Company
or any of the Subsidiaries arising from any audit by a Governmental Entity
with respect to any taxable period other than the Pre-Closing Tax Period;
(iii) Taxes of any member of a consolidated, combined or unitary tax group
of which Buyer or any of its Affiliates, any Company or any Subsidiary is,
or was at any time, part, of which a Company and/or any Subsidiary is
jointly or severally liable as a result of its inclusion in such group at
any time after the Closing Date; and (iv) if the Closing Date occurs after
June 29, 1995, Seller's Transition Tax Exposure Amount. Any refund of Tax
received after Closing by Buyer, any of its Affiliates, any Company or any
Subsidiary which is attributable to the Pre-Closing Tax Period shall
immediately be remitted to Seller. Buyer may retain any refund which is
attributable to carryback losses, credits and other tax items arising in a
period other than the Pre-Closing Tax Period and carried back to the Pre-
Closing Tax Period.
(c) Seller and Buyer will each provide the other, and subsequent to
the Closing Buyer will cause each Company and each Subsidiary to provide
Seller (at Seller's sole cost and expense), with such assistance as may
reasonably be requested in connection with the preparation of any matter
27
<PAGE>
relating to Tax, including any Tax Return, any audit or other examination
by a Governmental Entity, or any judicial or administrative proceedings
relating to liability for Taxes, and each will retain and provide the
requesting party with any records or information that may be reasonably
relevant to such return, audit or examination, proceedings or determination
for a period not to exceed ten years after the Closing Date. Prior to
disposing of any records or information, the party retaining such records
or information shall notify the other party and provide it with the
opportunity to obtain or duplicate (at its own expense) such records or
information for its own purposes. The party requesting assistance shall
reimburse the other party for reasonable out-of-pocket expenses (other than
salaries or wages of any employees of the parties) incurred in providing
such assistance. Any information obtained pursuant to this clause (c) or
pursuant to any other Section hereof providing for the sharing of
information or the review of any Tax Return or other schedule relating to
Tax shall be subject to Section 4.5.
(d) Subject to the provisions of the foregoing clause (c), Seller
shall (i) have the responsibility for, and the right to control, at
Seller's expense, the audit (and disposition thereof) of any Tax Return
relating to periods ended on or prior to the Closing Date; and (ii) have
the right to participate in and approve the disposition of the audit of any
Tax Return relating to the periods ended after the Closing Date if, as a
result of such audit or disposition, Buyer makes or intends to make a claim
for indemnification under Section 5.2(a). Buyer shall have the right,
directly or through its designated representatives, to participate in and
review in advance and comment upon all submissions made in the course of
audits or appeals thereof to a Governmental Entity relating to periods
ending (or treated by this Agreement as ending) on or prior to the Closing
Date and to approve the disposition of any audit adjustment or filing of
any amended Tax Returns with respect to such periods if such disposition
will result in an increase in the Tax liability of Buyer, any Company or
any Subsidiary for any period beginning after (or treated by the Agreement
as beginning after) February 28, 1995. Seller and Buyer shall each
promptly notify the other party of any audit of any Tax Return which may
result in claims for indemnification under this Agreement.
(e) In the event that Buyer makes an election under section 338(a) or
section 338(g) of the Code in connection with its purchase of a Company or
any Subsidiary:
(i) Section 5.2(f) hereof and clause (iv) of Section 5.2(b)
hereof shall not apply with respect to such Company or Subsidiary; and
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(ii) Buyer shall indemnify and hold harmless Seller and its
Affiliates against the difference between (A) all U.S. Federal, state
and local income tax liability incurred by Seller and its Affiliates
as a result of such election and (B) all U.S. Federal, state and local
income tax liability determined without regard to such election. For
this purpose, U.S. Federal, state and local income tax liability shall
be calculated by taking into account any foreign tax credits available
to Seller and its Affiliates and by taking into account the effect of
an increase in an overall foreign loss or increase in separate
limitation loss (each as defined in section 904(f) of the Code) on the
ability of Seller and its Affiliates to utilize foreign tax credits
for U.S. Federal income tax purposes.
(f) If the Closing Date occurs after June 29, 1995, Buyer and each of
its Affiliates shall, with respect to the occurrence of any of the
following events with respect to any Company or Subsidiary on or before May
31, 1996, (i) notify Seller of the occurrence of any such event and (ii)
cause each Company and each Subsidiary to furnish to Seller any records or
information reasonably requested by Seller for the purpose of determining
the Seller's Transition Tax Exposure Amount, including any records or
information relating to the occurrence of any such event:
(i) any investment in "United States property" (as that term is
defined in Section 956 of the Code);
(ii) the acquisition of any "passive asset" (as that term is
defined in Section 956A(c)(2) of the Code);
(iii) the issuance of any Equity Security; any alteration in
corporate, capital or legal structure; any merger, reorganization or
consolidation; any liquidation, winding-up or dissolution; and any
amendment or change in charter documents, by-laws or other governing
documents;
(iv) the declaration, issuance or payment of any dividend or
other distribution of assets; or any split, combination or
reclassification of any Equity Securities;
(v) any sale, assignment, pledge or other encumbrance or
disposition of any Equity Security of any Subsidiary (and any entity
becoming a subsidiary of a Company or any Subsidiary during the
Transition Period);
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(vi) the receipt of any income that is foreign personal holding
company income (as that term is defined in section 954(c) of the
Code); and
(vii) the conduct of any business other than the business
conducted by the Company or Subsidiary on the Closing Date.
In making a claim for indemnification under clause (iv) of Section 5.2(b)
hereof, Seller shall furnish to Buyer in writing a description of the
manner in which Seller determined the Seller's Transition Tax Exposure
Amount, including a worksheet illustrating the computation of such amount.
(g) Buyer covenants that it will cause the purchasers of any interest
in a Company or Subsidiary, which acquisition occurs on or before May 31,
1996, to comply with the provisions of this Section 5.2 as if such
purchasers were the Buyer.
(h) Buyer shall cooperate, and will cause its Affiliates and each
Company and Subsidiary to cooperate, with Seller and its Affiliates in
connection with the filing of any amended Tax Returns requested by Seller
or any of its Affiliates that related to taxable periods ending on or prior
to Closing.
(i) Disputes arising under this Section 5.2 that are not resolved by
mutual agreement shall, unless otherwise provided for, be resolved by an
internationally recognized accounting or law firm (the "Tax Referee")
chosen and mutually acceptable to Buyer and Seller within a reasonable
amount of time from the date on which the dispute arises. The Tax Referee
shall resolve any disputed items within a reasonable amount of time taking
into consideration all relevant facts and circumstances. The costs, fees
and expenses of the Tax Referee shall be borne equally by Buyer and Seller.
(j) Notwithstanding any other provision of this Agreement, Seller
shall be solely responsible for any Taxes, and shall indemnify Buyer
pursuant to this Section 5.2, for any Taxes relating to the Restructuring.
(k) Payments made pursuant to this Section 5.2 shall be made no later
than fifteen (15) business days following the later of (i) fifteen (15)
business days prior to the date on which the relevant Tax is due; or (ii)
fifteen (15) business days after the indemnified party gives written notice
to the indemnifying party that such Tax is due. Any payment not made
within such time period shall bear interest at the rate in effect from time
to time on underpayments of U.S. federal
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income tax calculated in accordance with sections 6621 and 6622 of the
Code.
5.3 ACCESS.
------
(a) Subject to the execution of customary confidentiality agreements,
Buyer will cause each Company and Subsidiary, for a period of five years
after the Closing in respect of such Company or Subsidiary, to afford
promptly to Seller and its agents reasonable access to the properties,
books, records, employees and auditors of such Company and Subsidiary
relating to periods prior to such Closing to the extent necessary or
desirable to permit Seller to determine any matter relating to its rights
and obligations hereunder or to any period ending on or before the Closing
Date relating to such Closing; provided, however, that Seller recognizes
-------- -------
that certain records and other information of Buyer may contain information
relating to such Companies or Subsidiaries as well as information relating
to other activities of Buyer not connected with any of such Companies or
Subsidiaries, in which event Buyer shall provide access only to the
relevant portions thereof.
(b) Subject to the execution of customary confidentiality agreements,
Seller will and will cause each Seller Entity for a period of five years
after the Closing promptly to afford Buyer, its Affiliates, and their
respective agents, counsel, financial advisors and auditors reasonable
access to the properties, books and records, employees and auditors of each
Seller Entity relating to periods prior to the Closing to the extent
necessary or desirable with respect to the Business; provided, however,
-------- -------
that Buyer recognizes that certain records and other information of Seller
may contain information relating to the Companies or any of the
Subsidiaries as well as information relating to other activities of Seller
not connected with any of the Companies or Subsidiaries, in which event
Seller shall provide access only to the relevant portions thereof.
5.4 USE OF AND RIGHT TO NAMES.
-------------------------
Commencing with the 90th day following the Closing Date with respect
to the Singapore Operations, none of Buyer, the Companies or the Subsidiaries
shall use the names or trademarks "National Medical Enterprises, Inc.," "NME,"
"N.M.E.," "Tenet Healthcare Corporation," "Tenet" or any derivative thereof.
5.5 EMPLOYMENT MATTERS.
------------------
(a) As of the Closing Date with respect to each Company or
Subsidiary, Buyer shall, or shall cause each such Company and its
Subsidiaries to, offer employment to all
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employees of such Companies and Subsidiaries not represented by a
collective bargaining agreement on substantially the terms and conditions
as are provided currently by such Company or Subsidiary to such employees.
(b) As of the Closing Date with respect to each Company or
Subsidiary, Buyer agrees that such Companies and Subsidiaries will be
bound, to the same extent as they currently are bound, by the terms and
conditions of the collective bargaining agreements listed in Section 2.12
of the Seller's Disclosure Schedule.
(c) In no event will Buyer, any Company or any Subsidiary assume, or
have any liability or obligation under, any Benefit Plan or any other
employment, compensation, severance or benefit plan, agreement or
arrangement of Seller and its subsidiaries, other than those of the
Companies and the Subsidiaries acquired by Buyer hereunder which are set
forth in Section 2.5 of the Disclosure Schedule, with or for the benefit of
any officer or employee of any Company or any Subsidiary.
5.6 RECORDS.
-------
(a) Promptly following the Closing Date, Seller will deliver or cause
to be delivered to Seller all original agreements, documents, accounts,
ledgers, books, records and files, including records and files stored on
computer disks or tapes or any other storage media (collectively,
"Records"), in the possession of Seller relating to the Business, and the
business and operations of the Companies and the Subsidiaries, in each of
the foregoing instances, not then in the possession of the Companies or the
Subsidiaries, subject to the following exceptions:
(i) Seller may retain all Records prepared in connection with
the sale of the Stock, including bids received from other parties and
analyses relating to the Companies and the Subsidiaries; and
(ii) Seller may retain any Tax returns, reports or forms, and
Buyer shall be provided with copies of such returns, reports or forms
to the extent that they relate to the separate returns or separate tax
liability of the Companies or the Subsidiaries.
(b) Except as otherwise provided in this Agreement, for a period of
seven (7) years following the Closing Date, Buyer agrees that it will not
destroy any Records in the possession of Buyer relating to the business and
operations of the Company and the Subsidiaries acquired by Buyer, relating to
the period prior to the Closing Date with respect to such Company or Subsidiary
without first offering such Records to Seller.
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5.7 AGREEMENT NOT TO COMPETE.
------------------------
(a) Seller understands that Buyer shall be entitled to protect and
preserve the going concern value of the Business to the extent permitted by
Law and that Buyer would not have entered into this Agreement absent the
provisions of this Section and, therefore, agrees that it will not, and
will not permit any of its Affiliates to, (i) prior to the second
anniversary of the Closing Date, directly or indirectly, in any capacity,
engage in, represent in any way, or be connected with, any Restricted
Businesses (as defined below) in the Territory, (ii) prior to the fifth
anniversary of the Closing Date, directly or indirectly, induce any
employee of Buyer or any Company or Subsidiary to leave such employ, or to
accept any other position or employment or assist any other person in
hiring such employee (except for persons who contact Seller on their own
initiative and without any direct or indirect solicitation by Seller other
than general solicitations in the form of advertisements) and (iii) at any
time communicate or divulge any secret or confidential information,
knowledge or data related to the Business to any person other than Buyer.
The term "Restricted Business" means the businesses included in the
Business as presently conducted and, in the case of the Thai Business, as
it is contemplated to be conducted. The term "Territory" means China,
India, Indonesia, Myanmar (formerly Burma), Malaysia, the Philippines,
Singapore, Sri Lanka, Thailand and Vietnam, provided that the Territory
--------
shall not include Thailand or Malaysia, as applicable, in the event that
Buyer does not acquire, as the case may be, Seller's interest in the
Malaysian Business or Thai Business, in each case as specifically
contemplated in Section 7.5, but only so long as Seller continues to own
its interest in the Thai Business or the Malaysian Business, as the case
may be. The covenant set forth in this paragraph (a) is referred to as the
"Restrictive Covenant".
(b) Notwithstanding any provision of this Section 5.7 to the
contrary, (i) Seller and its Affiliates shall not be in violation of this
Section 5.7 as a result of owning ten percent (10%) or less of the stock of
a public company whose common stock is listed on an established securities
exchange, even if such company competes with Buyer in a Restricted Business
in the Territory, and (ii) Seller and its Affiliates may acquire any
business and operate such business, a part of which competes in a
Restricted Business in the Territory, so long as such Restricted Business
part constitutes less than fifty percent (50%) of the total acquired
business in terms of revenues and is divested within twelve (12) months
following its acquisition.
(c) If the Restrictive Covenant or any part thereof would be void as
drawn but would be valid if the period of
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application were reduced, the Restrictive Covenant shall apply with such
minimum modification as may be necessary to make it valid and effective.
The parties agree that if any court of competent jurisdiction determines
that the Restrictive Covenant or any part thereof is invalid or
unenforceable, the remainder of the Restrictive Covenant shall not thereby
be affected and shall be given full effect, without regard to the invalid
portions. Furthermore, if any portion of the Restrictive Covenant or the
application of any portion of the Restrictive Covenant, to any person or
circumstances, shall be held invalid or unenforceable by any court of
competent jurisdiction, the remaining portion of the Restrictive Covenant,
or the application of such portion of the Restrictive Covenant to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby. In either of the foregoing
cases, the parties agree that they will amend the terms of the Restrictive
Covenant or portion thereof so determined to be invalid or unenforceable,
but only in the most minimal manner necessary to make such terms comply
with the determination of such court.
5.8 TECHNICAL SERVICES AGREEMENT.
----------------------------
(a) Each of Buyer and Seller hereby agrees to provide to the other,
on the terms and subject to the conditions set forth in this Section 5.8,
(i) the services set forth in Section 5.8(I) of the Disclosure Schedule,
(ii) advice concerning the operation of hospitals and other healthcare
facilities and businesses, including, without limitation, the services set
forth in Section 5.8(II) of the Disclosure Schedule, and (iii) such
additional services and advice as may be agreed upon by Buyer and Seller
from time to time, in each case with respect to the Business (collectively,
"Consulting Services").
(b) The party requesting that Consulting Services be provided
pursuant to this Section 5.8 (the "Requesting Party") shall deliver to the
party being requested to provide Consulting Services (the "Providing
Party") with reasonable advance notice, setting forth in reasonable detail
the scope of Consulting Services requested, the time period during which
such Consulting Services are requested and such other details as may be
requested by the Providing Party.
(c) The Requesting Party shall reimburse the Providing Party for (i)
all reasonable fees, costs and expenses incurred by the Providing Party in
connection with the provision of Consulting Services, including, without
limitation, (A) all fees, costs and expenses paid by the Providing Party to
any third party performing any such
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<PAGE>
services or providing any advice on behalf of the Providing Party, and (B)
all reasonable travel, accommodation, meal and other expenses, and (ii) the
salaries, benefits and costs of all personnel who provide Consulting
Services pursuant to this Section 5.8, prorated according to the actual
time spent by each such person in the performance of such services;
provided, however, that for purposes of calculating the amounts payable
under this subsection (ii), (A) the Requesting Party shall be billed for
each hour (or part thereof) of services rendered by any person performing
such services, not to exceed eight hours for any continuous 24-hour period;
and (B) the benefits attributable to each such person shall be deemed to be
equal to 40% of a number that approximates such person's base salary.
(d) The Requesting Party hereby agrees to reimburse the Providing
Party for all amounts due pursuant to this Section 5.8 within 45 days of
the Requesting Party's receipt of an invoice showing in reasonable detail
the amount due.
(e) Except for the reimbursement provided for in this Section 5.8,
there shall be no fee required to be paid in connection with Consulting
Services performed or to be performed hereunder.
(f) Each party hereto hereby agrees that all Consulting Services
provided are merely advisory in nature and neither party shall have any
liability to the other, pursuant to the terms of this Agreement or
otherwise, in connection with any Consulting Services provided hereunder,
except for its gross negligence or willful misconduct in the performance of
such Consulting Services.
(g) (i) Buyer's obligation to provide Consulting Services pursuant to
this Section 5.8 with respect to the Malaysian Business and the Thai
Business, respectively, shall commence upon the Closing for the Core
Business and shall terminate upon the later to occur of (x) the Closing for
such Business, and (a) with respect to the Thai Business shall terminate
five years after the date of this Agreement, and (b) with respect to the
Malaysian Business shall terminate two years after the date of this
Agreement, and (ii) Seller's obligation to provide Consulting Services
pursuant to this Section 5.8 with respect to (A) the Core Business shall
commence upon the Closing for the Core Business and shall terminate one
year after the Closing for the Core Business, (ii) the Thai Business shall
commence upon the Closing for such Business and shall terminate five years
after the Closing for such Business, and (iii) the Malaysian Business shall
commence upon the Closing for such Business and shall terminate two years
after the Closing for such Business.
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ARTICLE VI
CONDITIONS OF PURCHASE
6.1 GENERAL CONDITIONS.
------------------
Subject to Section 7.5 hereof, the obligations of the parties to
effect the Closing shall be subject to the following conditions:
(a) No Orders; Legal Proceedings. No Law or Order shall have been
----------------------------
enacted, entered, issued, promulgated or enforced by any Governmental
Entity and remain so at the Closing Date, (i) that prohibits the
transactions contemplated by this Agreement, (ii) that imposes or would
impose upon the ownership or operation of, or exercise of control over, the
Companies, the Subsidiaries and their respective assets, properties and
businesses, burdens which are material and unreasonable to the Business,
taken as a whole, by Buyer and its Affiliates (provided that the condition
in this clause (ii) shall be a condition only to Buyer's obligations
hereunder) or (iii) that would subject either party to this Agreement to
any material penalty or liability if any of the transactions contemplated
under this Agreement were consummated. No Governmental Entity shall have
notified any party to this Agreement that it intends to commence
proceedings that, if successful, would result in the nonsatisfaction of a
condition set forth above in this Section 6.1(a), unless such Governmental
Entity shall have withdrawn such notice and abandoned any such proceedings
prior to the time which otherwise would have been the Closing Date.
(b) Permits and Approvals. To the extent required by applicable Law
---------------------
and without the imposition of any conditions or provisions that are
material and unreasonably burdensome on Buyer, Buyer's Affiliates, or the
Business, all Permits and Approvals listed in Section 6.1 (I) of the
Disclosure Schedule that are required to be obtained from Governmental
Entities shall have been received or obtained.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER.
----------------------------------
Subject to Section 7.5 hereof, the obligations of Buyer to effect the
Closing shall be subject to the following conditions except to the extent waived
in writing by Buyer:
(a) Representations and Warranties and Covenants of Seller. The
------------------------------------------------------
representations and warranties of Seller herein (as amended by matters
consented to by Buyer pursuant to Section 4.3) contained shall be true and
correct as of the date hereof and at the Closing Date with the same effect
as though made as of such time; Seller and the other Seller
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<PAGE>
Entities in all material respects shall have performed all obligations and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date, and
Seller shall have delivered to Buyer a certificate of Seller, dated the
Closing Date and signed by its chief executive officer, president, chief
financial officer or treasurer, to such effect.
(b) No Material Adverse Change. Since the date of this Agreement,
--------------------------
whether or not in the ordinary course of business, there shall not have
been, occurred or arisen:
(i) any change in or event affecting the Business that has had
or is reasonably expected to have a Material Adverse Effect, except
for changes reflected in the financial statements referred to in
Section 2.3 and changes affecting generally the Singapore, Thailand or
Malaysia (as the case may be with respect to the specific Closing)
health care industry, each as a whole (it being understood that Buyer
assumes the risks of changes of such type); or
(ii) any casualty, loss, damage or destruction of any property of
any Company or Subsidiary or that has involved a loss to any Company
or Subsidiary in excess of applicable insurance coverage, in each case
that has had or is reasonably expected to have a Material Adverse
Effect.
(c) Consents. Buyer shall have obtained without the imposition of
--------
any conditions or provisions that are material and unreasonably burdensome
on Buyer, Buyer's Affiliates, or the Business all material Approvals and
Permits from third Persons listed in Section 3.3 of the Disclosure Schedule
that are required to be obtained by Buyer in connection with the
transactions contemplated hereby (except Approvals and Permits from
Governmental Entities which are the subject of Section 6.1(b)).
(d) Resignation of Directors. Each of Company's and Subsidiary's
------------------------
directors designated by Seller or its Affiliates shall have submitted his
or her resignation in writing to such Company or Subsidiary, as applicable.
Such resignations of directors (in such capacity) shall be effective as of
the Closing.
(e) Failure to Obtain Loan. Buyer shall not have received the
----------------------
amounts contemplated by the commitment letter, dated May 17, 1995, from
Schroders Banking & Capital Markets as a result of the failure of Schroders
Banking & Capital Markets to provide such funds solely as a result of,
during
37
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the thirty (30) days preceding the date of the relevant Closing, there
having occurred or be continuing (i) any suspension of trading on the
Singapore Stock Exchange or material governmental restrictions (not in
force on the date hereof) on trading in securities generally, or (ii) any
banking moratorium declared by Singapore governmental authorities, or (iii)
any material adverse change in the financial, banking or capital markets,
or (iv) any outbreak or material escalation of hostilities affecting
Singapore or other calamity, panic or crisis, the affect of which on the
financial markets of Singapore in each case described in clauses (i), (ii),
(iii) or (iv) above, is that lending institutions have generally ceased
providing funding for transactions of the size contemplated by such
commitment letter, provided that the occurrence of any such event shall
operate to delay the respective Closing only until the tenth (10th) day
following the date upon which lending institutions generally have resumed
providing funding for transactions of the size contemplated by such
commitment letter.
(f) Malaysian Due Diligence. With respect to the Closing of the
-----------------------
Malaysian Business only, Buyer and its representatives shall have (i) been
provided the opportunity to conduct confirmatory due diligence reasonably
satisfactory to it with respect to the representations and warranties, and
the covenants and agreements contained in this Agreement and (ii) entered
into an amendment to the Shareholders' Agreement, dated April 4, 1990,
between SD Holdings Limited and Seller satisfactory in form and substance
to Buyer. For the purposes of the preceding sentence only, "Seller" shall
include Seller and/or any of its Affiliates.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER.
-----------------------------------
Subject to Section 7.5 hereof, the obligations of Seller to effect the
Closing shall be subject to the following conditions, except to the extent
waived in writing by Seller:
(a) Representations and Warranties and Covenants of Buyer. The
-----------------------------------------------------
representations and warranties of Buyer herein contained shall be true and
correct as of the date hereof and at the Closing Date with the same effect
as though made as of such time; Buyer in all material respects shall have
performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date, and Buyer shall have delivered to Seller
certificates of Buyer, dated the Closing Date and signed by a director, its
chief executive officer, chief financial officer or treasurer, to such
effect.
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(b) Consents. Seller shall have obtained without the imposition of
--------
any conditions or provisions that are material and unreasonably burdensome
on Seller or Seller's Affiliates (other than the Companies and the
Subsidiaries) all material Approvals and Permits from third Persons listed
in Section 2.8 (II) of the Disclosure Schedule that are required to be
obtained by Seller in connection with the transactions contemplated hereby
(except Approvals and Permits from Governmental Entities which are the
subject of Section 6.1(b)).
(c) Release from Guarantees. Seller and its Affiliates (other than
-----------------------
any Companies or Subsidiaries acquired by Buyer) shall have been fully and
unconditionally released from all of their obligations and liabilities
under and relating to the guarantees and other obligations listed in
Section 4.10 of the Disclosure Schedule in the manner set forth in Section
4.10.
(d) Purchase of Notes. Seller shall have purchased the First Note
-----------------
and the Second Note pursuant to the terms set forth in Section 4.11 hereof.
ARTICLE VII
TERMINATION OF OBLIGATIONS; INDEMNIFICATION;
SURVIVAL
7.1 TERMINATION OF AGREEMENT.
------------------------
Anything herein to the contrary notwithstanding, this Agreement and
the transactions contemplated by this Agreement may be terminated at any time
before the Closing as follows and in no other manner:
(a) By mutual consent in writing of Buyer and Seller;
(b) With respect to the Core Business, Malaysian Business or the Thai
Business, as the case may be, by Buyer by written notice to Seller if any
event occurs or condition exists which would render impossible the
satisfaction of one or more conditions to the obligations of Buyer to
consummate the transactions contemplated by this Agreement as set forth in
Section 6.1 or 6.2 with respect to that Business;
(c) With respect to the Core Business, Malaysian Business or the Thai
Business, as the case may be, by Seller by written notice to Buyer if any
event occurs or condition exists which would render impossible the
satisfaction of one or more conditions to the obligation of Seller to
consummate the transactions contemplated by this Agreement as set forth in
Section 6.1 or 6.3 with respect to that Business; or
39
<PAGE>
(d) by Seller or Buyer, if the Closing does not occur (i) on or prior
to July 31, 1995 (with respect to the Core Business), subject to any delays
necessitated as contemplated by Section 6.2(e), and (ii) in any event for
the Core Business and the remainder of the Business on or prior to
September 30, 1995;
provided, however, that the party seeking termination pursuant to clause (b),
-------- -------
(c), or (d) is not in wilful breach of any of its covenants or agreements
contained in this Agreement.
7.2 EFFECT OF TERMINATION.
---------------------
If this Agreement shall be terminated pursuant to Section 7.1 with
respect to the Core Business all further obligations of the parties under this
Agreement shall terminate without further liability of any party to another, and
with respect to the Malaysian Business or Thai Business, all further obligations
of the parties under this Agreement relating to such Business shall terminate
without further liability of any party to another; provided that in no event the
obligations of the parties contained in Sections 2.19, 3.4, 4.5 (including the
Letter Agreement referenced in such section), 7.1, 7.2 and 8.13 shall survive
any such termination.
Nothing in this Section 7.2 shall be deemed to release either party
from any liability for any breach by such party of the terms and provisions of
this Agreement or to impair the right of either party to compel specific
performance by the other party of its obligations under this Agreement;
provided, however, that if a party exercises its right to terminate this
Agreement, such party will be deemed to have waived any claims of breach of
representations or warranties by the other party.
7.3 INDEMNIFICATION.
---------------
(a) Indemnification by Seller. Seller shall indemnify Buyer, its
-------------------------
Affiliates (including each Company and Subsidiary) and each of their
respective officers, directors, employees, stockholders, agents and
representatives against, and hold them harmless from, all losses,
liabilities, claims, damages and expenses (including reasonable legal fees
and expenses) suffered or incurred by any such indemnified party (other
than any relating to Taxes, for which indemnification provisions are set
forth in Section 5.2(a)) arising from, relating to or otherwise in respect
of (i) any breach of any representation or warranty of Seller which
survives the Closing contained in this Agreement or in any certificate
delivered pursuant thereto and (ii) any breach of any covenant or agreement
of Seller contained in this Agreement; provided, however, that Seller shall
-------- -------
not have any liability under clause (i) above unless the aggregate of all
losses, liabilities, costs and expenses
40
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relating thereto for which Seller would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to U.S.$500,000, and then
only to the extent of any such excess; and provided further, that Seller's
-------- -------
liability shall in no event exceed U.S.$150,000,000. Notwithstanding the
foregoing, Buyer shall not seek indemnification for any individual claim or
a series of claims under clause (i) above which arises out of any single
breach or a series of breaches or a representation and warranty of Seller,
in each case based on a single event or condition or series of related
events or conditions having a relevant common basis in fact if such
individual claim is, or such series of claims add up to, less than
U.S.$25,000.
Buyer acknowledges and agrees that, should the Closing occur, its sole
and exclusive remedy with respect to any and all claims for breaches of
representations and warranties of Seller pursuant to this Agreement shall
be pursuant to the indemnification provisions set forth in this Section
7.3.
Nothing in this Agreement shall be construed to prohibit or restrict
Buyer from pursuing all remedies available to it at law or in equity in
connection with Seller's breach of any provision of this Agreement, other
than for breaches of representations and warranties of Seller pursuant to
this Agreement, or from seeking equitable relief in respect of any breach
of any covenant or agreement of Seller contained in this Agreement.
(b) Indemnification by Buyer. Buyer shall indemnify Seller, its
------------------------
Affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives against, and hold them harmless
from, all losses, liabilities, claims, damages and expenses (including
reasonable legal fees and expenses) suffered or incurred by any such
indemnified party (other than any relating to Taxes, for which
indemnification provisions are set forth in Section 5.2(b)) arising from,
relating to or otherwise in respect of (i) any breach of any representation
or warranty of Buyer which survives the Closing contained in this Agreement
or in any certificate delivered pursuant hereto or thereto, (ii) any breach
of any covenant or agreement of Buyer contained in this Agreement, and
(iii) any guarantee or contingent liability to be released pursuant to
Section 4.10; provided, however, Buyer shall not have any liability under
-------- -------
clauses (i) above unless the aggregate of all losses, liabilities, costs
and expenses relating thereto for which the Buyer would, but for this
proviso, be liable exceeds on a cumulative basis an amount equal to
U.S.$500,000, and then only to the extent of such excess; and provided
--------
further that the Buyer's liability shall in no event exceed
-------
U.S.$20,000,000. Notwithstanding the foregoing, Seller shall not seek
indemnification for any individual claim or a
41
<PAGE>
series of claims under clause (i) above which arises out of any single
breach or a series of breaches or a representation and warranty of Buyer,
in each case based on a single event or condition or series of related
events or conditions having a relevant common basis in fact if such
individual claim is, or such series of claim add up to, less than
U.S.$25,000.
Seller acknowledges and agrees that, should the Closing occur, its
sole and exclusive remedy with respect to any and all claims for breaches
of representations and warranties of Buyer pursuant to this Agreement shall
be pursuant to the indemnification provisions set forth in this Section
7.3.
Nothing in this Agreement shall be construed to prohibit or restrict
Seller from pursuing all remedies available to it at law or in equity in
connection with Buyer's breach of any provision of this Agreement, other
than for breaches of representations and warranties of Buyer pursuant to
this Agreement, or from seeking equitable relief in respect of any breach
of any covenant or agreement of Buyer contained in this Agreement.
(c) Losses Net of Insurance, etc. The amount of any loss, liability,
-----------------------------
claim, damage, expense or Tax for which indemnification is provided under
this Section 7.3 shall be net of any amounts recovered or recoverable by
the indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax (collectively, a "Loss") and,
except for losses, liabilities, claims, damages or expenses relating to
Section 7.3(b)(iii), shall be (i) increased to take account of any net Tax
cost incurred by the indemnified party arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the indemnified
party arising from the incurrence or payment of any such Loss. In
computing the amount of any such Tax cost or Tax benefit, the indemnified
party shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of
any indemnity payment hereunder or the incurrence or payment of any
indemnified Loss. Any indemnification payment hereunder shall initially be
made without regard to this paragraph and shall be increased or reduced to
reflect any such net Tax cost (including gross-up) or net Tax benefit only
after the indemnified party has actually realized such cost or benefit.
For purposes of this Agreement, an indemnified party shall be deemed to
have "actually realized" a net Tax cost or a net Tax benefit to the extent
that, and at such time as, the amount of Taxes payable by such indemnified
party is increased above or reduced below, as the case may be, the amount
of Taxes that such indemnified party would be
42
<PAGE>
required to pay but for the receipt of the indemnity payment or the
incurrence or payment of such Loss, as the case may be. The amount of any
increase or reduction hereunder shall be adjusted to reflect any final
determination (which shall include the execution of Form 870-AD or
successor form) with respect to the indemnified party's liability for Taxes
and payments between Seller and Buyer to reflect such adjustment shall be
made if necessary. Any indemnity payment under this Agreement shall be
treated as an adjustment to the Purchase Price for Tax purposes, unless a
final determination (which shall include the execution of a Form 870-AD or
successor form) with respect to the indemnified party or any of its
Affiliates causes any such payment not to be treated as an adjustment to
the Adjusted Purchase Price for United States federal income tax purposes.
(d) Termination of Indemnification. The obligations to indemnify and
------------------------------
hold harmless a party hereto (i) pursuant to Section 5.2, shall terminate
at the time the applicable statutes of limitations with respect to the Tax
liabilities in question expire (giving effect to any extension thereof),
(ii) pursuant to Sections 7.3(a)(i) and 7.3(b)(i), shall terminate when the
applicable representation or warranty terminates pursuant to Section 7.4
and (iii) pursuant to Section 7.3(a)(ii) and the other clauses of Section
7.3(b), shall not terminate; provided, however, that as to clauses (i) and
-------- -------
(ii) above such obligations to indemnify and hold harmless shall not
terminate with respect to any item as to which the person to be indemnified
or the related party thereto shall have, before the expiration of the
applicable period, previously made a claim by delivering a notice of such
claim (stating in reasonable detail the basis of such claim) to the
indemnifying party; provided further, however, that in the case of a claim
-------- ------- -------
being made by reason of a Third Party Claim (as defined in Section 7.3(e)
hereof), if the third party claimant has not asserted its claim in writing,
the requirements of this clause shall nonetheless be deemed to be satisfied
with respect thereto so long as the third party claimant has overtly
threatened or otherwise indicated an intention to bring or pursue a claim,
albeit orally, and the indemnified party, before the expiration of the
applicable period, so notifies the indemnifying party by delivering a
notice of such asserted claim (stating in reasonable detail the basis for
such claim to the extent known to the indemnified party) to the
indemnifying party and such third party claimant subsequently assets its
claim in writing and a copy of the written notice from the third party
claimant is furnished to the indemnifying party in no more than ten (10)
business days after its receipt by the indemnified party.
(e) Procedures Relating to Indemnification. In order for a party
--------------------------------------
(the "indemnified party") to be entitled to any
43
<PAGE>
indemnification provided for under this Section 7.3 in respect of, arising
out of or involving a claim or demand made by any person against the
indemnified party (a "Third Party Claim"), such indemnified party must
notify the indemnifying party in writing, and in reasonable detail, of the
Third Party Claim promptly, but in no event more than ten (10) business
days after receipt by such indemnified party of written notice of the Third
Party Claim; provided, however, that failure to give such notification
-------- -------
shall not affect the indemnification provided hereunder except to the
extent the indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party shall not be
liable for any expenses of the indemnified party incurred during the period
in which the indemnified party failed to give such notice). Upon
delivering the initial notification and thereafter, promptly upon the
indemnifying party's receipt thereof, the indemnified party shall deliver
to the indemnifying party copies of all notices and documents (including
court papers) received by the indemnified party relating to the Third Party
Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected
by the indemnifying party (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided that such counsel is not reasonably objected to by the indemnified
--------
party. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to
employ counsel (not reasonably objected to by the indemnifying party), at
its own expense, separate from the counsel employed by the indemnifying
party, it being understood that the indemnifying party shall control such
defense. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local
counsel) (not reasonably objected to by the indemnifying party), and the
indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (not reasonably objected to by the indemnifying
party) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution
of such action or (iii) the indemnifying party shall authorize the
indemnified party to
44
<PAGE>
employ separate counsel at the expense of the indemnifying party. The
indemnifying party shall be liable for the reasonable fees and expenses of
counsel employed by the indemnified party following the failure of the
indemnifying party to assume the defense thereof (other than during the
period prior to the time the indemnified party shall have given notice of
the Third Party Claim as provided above).
If the indemnifying party so elects to assume the defense of any Third
Party Claim, all of the indemnified parties shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation
shall include the retention and (upon the indemnifying party's request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder. Whether or not the
indemnifying party shall have assumed the defense of a Third Party Claim,
the indemnified party shall not admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
indemnifying party's prior written consent (which consent shall not be
unreasonably withheld). If the indemnifying party shall have assumed the
defense of a Third Party Claim, the indemnified party shall agree to any
settlement, compromise or discharge of a Third Party Claim which the
indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection
with such Third Party Claim, which releases the indemnifying party
completely in connection with such Third Party Claim and which would not
otherwise materially adversely affect the indemnified party.
The indemnification required by Sections 7.3(a) and 7.3(b) shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred. All claims under Sections
7.3(a) or 7.3(b) other than Third Party Claims shall be governed by Section
7.3(f).
(f) Other Claims. In the event any indemnified party should have a
------------
claim against any indemnifying party under Section 7.3(a) or 7.3(b) that
does not involve a Third Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall deliver
notice of such claim with reasonable promptness to the indemnifying party.
The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may
have to such indemnified party under Sections 7.3(a) or 7.3(b), except to
the extent that the indemnifying party has been
45
<PAGE>
actually prejudiced by such failure. If the indemnifying party does not
notify the indemnified party within thirty (30) business days following its
receipt of such notice that the indemnifying party disputes its liability
to the indemnified party under Sections 7.3(a) or 7.3(b), such claim
specified by the indemnified party in such notice shall be conclusively
deemed a liability of the indemnifying party under Sections 7.3(a) or
7.3(b) and the indemnifying party shall pay the amount of such liability to
the indemnified party on demand or, in the case of any notice in which the
amount of the claim (or any portion thereof) is estimated, on such later
date when the amount of such claim (or such portion thereof) becomes
finally determined. If the indemnifying party has timely disputed its
liability with respect to such claim, as provided above, the indemnifying
party and the indemnified party shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by the method of dispute resolution described in
Section 8.4 hereof.
(g) No Contribution from the Companies or the Subsidiaries. Neither
------------------------------------------------------
Seller nor any of its Affiliates shall have any right to seek, and they
hereby waive, any and all claims they may have to, contribution from any of
the Companies or the Subsidiaries with respect to all or any portion of its
indemnification obligations under this Agreement.
7.4 SURVIVAL OF REPRESENTATIONS.
---------------------------
The representations and warranties in this Agreement as to the Core
Business, Malaysian Business or Thai Business, as the case may be (other than
the representations and warranties relating to Taxes), shall survive the Closing
with respect thereto solely for purposes of Sections 7.3(a) and 7.3(b) and shall
terminate on the later of June 30, 1996 and the close of business one year after
the Closing with respect thereto.
7.5 SEPARATE CLOSINGS; ADJUSTMENT TO PURCHASE PRICE.
-----------------------------------------------
(a) Notwithstanding any other provision of this Agreement, on the
later of June 29, 1995 or the tenth business day after the satisfaction of
the conditions to Closing set forth in Sections 6.1(b), 6.2(c) and 6.3(b),
other than with respect to the Thai Business and the Malaysian Business,
the Closing shall occur with respect to the Business other than the
Malaysian Business and Thai Business (the "Core Business"). In determining
whether the conditions set forth in Article VI have been satisfied as of
the Closing Date, the term "Business" shall refer to the Core Business
only, the conditions in Section 6.1, 6.2 and 6.3 shall be read to relate
solely to the Core Business and
46
<PAGE>
references to any of the Companies or Subsidiaries shall be read to refer
only to the Companies and Subsidiaries constituting the Core Business. The
Closing in respect of the Thai Business and Malaysian Business shall occur
separately thereafter and independent of each other, on the tenth business
day after the satisfaction of the conditions to Closing set forth in
Sections 6.1(b), 6.2(c) and 6.3(b) with respect to each such business, as
applicable. In determining whether the conditions set forth in Article VI
have been satisfied at the Closing Date for such business, the term
"Business" shall refer to that portion of the Business represented by the
Thai Business, the Malaysian Business or both, as the case may be, the
conditions in Sections 6.1, 6.2 and 6.3 shall be read to relate solely to
the Thai Business, the Malaysian Business or both, as the case may be, and
references to any Companies or Subsidiaries shall be read to refer only to
the Companies or Subsidiaries constituting the Thai Business, the Malaysian
Business or both, as the case may be. The portion of the Purchase Price
payable in the manner contemplated in Section 1.2 at each such Closing
shall be that portion of the Purchase Price allocated in Exhibit A to this
Agreement to the Core Business, the Thai Business and the Malaysian
Business.
(b) If the sale of the Thai Business and/or the Malaysian Business is
not consummated prior to the termination of this Agreement, or Seller's
interests in either or both such businesses shall have been purchased by
the relevant joint venture partner or sold to a third party or otherwise
reduced or changed pursuant to the respective terms of the joint venture or
shareholders agreements governing the Thai Business or the Malaysian
Business, the Purchase Price allocated to such Business in Exhibit A hereto
shall not be paid.
ARTICLE VIII
GENERAL
8.1 AMENDMENTS; WAIVERS.
-------------------
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
8.2 SCHEDULES; EXHIBITS; INTEGRATION.
--------------------------------
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute
47
<PAGE>
a part of this Agreement, although schedules need not be attached to each copy
of this Agreement. This Agreement, together with such schedules and exhibits,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior agreements and understandings of the
parties in connection therewith, except the Letter Agreement, which, subject to
Section 4.5 hereof, shall continue in full force and effect. Without limiting
the effect of the foregoing provisions of this Section 8.2, except as expressly
set forth in this Agreement, neither Buyer nor Seller is making or shall be
deemed to have made any representation or warranty of any kind, either express
or implied.
8.3 REASONABLE BEST EFFORTS; FURTHER ASSURANCES.
-------------------------------------------
Each party will use its reasonable best efforts to cause all
conditions to its obligations hereunder to be timely satisfied and to perform
and fulfill all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms as soon as feasible. The
parties shall cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further documents and take
such other actions as may be necessary or appropriate to consummate or implement
the transactions contemplated hereby or to evidence such events or matters.
8.4 GOVERNING LAW; ARBITRATION.
--------------------------
(a) This Agreement and the legal relations between the parties shall
be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines except to the extent that
certain matters are preempted by federal law or are governed by the law of
the jurisdiction of incorporation of the respective parties.
(b) Any dispute arising out of or in connection with this Agreement
or any amendment or modification hereto, other than with respect to matters
covered in Section 5.2 hereof, (i) shall be referred to a single
conciliator to be selected by the parties, or failing their agreement, by
the International Chamber of Commerce, with the mission of attempting to
resolve such dispute during a period of one hundred and twenty (120) days
following the first notification of such dispute given to any party
hereunder and (ii) if such dispute shall otherwise not be so resolved,
shall be finally settled by arbitration conducted in the English language
in London, England under the United Nations Commission on International
Trade Law (UNCITRAL) Arbitration Rules by three arbitrators, one of whom
shall be appointed
48
<PAGE>
by each of the parties, and the third by agreement of the two arbitrators,
or failing such agreement by the International Chamber of Commerce as
appointing authority. Either Buyer or Seller may initiate the procedures in
this Section 8.4(b) by giving demand for arbitration to the other, setting
forth the nature of any such dispute. Any written determination of the
arbitrators shall be final and conclusive upon the parties. Each party
hereto shall promptly pay to the prevailing party any amount determined to
be due to it by such arbitration. It is the intention of each party that,
to the maximum extent, actions of the arbitrators shall not be subject to
review in the courts of England.
8.5 NO ASSIGNMENT.
-------------
Neither this Agreement nor any rights or obligations under it are
assignable without the prior written consent of the other party; provided,
--------
however, that Buyer may assign its rights and obligations (including its rights
-------
to purchase the Stock) in whole or in part to one or more of its Affiliates
without the prior written consent of Seller; provided further, however, that no
-------- ------- -------
assignment shall limit or affect the assignor's obligations hereunder. Any
attempted assignment in violation of this Section 8.5 shall be void.
8.6 HEADINGS.
--------
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
8.7 COUNTERPARTS.
------------
This Agreement and any amendment hereto or any other agreement (or
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party and delivered to the other party.
8.8 PUBLICITY AND REPORTS.
---------------------
Seller and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without obtaining the prior
consent of the other party, which shall not be unreasonably withheld, except
(following consultation with the other party to the extent reasonably possible)
to the extent that
49
<PAGE>
a particular action is required by applicable Law or stock exchange rules.
8.9 REMEDIES CUMULATIVE.
-------------------
Except for the limitation on remedies by Buyer and Seller contained in
Section 7.3 of this Agreement, all rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
8.10 PARTIES IN INTEREST.
-------------------
This Agreement shall be binding upon and inure to the benefit of each
party to this Agreement, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to (or to
confer any right of subrogation or action over against) any party to this
Agreement.
8.11 NOTICES.
-------
Any notice or other communication hereunder must be given in writing
and (a) delivered in person, (b) transmitted by telefax or (c) mailed, postage
prepaid, receipt requested as follows:
If to Buyer, addressed to:
Parkway Holdings Limited
80 Marine Parade Road
#22-01/99 Parkway Parade
Singapore 1544
Telephone: (65) 345-8822
Telefax: (65) 344-0356
Attention: Company Secretary
With a copy each to:
Khattar Wong & Partners
80 Raffles Place #25-01
UOB Plaza 1
Singapore 0104
Telephone: (65) 535-6844
Telefax: (65) 534-1909
Attention: Chang See Hiang, Esq.
50
<PAGE>
and
Sullivan & Cromwell
28/F, Nine Queen's Road Central
Hong Kong
Telephone: (852) 2826-8688
Telefax: (852) 2522-2280
Attention: John Evangelakos, Esq.
If to Seller, addressed to:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Telephone: (310) 998-8000
Telefax: (310) 998-4088
Attention: General Counsel
With a copy to:
O'Melveny & Myers
400 South Hope Street, 15th Floor
Los Angeles, California 90071-2899
Telephone: (213) 669-6000
Telefax: (213) 669-6407
Attention: Richard A. Boehmer, Esq.
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 8.11 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually received at such address.
8.12 STAMP DUTIES.
------------
Buyer shall pay all stamp duties, goods and services taxes, and any
similar charges (except receipts duties, financial institutions duties or bank
account debits taxes, which shall be paid by the party upon which they fall)
assessed on or in relation to this Agreement and the Conveyance Documents or any
of the matters or transactions or sales under this Agreement, the share transfer
form, or under any related document, except for all such duties, taxes or
charges relating to or arising out of the Restructuring.
8.13 EXPENSES AND ATTORNEYS FEES.
---------------------------
Seller and Buyer shall each pay their own expenses incident to the
negotiation, preparation and performance of this
51
<PAGE>
Agreement and the transactions contemplated hereby, including but not limited to
the fees, expenses and disbursements of their respective Investment Bankers,
accountants and counsel. In the event of any Action for the breach of this
Agreement, indemnification or misrepresentation by any party, the prevailing
party shall be entitled to reasonable attorney's fees, costs and expenses
incurred in connection with investigating and prosecuting such Action.
8.14 SEVERABILITY.
------------
If any provision of this Agreement is held invalid or unenforceable by
any Governmental Entity, the remaining provisions of this Agreement shall remain
in full force and effect provided that the essential terms and conditions of
this Agreement for both parties remain valid, binding and enforceable.
8.15 DOLLARS.
-------
Unless otherwise specified herein, all references to "$" and "dollars"
shall mean United States Dollars.
ARTICLE IX
DEFINITIONS
9.1 DEFINITIONS.
-----------
For all purposes of this Agreement, except as otherwise expressly
provided:
(a) the terms defined in this Article IX include the plural as well
as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement except as otherwise provided in
this Agreement;
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(e) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(f) all references to any Contract shall mean and include such
Contract as it may have been amended, restated, modified, supplemented, renewed
or replaced from time to time.
52
<PAGE>
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply:
"Action" means any action, claim, complaint, petition, investigation, suit
or other proceeding, whether civil or criminal, at law or in equity, or before
any arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified Person.
"Agreement" means this Agreement by and between Buyer and Seller as amended
or supplemented, together with all Exhibits and Schedules attached or
incorporated by reference therein.
"Approval" means any approval, authorization, consent, waiver,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person
(including, without limitation, any of the foregoing required to be obtained
from any lender or security holder).
"Auditors" means KPMG Peat Marwick L.L.P., independent public accountants
to Seller or, with respect to any Company or Subsidiary, the auditors whose
report is included in the financial statements of such entity.
"Balance Sheet" has the meaning assigned to it in Section 2.3(b).
"Benefit Plans" has the meaning assigned to it in Section 2.15.
"BMC" has the meaning assigned to it in the Recitals to this Agreement.
"Business" has the meaning assigned to it in the Recitals to this
Agreement.
"Closing" means the consummation of the purchase and sale of the Stock
under this Agreement or each of the purchases and sales of portions of Stock if
the provisions of Section 7.5 are applicable.
"Closing Date" means the date of the Closing or the various dates of
Closing if the provisions of Section 7.5 are applicable.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and successor statutes.
53
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"Companies" has the meaning assigned to it in the Recitals to this
Agreement.
"Company Real Properties" has the meaning assigned to it in Section 2.6(b).
"Contract" means any document, agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Conveyancing Documents" has the meaning assigned to it in Section 1.5.
"Core Business" has the meaning assigned to it in Section 7.5.
"Disclosure Schedule" means the Disclosure Schedule dated the date of this
Agreement and delivered by Seller to Buyer, or Buyer to Seller, as the case may
be, pursuant to this Agreement. Any information set forth in any section of the
Disclosure Schedule shall be deemed to be set forth in such other section of the
Disclosure Schedule as contains a cross-reference to the former section.
"Encumbrance" means any claim, charge, easement, encumbrance, security
interest, lien, option, pledge, negative pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable U.S. or
foreign securities law.
"Equity Securities" means any capital stock or other equity interest or any
securities convertible into or exchangeable for such capital stock or other
equity interest or any other rights, warrants or options to acquire any of the
foregoing securities, including the rights to any dividend declared but unpaid
in respect thereof.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time, with such specifically disclosed changes, if
any, as may be required by generally accepted accounting principles.
"Governmental Entity" means any government or any agency, district, bureau,
board, statutory board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
"Intellectual Property" has the meaning assigned to it in Section 2.14.
54
<PAGE>
"Interim Period" has the meaning assigned to it in Section 2.4(b).
"International - NME" has the meaning assigned to it in Section 1.6.
"Investment Bankers" has the meaning assigned to it in Section 2.19.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Letter Agreement" has the meaning assigned to it in Section 4.1.
"Malaysian Business" means the portion of the Business carried on by or
through PME and SJMC in Malaysia and shall not include business carried on by or
through Mount Elizabeth Health Care Services Sdn. Bhd.
"Material Adverse Effect" means a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Business (or, if the entire Business is not sold to Buyer as contemplated in
Section 7.5, of the portion of the Business to be sold to Buyer), taken as a
whole, or on the ability of any Seller Entity to consummate the transactions
contemplated in this Agreement.
"MR" means Malaysian Ringgits.
"NME Asia" has the meaning assigned to it in the Recitals to this
Agreement.
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ.
"Overhead Expenses" has the meaning assigned to it in Section 2.21.
"Permit" means any license, permit, franchise, certificate of authority, or
order, or any waiver of the foregoing, required to be issued by any Governmental
Entity.
"Permitted Encumbrances" means, collectively, (i) mechanics', carriers',
workmen's, repairmen's or other like liens arising or incurred in the ordinary
course of business, liens arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business and liens for Taxes which are not due and payable or
which may thereafter be paid without penalty, (ii) mortgages, liens, security
interests and encumbrances which secure debt that is reflected as a liability on
the financial
55
<PAGE>
statements referred to in Section 2.3 and the existence of which is indicated in
the notes thereto and (iii) other imperfections of title or encumbrances, if
any, which do not, individually or in the aggregate, materially impair the value
of or the continued use and operation of the assets to which they relate in the
Business.
"Person" means an association, a corporation, an individual, a partnership,
a joint venture, a trust or any other entity or organization, including a
Governmental Entity.
"PME" has the meaning assigned to it in the Recitals to this Agreement.
"Pre-Closing Tax Period" means all taxable periods ending on or before
February 28, 1995 and the portion ending on February 28, 1995 of any taxable
period that includes (but does not end on) such day.
"Purchase Price" has the meaning set forth in Section 1.2.
"Restructuring" means the transactions contemplated by Sections 1.6 and
4.11 hereof.
"Seller Entity" means Seller and each subsidiary or Affiliate of Seller
that owns any Equity Security of any Company or any assets used in the Business
to be conveyed to Buyer as contemplated by Sections 1.1 and 1.4.
"Seller's Transition Tax Exposure Amount" means the difference, if any,
between (i) the U.S. Federal, state and local income tax liability of Seller and
its Affiliates for Seller's taxable year ending on May 31, 1996 computed to take
into account (A) any liability incurred by Seller and its Affiliates under
Section 951(a) of the Code as a result of any income earned by any Company or
Subsidiary during the Transition Period or the acquisition of any asset or the
undertaking of any transaction or activity by any Company or Subsidiary during
the Transition Period and (B) any reduction in the combined earnings and profits
of the Companies and Subsidiaries (as determined under the Code) to an amount
less than the combined earnings and profits of the Companies and Subsidiaries on
the Closing Date that is attributable to any dividend or other distribution
declared, issued, made or paid during the Transition Period by any Company or
Subsidiary (or any entity becoming a subsidiary of any Company or any Subsidiary
during the Transition Period) and (ii) the U.S. Federal, state and local income
tax liability of Seller and its Affiliates for Seller's taxable year ending on
May 31, 1996 computed without regard to the items described in subclauses (A)
and (B) of clause (i) of this sentence. For this purpose, the Tax liability of
Seller and its Affiliates shall be calculated by taking into account foreign tax
credits available to Seller and its Affiliates and by taking into account the
effect of an
56
<PAGE>
increase in an overall foreign loss or increase in a separate limitation loss
(each as defined in section 904(f) of the Code) on the ability of Seller and its
Affiliates to utilize foreign tax credits for U.S. Federal income tax purposes.
"SJMC" has the meaning assigned to it in the Recitals to this Agreement.
"Stock" means the capital stock of the Companies as described in Section
2.1 of the Disclosure Schedule.
"Subsidiary" means any Person in which a Company has a direct or indirect
equity or ownership interest in excess of fifty percent (50%).
"Tax" or "Taxes" means any foreign, federal, state, county or local income,
sales, turnover, use, excise, franchise, ad valorem, goods and services, real
and personal property, transfer, gross receipt, stamp, premium, profits, customs
and excise, duties, windfall profits, capital stock, capital gains or duty,
production, business and occupation, disability, employment, payroll, severance
or withholding taxes, fees, assessments or charges of any kind whatever imposed
by any Governmental Entity, all amounts equal to the Tax cost of any deprivation
of any relief, allowance, set-off or deduction in computing profits or right to
repayment of Tax granted by or pursuant to Law relating to Tax, any interest,
charges and penalties (civil or criminal), additions to tax, payments in lieu of
taxes or additional amounts related thereto or to the nonpayment thereof, and
any Loss in connection with the determination, settlement or litigation of any
Tax liability.
"Tax Return" means a declaration, statement, report, return, computation of
tax, invoice, records (accounting or otherwise) or other document or information
required to be filed or supplied with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes any Company or Subsidiary.
"Territory" has the meaning assigned to it in Section 5.8.
"Thai Business" means the portion of the Business carried on or as
currently contemplated to be carried on by or through BMC in Thailand.
"Thai Promissory Note" has the meaning assigned to it in Section 1.6.
"Transition Period" means the period beginning on the day after the Closing
Date and ending on May 31, 1996.
57
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
BUYER
PARKWAY HOLDINGS LIMITED,
a Singapore corporation
By: /s/ TAN KAI SENG
-------------------------
Tan Kai Seng
Its: Director
-------------------------
SELLER
NATIONAL MEDICAL ENTERPRISES, INC.,
a Nevada corporation
By: /s/ TERENCE P. MCMULLEN
-------------------------
Terence P. McMullen
Its: Vice President
-------------------------
58
<PAGE>
Exhibit A
Allocation of Purchase Price
Pacific Medical Enterprises Sdn. Berhad (2 shares)
and Subang Jaya Medical Centre Sdn. Bhd. (6,186,000 shares)
U.S. $12 million
NME Asia Pte Ltd (29,800,002 shares) U.S. $323 million
less the U.S. dollar
amount determined in
Section 1.2(ii)
Bumrungrad Medical Center Limited (22,695,000 shares) U.S. $17 million
plus all amounts
lent to BMC by NME
Inc. or its
affiliates (other
than NME Asia or any
of its Subsidiaries)
subsequent to
February 28, 1995
59
<PAGE>
Exhibit 10(p)
AUSTRALIA STOCK PURCHASE AGREEMENT
dated as of
July 5, 1995,
between
NATIONAL MEDICAL ENTERPRISES, INC.
and
PARKWAY HOLDINGS LIMITED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
Recitals
ARTICLE I
PURCHASE AND SALE; CLOSING.................. 1
1.1 SALE AND PURCHASE OF STOCK.................................... 1
--------------------------
1.2 PURCHASE PRICE................................................ 2
--------------
1.3 THE CLOSING................................................... 2
-----------
1.4 RELEASE AND WAIVER............................................ 2
------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER........... 2
2.1 COMPANY AND AME; ORGANIZATION AND RELATED MATTERS............ 2
-------------------------------------------------
2.2 STOCK........................................................ 3
-----
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES................. 4
--------------------------------------------
2.4 TAX MATTERS.................................................. 5
-----------
2.5 MATERIAL CONTRACTS........................................... 6
------------------
2.6 REAL PROPERTY................................................ 8
-------------
2.7 ASSETS OTHER THAN REAL PROPERTY.............................. 9
-------------------------------
2.8 AUTHORIZATION; NO CONFLICTS.................................. 9
---------------------------
2.9 LEGAL PROCEEDINGS............................................ 10
-----------------
2.10 DIVIDENDS AND OTHER DISTRIBUTIONS............................ 11
---------------------------------
2.11 INSURANCE.................................................... 11
---------
2.12 COMPLIANCE WITH LAW.......................................... 11
-------------------
2.13 ENVIRONMENTAL MATTERS........................................ 11
---------------------
2.14 INTELLECTUAL PROPERTY........................................ 12
---------------------
2.15 BENEFIT PLANS................................................ 12
-------------
2.16 EMPLOYEE AND LABOR MATTERS................................... 13
--------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
2.17 CERTAIN INTERESTS............................................ 14
-----------------
2.18 BANK ACCOUNTS, POWERS, ETC................................... 14
--------------------------
2.19 NO BROKERS OR FINDERS........................................ 14
---------------------
2.20 TRUE AND COMPLETE COPIES OF DOCUMENTS........................ 15
-------------------------------------
2.21 OVERHEAD EXPENSE............................................. 15
----------------
2.22 STOCK EXCHANGE INFORMATION................................... 15
--------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER........... 15
3.1 ORGANIZATION AND RELATED MATTERS.............................. 15
--------------------------------
3.2 AUTHORIZATION................................................. 16
-------------
3.3 NO CONFLICTS; CONSENTS AND APPROVALS.......................... 16
------------------------------------
3.4 NO BROKERS OR FINDERS......................................... 16
---------------------
3.5 LEGAL PROCEEDINGS............................................. 16
-----------------
3.6 INVESTMENT.................................................... 17
----------
3.7 FUNDS AVAILABLE............................................... 17
---------------
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT
PRIOR TO CLOSING....................... 17
4.1 ACCESS........................................................ 17
------
4.2 MATERIAL ADVERSE CHANGES...................................... 18
------------------------
4.3 CONDUCT OF BUSINESS........................................... 18
-------------------
4.4 PERMITS AND APPROVALS......................................... 21
---------------------
4.5 CONFIDENTIALITY............................................... 21
---------------
4.6 INSURANCE PROCEEDS............................................ 21
------------------
4.7 AMOUNTS DUE TO SELLER......................................... 22
---------------------
4.8 PROPRIETARY INFORMATION....................................... 22
-----------------------
ARTICLE V
ADDITIONAL CONTINUING COVENANTS AND INDEMNITIES........ 22
5.1 COOPERATION IN AUDITS......................................... 22
---------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
5.2 TAX MATTERS.................................................... 22
-----------
5.3 ACCESS......................................................... 26
------
5.4 USE OF AND RIGHT TO NAMES...................................... 27
-------------------------
5.5 EMPLOYMENT MATTERS............................................. 27
------------------
5.6 RECORDS........................................................ 27
-------
5.7 AGREEMENT NOT TO COMPETE....................................... 28
------------------------
5.8 THIRD PARTY OFFERS............................................. 30
------------------
ARTICLE VI
CONDITIONS OF PURCHASE..................... 31
6.1 CONDITIONS PRECEDENT TO BINDING EFFECT......................... 31
--------------------------------------
6.2 GENERAL CONDITIONS............................................. 33
------------------
6.3 CONDITIONS TO OBLIGATIONS OF BUYER............................. 33
----------------------------------
6.4 CONDITIONS TO OBLIGATIONS OF SELLER............................ 35
-----------------------------------
ARTICLE VII
TERMINATION OF OBLIGATIONS;
INDEMNIFICATION; SURVIVAL................... 36
7.1 TERMINATION OF AGREEMENT....................................... 36
------------------------
7.2 EFFECT OF TERMINATION.......................................... 37
---------------------
7.3 INDEMNIFICATION................................................ 37
---------------
7.4 SURVIVAL OF REPRESENTATIONS.................................... 43
---------------------------
ARTICLE VIII
GENERAL............................ 43
8.1 AMENDMENTS; WAIVERS........................................... 43
-------------------
8.2 SCHEDULES; EXHIBITS; INTEGRATION.............................. 43
--------------------------------
8.3 REASONABLE BEST EFFORTS; FURTHER ASSURANCES................... 43
-------------------------------------------
8.4 GOVERNING LAW................................................. 44
-------------
8.5 NO ASSIGNMENT................................................. 44
-------------
8.6 HEADINGS...................................................... 45
--------
8.7 COUNTERPARTS.................................................. 45
-------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
8.8 PUBLICITY AND REPORTS......................................... 45
---------------------
8.9 REMEDIES CUMULATIVE........................................... 45
-------------------
8.10 PARTIES IN INTEREST........................................... 45
-------------------
8.11 NOTICES....................................................... 45
-------
8.12 STAMP DUTIES.................................................. 47
------------
8.13 EXPENSES AND ATTORNEYS FEES................................... 47
---------------------------
8.14 SEVERABILITY.................................................. 47
------------
8.15 DOLLARS....................................................... 47
-------
ARTICLE IX
DEFINITIONS.......................... 47
9.1 DEFINITIONS................................................... 47
-----------
</TABLE>
iv
<PAGE>
Schedules
---------
Disclosure Schedule dated June 20, 1995
v
<PAGE>
AUSTRALIA STOCK PURCHASE AGREEMENT
This Australia Stock Purchase Agreement is entered into as of July 5,
1995, between Parkway Holdings Limited, a Singapore corporation ("Buyer"), and
National Medical Enterprises, Inc., a Nevada corporation ("Seller").
R E C I T A L S
WHEREAS, Seller, through its subsidiaries, owns and operates a
hospital, diagnostic, pathology and related healthcare services business in
Australia (as currently conducted, the "Business");
WHEREAS, the Business is conducted by Seller through Tenet Healthcare
Australia Pty Limited, an Australian corporation (the "Company"), and through
the ownership of an interest in Australian Medical Enterprises Limited, an
Australian corporation ("AME"); and
WHEREAS, pursuant to this Agreement, Seller desires to sell, and Buyer
desires to buy, all of the issued shares of the Company (the "Stock") for the
consideration described herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and, subject
to Section 6.1, intending to be legally bound the parties agree as follows
(except as otherwise expressly provided, all defined terms in this Agreement
shall have the meanings assigned to them in Article IX hereof):
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1 SALE AND PURCHASE OF STOCK.
--------------------------
Subject to the terms and conditions of this Agreement, Seller agrees
to sell, and to cause International - NME, Inc. ("International - NME") to sell,
the Stock and convey, transfer, assign and deliver the certificates evidencing
the Stock to Buyer at the Closing, and Buyer agrees to purchase the Stock from
Seller and International - NME. The certificates will be accompanied by share
transfers duly executed by Seller or International - NME, as the case may be, in
respect of the Stock and a duly executed power of attorney by each of them to do
any and all things in respect of the Stock until the time the share transfers in
respect of the Stock are registered in favor of
1
<PAGE>
Buyer, and otherwise in a form acceptable for transfer on the books of the
Company.
1.2 PURCHASE PRICE.
--------------
Subject to the terms and conditions of this Agreement, Buyer agrees to
pay to Seller or its order at the Closing in exchange for the Stock the amount
of U.S.$63,000,000 (the "Purchase Price"). The Purchase Price shall be paid in
cash (in funds immediately available in Hong Kong).
1.3 THE CLOSING.
-----------
The Closing shall take place at the offices of O'Melveny & Myers in
Hong Kong, on the tenth business day after the satisfaction of the conditions
specified in Sections 6.1(a), 6.2(b), 6.3(c) and 6.4(b), or at such other place
or on such other date as Seller and Buyer may agree.
1.4 RELEASE AND WAIVER.
------------------
Except as expressly provided for in this Agreement, the Closing shall
constitute an unconditional release and waiver by Seller and its subsidiaries
and Affiliates (other than the Company, AME and its Subsidiaries) of, and Seller
thereby covenants to cause its subsidiaries and Affiliates to unconditionally
release and waive, any and all claims it or any of its subsidiaries or
Affiliates may have against or with respect to the Company, AME or any of its
Subsidiaries or any other assets constituting part of the Business.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller has invited Buyer to perform and Buyer has performed due
diligence and business investigations with respect to the Company and AME, with
the intention that Buyer form its own conclusions regarding the condition and
value of the Business pursuant to the parties' express intention that the sale
of the Business be without representation or warranty by Seller, express or
implied, except as set forth in this Agreement and the Disclosure Schedule,
which representations and warranties Seller acknowledges Buyer is relying upon
in entering into this Agreement. Unless the context otherwise requires,
references to AME in this Article II shall include AME and its Subsidiaries.
Seller represents and warrants to Buyer as of the date of the Disclosure
Schedule as follows:
2.1 COMPANY AND AME; ORGANIZATION AND RELATED MATTERS.
-------------------------------------------------
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of
2
<PAGE>
Nevada. The Company is a corporation duly incorporated and validly existing
under the laws of New South Wales and AME is a corporation duly incorporated and
validly existing under the laws of Western Australia. Section 2.1 of the
Disclosure Schedule correctly sets forth the capitalization of each of the
Company and AME and each jurisdiction in which each of the Company and AME is
qualified or licensed to do business as a foreign person. Seller has all
necessary corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated by this Agreement.
Each of the Company and AME has all necessary corporate power and authority to
own or lease its properties and assets and to carry on its business as now
conducted. Section 2.1 of the Disclosure Schedule correctly lists the current
registered directors and executive officers of each of the Company and AME
(other than its Subsidiaries). True, correct and complete copies of the
respective memorandum and articles of association of each of the Company and AME
(other than its Subsidiaries) have been delivered to Buyer. The Company and AME
constitute all the entities through which Seller conducts, directly or
indirectly, the Business, and, except as set forth in Section 2.1 of the
Disclosure Schedule, the assets and properties owned or leased by the Company
and AME constitute all the material assets, properties and rights used by Seller
and its subsidiaries and Affiliates in connection with the conduct of the
Business.
2.2 STOCK.
-----
(a) Except as described in Section 2.1 of the Disclosure Schedule,
Seller, directly or indirectly, owns all of the issued Equity Securities of
the Company beneficially and of record. The Company owns 101,006,395
shares (the "AME Stock") of AME, beneficially and of record. Except as
described in Section 2.2 of the Disclosure Schedule, all of such Equity
Securities of Company and the AME Stock are owned free and clear of any
Encumbrance. At the Closing, Buyer will acquire good and valid title to
and complete ownership of the Stock, with all rights attaching thereto as
of the Closing Date, free and clear of any Encumbrance. The authorized,
issued and outstanding capital stock of each of the Company and AME is
described in Section 2.1 of the Disclosure Schedule. Except as described
in Section 2.2 of the Disclosure Schedule, there are no outstanding
Contracts or other rights to subscribe for or purchase, or Contracts or
other obligations to issue or grant any rights to acquire, any Equity
Securities of the Company or the AME Stock or, to the knowledge of Seller,
the Equity Securities of AME, or to restructure or recapitalize the Company
or, to the knowledge of Seller, AME. Other than this Agreement and except
as set forth in Section 2.2 or Section 2.8 of the Disclosure Schedule,
neither the Stock nor the AME Stock nor, to the knowledge of Seller, the
Equity Securities of AME is subject to any voting trust
3
<PAGE>
agreement or other Contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend
rights or disposition thereof.
(b) Except as set forth in Section 2.2 of the Disclosure Schedule,
the Company does not own directly or indirectly any Equity Securities of
any Person and the Company is not a member of or participant in any
partnership, joint venture or similar Person (other than passive investment
holdings in amounts not material in the aggregate and the AME Stock).
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
--------------------------------------------
(a) Seller has delivered to Buyer a consolidated balance sheet for
the Business at each of May 31, 1994 and 1993 and the related consolidated
statements of operations, changes in owner's equity and cash flow
(including the notes thereto and the consolidating schedules) for the two-
year period ended May 31, 1994, and for the three-month period ended May
31, 1992, a true and correct copy of which has been provided to Buyer by
Seller. All such financial statements have been audited by the Auditors
whose report thereon is included with such financial statements. Such
statements of operations and cash flow present fairly, in all material
respects, the results of operations and cash flows of the Business for the
respective periods covered, and the balance sheets present fairly, in all
material respects, the financial condition of the Business as of their
respective dates, in all cases in conformity with GAAP applied on a
consistent basis (except for changes, if any, required by GAAP and
disclosed therein).
(b) Seller has delivered to Buyer a consolidating balance sheet for
the Business at February 28, 1995 (the "Balance Sheet"), and the related
consolidating statements of operations for the nine-month periods ended
February 28, 1995 and 1994; a true and correct copy of each of which has
been provided to Buyer by Seller. Such statements of operations and the
Balance Sheet have been compiled in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of
Certified Public Accountants and, except as set forth in the Independent
Accountants' Compilation Report, dated April 3, 1995, included therewith,
are in conformity with GAAP applied on a consistent basis.
(c) Except as described in Section 2.3 of the Disclosure Schedule,
from February 28, 1995 to the date of the Disclosure Schedule, whether or
not in the ordinary course of business, there has not been, occurred or
arisen:
4
<PAGE>
(i) any change in or event or a series of connected events
affecting the Business that has had or is reasonably expected to have
an impact of $100,000 individually or $500,000 in the aggregate with
all other such changes, events or series of events or otherwise has
had or is reasonably expected to have a Material Adverse Effect,
except for changes reflected in the financial statements referred to
in this Section 2.3 and changes affecting generally the Australian
health care industry as a whole (it being understood that Buyer
assumes the risks of changes of such type);
(ii) any casualty, loss, damage or destruction of any property
of the Company or AME or that has involved a loss to the Company or
AME in excess of applicable insurance coverage, that has had or is
reasonably expected to have an impact in excess of $100,000
individually or $500,000 in the aggregate with all other such
casualties, losses, damage or destruction, or otherwise has had or is
reasonably expected to have a Material Adverse Effect; or
(iii) any of the events described in Section 4.3 hereof.
(d) Except as set forth in Section 2.3 of the Disclosure Schedule,
neither the Company nor AME has any liability or obligation of any nature
(whether known or unknown, absolute, accrued, contingent or otherwise) or
has engaged in other types of financing transactions that would have or
would reasonably be expected to have an impact of $100,000 individually or
$500,000 in the aggregate with all other such liabilities or obligations or
otherwise has had or is reasonably expected to have a Material Adverse
Effect, other than (i) as disclosed, reflected or reserved against in the
financial statements referred to in this Section 2.3 and the notes thereto
and (ii) liabilities and obligations incurred in the ordinary course of
business consistent with past practices since the date of the Balance Sheet
and not in violation of this Agreement.
2.4 TAX MATTERS.
-----------
(a) Except as set forth in Section 2.4 of the Disclosure Schedule, as
of the Closing Date (i) each of the Company and AME has timely filed (or,
where permitted or required, its respective direct or indirect parents have
timely filed) all material required Tax Returns, (ii) each such Tax Return
sets forth the Tax liability required to be set forth therein in accordance
with the provisions of the Australian Income Tax Assessment Act, 1936, as
amended, or other applicable law (other than Taxes contested in good faith)
and is otherwise true and correct in all material
5
<PAGE>
respects, (iii) all Taxes shown to be due on the Tax Returns referred to in
clause (i) have been timely paid in full (other than Taxes contested in
good faith), (iv) no material tax liens have been filed with respect to
Taxes of the Company or AME, (v) no Governmental Entity has, during the
past three years, conducted a taxation audit of the Company or AME, and
(vi) no Governmental Entity has proposed in writing any deficiency,
assessment or claim for Taxes of either the Company or AME.
(b) Except as set forth in Section 2.4 of the Disclosure Schedule,
during the period from March 1, 1995 through the Closing Date (the "Interim
Period"), neither the Company nor AME will have (i) engaged in any
transaction, other than in the ordinary course of business, that will cause
the effective Tax rate of the Company and AME for Taxes for the Interim
Period to be materially greater than the effective Tax rate of the Company
and AME for Taxes for the year ended May 31, 1994 as adjusted for changes
in Tax law and other events beyond the control of Seller or (ii) made or
changed any election, changed any annual accounting period, or adopted or
changed any accounting method that would have the effect of increasing the
Tax liability of the Company or AME.
(c) Nothing has occurred in respect of the Company or AME which would
cause the disallowance for Tax purposes of either the carry forward of
losses as of the date of the Balance Sheet or the deduction of losses
incurred since that date other than as a result of the transfer of the
Stock.
2.5 MATERIAL CONTRACTS.
------------------
Except as set forth in Section 2.5 of the Disclosure Schedule, neither
the Company nor AME is a party to or bound by any Contract which is an:
(i) employment agreement, employment contract or consultancy or
other similar service agreement;
(ii) employee collective bargaining agreement or other contract with
any labor union;
(iii) agreement or covenant of the Company or AME not to compete or
other covenant of the Company or AME restricting the development,
manufacture, marketing or distribution of the products and services of the
Business, which in each case is material in respect of any portion of
Australia;
(iv) agreement, contract or other arrangement (including management
agreements) with (A) Seller or any Affiliate of Seller (other than the
Company or AME) or (B) any current or former officer, director or employee
of
6
<PAGE>
Seller, the Company, AME or any Affiliate of Seller (other than employment
agreements covered by clause (i) above);
(v) lease, sublease or similar agreement with any Person under
which the Company or AME is a lessor or sublessor of, or makes available
for use to any Person a portion of the real property assets of the Company
or AME (other than real property leases with doctors or clinics entered
into in the ordinary course of the Business consistent with past
practices);
(vi) agreement, contract or other instrument under which the
Company or AME has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any Person or any other
note, bond, debenture or other evidence of indebtedness issued to any
Person which individually is in excess of U.S.$100,000 or in the aggregate
are in excess of U.S.$500,000;
(vii) agreement, contract or other instrument (including so-called
keepwell agreements, letters of comfort or letters of moral intent) under
which (A) any Person (including the Company or AME) has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the
Business or the Company or AME or (B) the Company or AME has directly or
indirectly guaranteed indebtedness, liabilities or obligations of any
Person (in each case other than endorsements for the purpose of collection
in the ordinary course of business), which individually, is in excess of
U.S.$100,000 or in the aggregate are in excess of U.S.$500,000;
(viii) agreement, memorandum of understanding, letter of intent,
contract or other instrument under which the Company or AME has made or
will make, directly or indirectly, any advance, loan, extension of credit
or capital contribution to, or other investment in, any Person (other than
to doctors in the ordinary course of business consistent with past
practice), which individually is in excess of U.S.$100,000 or in the
aggregate are in excess of U.S.$500,000;
(ix) material mortgage, pledge, security agreement, deed of trust
or other instrument granting a lien or other Encumbrance upon any of the
Company Real Properties;
(x) powers of attorney (other than powers of attorney given to
officers or other representatives of the Company or AME in the ordinary
course of the Business with respect to routine tax, securities and
shareholder matters);
7
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(xi) letter of intent, memorandum of understanding or agreement to
acquire or develop any hospital or other medical-related property or
business;
(xii) any agreement or Contract relating to the trading, hedging,
exchange or sale or purchase of securities, indices, currencies, interest
rates, futures or any financial or derivative instruments of any nature
whatsoever; or
(xiii) other agreement, contract, lease, license, commitment or
instrument to which the Company or AME is a party or by or to which it or
any of its assets or business is bound or subject which has an aggregate
future liability to any Person or Persons in excess of U.S.$100,000.
Except as set forth in Section 2.5 of the Disclosure Schedule, each Contract of
the Company or AME listed in the Disclosure Schedule is valid, binding and in
full force and effect and is enforceable, as applicable, by the Company and AME
and, to the knowledge of Seller, each of the other parties to the Contract in
accordance with its terms. Except as set forth in Section 2.5 of the Disclosure
Schedule, each of the Company and AME has performed all obligations required to
be performed by it to date under the Contracts and neither the Company, AME nor,
to the knowledge of Seller, any other parties to any of the Contracts (with or
without the lapse of time or the giving of notice, or both) is in breach or
default thereunder, except where such failure to perform or breach has not and
would not reasonably be expected to have resulted in a liability to the Company
or AME individually in excess of U.S.$100,000 and U.S.$500,000 in the aggregate
together with all other such failures, or has not had and would not otherwise be
expected to have a Material Adverse Effect.
2.6 REAL PROPERTY.
-------------
(a) Section 2.6 of the Disclosure Schedule sets forth a complete and
accurate description of the real immovable property owned in fee simple by
the Company and AME (the "Owned Real Property") and a complete list of all
real property and interests in real property leased by the Company and AME
(the "Leased Real Property").
(b) Each of the Company and AME has (i) good and valid title to all
Owned Real Property and (ii) good and valid title to the leasehold estates
in all Leased Property (an Owned Real Property or Leased Real Property
being sometimes referred to herein, collectively, as "Company Real
Properties"), in each case free and clear of all Encumbrances, leases,
assignments, subleases, easements, covenants, rights-of-way and other
similar restrictions of any nature whatsoever, except (A) such as are set
forth in
8
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Section 2.6 of the Disclosure Schedule; (B) leases, subleases and similar
agreements set forth in Section 2.5 of the Disclosure Schedule or not
required to be disclosed therein; and (C) Permitted Encumbrances. Except
as set forth in Section 2.6 of the Disclosure Schedule, the Company Real
Properties have been maintained in all material respects in accordance with
the past practices of the Business and consistent with industry practice
and are in good operating condition and repair, ordinary wear and tear
excepted. The current use by the Company and AME of the plants, offices
and other facilities located on Company Real Property does not constitute a
material violation of any material local zoning or similar land use or
government regulations. Each of the Company and AME has all necessary
material Approvals and Permits that are required to be obtained by it as of
the date of the Disclosure Schedule for any development or building
projects currently in process.
2.7 ASSETS OTHER THAN REAL PROPERTY.
-------------------------------
Each of the Company and AME has good and valid title to all (a) its
assets reflected on the Balance Sheet and (b) its assets thereafter acquired,
which in each case are material to the Business, except those sold or otherwise
disposed of since the date of the Balance Sheet in the ordinary course of
business consistent with past practice and not in violation of this Agreement,
in each case free and clear of all Encumbrances except (i) such as are set forth
in Section 2.7 of the Disclosure Schedule and (ii) Permitted Encumbrances.
All the tangible personal property of the Company and AME that is
material to the Business has been maintained in all material respects in
accordance with the past practices of the Business and consistent with industry
practice. The tangible personal property of the Company and AME is in good
operating condition and repair, ordinary wear and tear excepted, consistent with
industry practice. All leased personal property of the Company and AME is in
all material respects in the condition required of such property by the terms of
the lease applicable thereto during the term of the lease and upon the
expiration thereof.
This Section 2.7 does not relate to Company Real Property or interests
therein, such items being the subject of Section 2.6.
2.8 AUTHORIZATION; NO CONFLICTS.
---------------------------
The execution, delivery and performance of this Agreement by Seller
and International - NME and consummation of the transactions contemplated by
this Agreement have been duly and validly authorized by all necessary corporate
action on the part of Seller and International - NME. Subject to Section 6.1,
9
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this Agreement constitutes the legally valid and binding obligation of the
Seller, enforceable against Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally. The execution, delivery and, upon receipt
of the Permits and Approvals listed in Sections 2.8 (II) and 6.2 (II) of the
Disclosure Schedule, performance of this Agreement by Seller and International -
NME will not (i) violate, or constitute a breach or default under the charter
documents or by-laws of Seller, International - NME, the Company or AME or (ii)
violate, or constitute a material breach or material default or result in the
acceleration of or permit the acceleration of any material obligation (whether
upon lapse of time and/or the occurrence of any act or event or otherwise)
under, any material Contract of any of such entities, or cause or give rise to a
right of termination of or adverse change in the terms of any material Contract,
or result in the imposition of any material Encumbrance against any asset or
properties of the Company or AME, or violate any Law or any material Permit or
material Approval or cause any material Permit or material Approval to be
revoked, withdrawn or modified. Section 2.8 of the Disclosure Schedule lists
all material Permits and Approvals in connection with the operation of the
Business as presently conducted, and such Permits and Approvals constitute all
the material Permits and Approvals necessary to conduct the Business. Sections
6.2 (II) and 2.8 (II) of the Disclosure Schedule lists all material Permits and
Approvals that are required to be obtained by Seller or the Company or AME, or
filings or registrations with any third party or Governmental Entity required
for Seller or the Company or AME, to consummate the transactions contemplated by
this Agreement.
2.9 LEGAL PROCEEDINGS.
-----------------
Except as set forth in Section 2.9 of the Disclosure Schedule, there
is no Order or Action pending, or, to the best knowledge of Seller, threatened,
against or affecting the Company or AME or any of their respective properties or
assets that has resulted or is reasonably expected to result in a liability in
excess of $100,000 individually or $500,000 in the aggregate together with all
other such Orders or Actions, or that has had or is reasonably expected to have,
individually or in the aggregate together with all other such Orders and
Actions, a Material Adverse Effect.
Section 2.9 of the Disclosure Schedule sets forth a list of all Orders
and Actions pending or, to the best knowledge of Seller, threatened, against the
Company or AME (i) brought by any Government Entity, (ii) in which money damages
in excess of $100,000 individually or $500,000 in the aggregate with all other
such Orders and Actions are sought against the Company or AME or (iii) seeking
injunctive relief against the Company or AME that
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could reasonably be expected to result in a Material Adverse Effect.
2.10 DIVIDENDS AND OTHER DISTRIBUTIONS.
---------------------------------
Except as described in Section 2.10 of the Disclosure Schedule, there
has been no dividend or other distribution of assets, whether consisting of
money, securities, property or any other thing of value, declared, issued, paid,
made or set aside by the Company or AME subsequent to the date of the Balance
Sheet.
2.11 INSURANCE.
---------
Section 2.11 of the Disclosure Schedule lists all insurance policies
and bonds that are maintained by or for the benefit of the Company or AME in
connection with, and which are material to, the Business. All such policies and
bonds are in full force and effect and, to the best knowledge of Seller, there
is no threat by any of the insurers to terminate or not renew, or materially
increase the premiums payable under, any of such policies or bonds. Except as
set forth in Section 2.11 of the Disclosure Schedule, all insurance policies
maintained for the benefit of the Business, Company or AME or their respective
employees are maintained directly by the Company and/or AME and not by Seller or
any of Seller's other Subsidiaries. Except as set forth in Section 2.11 of the
Disclosure Schedule, all such insurance policies will remain in full force and
effect from and after, and will not be modified or amended as a result of, the
Closing.
2.12 COMPLIANCE WITH LAW.
-------------------
Each of the Company and AME has conducted its respective business in
all material respects in accordance with applicable Laws. The procedures and
practices of the Company and AME are in compliance in all material respects with
all such Laws. To the best knowledge of Seller, no suspension, cancellation or
termination of any Permits or Approvals required by any Governmental Entity to
permit the Business to be conducted as it is currently conducted is threatened
or imminent that could reasonably be expected to be material to the Business.
2.13 ENVIRONMENTAL MATTERS.
---------------------
(a) Each of the Company and AME has obtained and maintained in effect
all material licenses, Permits, Approvals and other authorizations required
under all applicable Laws of all applicable Governmental Entities or regulatory
authorities relating to pollution, the disposition, storage or handling of
medical waste or radioactive material or other materials which are classified
under such Laws as harmful to the environment or to human health ("Hazardous
Substance"), or to the protection of
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the environment ("Environmental Laws") and, except as set forth in Section 2.13
of the Disclosure Schedule, is in compliance in all material respects with all
Environmental Laws and with all such licenses, Permits, Approvals and
authorizations.
(b) Except as set forth in Section 2.13 of the Disclosure Schedule,
the properties presently or formerly owned or operated by the Company or AME
(including without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) (the "Properties") do not
contain any Hazardous Substance other than as permitted under any applicable
Environmental Law (provided, however, that with respect to Properties formerly
owned or operated by the Company or AME, such representation is limited to
actions taken by the Company or AME during the period the Company or AME owned
or operated such Properties).
(c) Except as set forth in Section 2.13 of the Disclosure Schedule,
neither the Company nor AME has incurred, and, to the knowledge of Seller, none
of the Properties are presently subject to, any material liabilities (fixed or
contingent) or clean-up obligations relating to Hazardous Substances or
Environmental Laws.
2.14 INTELLECTUAL PROPERTY.
---------------------
Except as set forth in Section 2.14 of the Disclosure Schedule, each
of the Company and AME has all necessary rights to and in all material patents,
trademarks (registered or unregistered), trade names, service marks and
copyrights ("Intellectual Property") owned, used, filed by or licensed to the
Company or AME in connection with the Business. Section 2.14 of the Disclosure
Schedule sets forth a list of all jurisdictions in which registered trademarks
are registered or applied for and all registration and application numbers.
Except as set forth in Section 2.14 of the Disclosure Schedule, Seller does not
know, and has received no notice, of any conflict with the asserted rights of
others with respect to any Intellectual Property, except where such conflict
would not be material to the Business.
2.15 BENEFIT PLANS.
-------------
(a) Section 2.15 of the Disclosure Schedule contains a list of all
retirement, pension, superannuation profit sharing, trust fund, bonus, stock
option or other equity-based compensation, stock purchase, severance, deferred
compensation plans or arrangements and other employee fringe benefit plans (all
the foregoing being herein called "Benefit Plans") maintained, or contributed
to, by Seller, the Company or AME for the benefit, or on the account, of any
officers or employees of the Company or AME. Seller has delivered to Buyer
true, complete and correct copies of (i) each Benefit Plan (or, in the case of
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any unwritten Benefit Plans, descriptions thereof), (ii) the most
recent summary plan description for each Benefit Plan for which a summary plan
description is required and (iii) each trust agreement and group annuity
contract relating to any Benefit Plan. Except as set forth in Section 2.15 of
the Disclosure Schedule, none of Seller and its Subsidiaries (other than the
Company or AME) maintains any Benefit Plan with, or for the benefit of, any
officer or employee of the Company or AME, including any employee referred to in
Section 5.6. Except as set forth in Section 2.15 of the Disclosure Schedule,
none of the Benefit Plans are subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Neither the
Company nor AME has or will have any obligation or liability of any kind with
respect to any of the Benefit Plans which are or may be subject to ERISA set
forth in Section 2.15 of the Disclosure Schedule.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms. All the Benefit Plans are in compliance in all
material respects with the applicable provisions of applicable Law.
Furthermore, each of the Company and AME is in compliance in all material
respects with the applicable laws, regulations and provisions contained in each
of its collective bargaining agreements and any applicable award, and is not
required to pay the Superannuation Guarantee Charge under the Superannuation
Guarantee Charge Act (6th) 1992 in respect any of its employees. Except as set
forth in Section 2.15 of the Disclosure Schedule, all payments and deductions
from wages, material reports, returns and similar documents with respect to the
Benefit Plans required to be filed with or paid to any Governmental Entity or
Benefit Plan or distributed to any Benefit Plan participant have been duly and
timely filed, distributed or paid. Except as set forth in Section 2.15 of the
Disclosure Schedule, there is no pending or, to the knowledge of Seller,
threatened litigation by any employee or former employee of the Business
relating to any Benefit Plan, other than routine claims for benefits. Each
defined benefit Benefit Plan is fully funded.
2.16 EMPLOYEE AND LABOR MATTERS.
--------------------------
(a) There is, and during the past two years there has been, no labor
strike, dispute, work stoppage or lockout pending, or, to the knowledge of
Seller, threatened, against or affecting the Company or AME;
(b) To the knowledge of Seller, no union organizational campaign is
in progress with respect to the employees of the Company or AME and no
question concerning representation exists respecting such employees;
(c) There is no unfair labor practice charge or complaint against the
Company or AME pending, or, to the
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knowledge of Seller, threatened, before any Governmental Entity;
(d) There are no pending, or, to the knowledge of Seller, threatened,
union grievances against the Company or AME which are reasonably likely to
have a Material Adverse Effect; and
(e) None of Seller, the Company or AME has received notice during the
past two years of the intent of any Governmental Entity responsible for the
enforcement of labor or employment laws to conduct an investigation of the
Company or AME and, to the knowledge of Seller, no such investigation is in
progress.
2.17 CERTAIN INTERESTS.
-----------------
(a) Except as set forth in Section 2.17 of the Disclosure Schedule,
after the Closing neither Seller nor any Affiliate thereof, nor any officer
or director of any thereof will have any interest in any property of the
Business; and neither the Company nor AME will be indebted to or otherwise
obligated to any such Person, except for amounts due under normal
arrangements applicable to all employees generally as to salary or
reimbursement of ordinary business expenses not unusual in amount or
significance.
(b) Except as set forth in Section 2.17 of the Disclosure Schedule,
after the Closing none of the agreements, contracts or other arrangements
set forth in Section 2.5 of the Disclosure Schedule between the Company or
AME, on the one hand, and Seller or any of its Affiliates, on the other
hand, will continue in effect, and there will remain thereafter no
outstanding obligation or liability in respect of any such agreement,
contract or other arrangement.
2.18 BANK ACCOUNTS, POWERS, ETC.
---------------------------
Section 2.18 of the Disclosure Schedule lists each bank, trust
company, savings institution, brokerage firm, mutual fund or other financial
institution with which the Company has an account or safe deposit box and the
names of all Persons authorized to draw thereon or to have access thereto.
2.19 NO BROKERS OR FINDERS.
---------------------
Except as set forth in Section 2.19 of the Disclosure Schedule, no
agent, broker, finder, or investment or commercial banker, or other Person or
firm (collectively, "Investment Bankers") engaged by or acting on behalf of
Seller or the Company or any of their respective Affiliates (other than AME) in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is
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or will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement or such transactions.
2.20 TRUE AND COMPLETE COPIES OF DOCUMENTS.
-------------------------------------
Copies of all leases, insurance policies, agreements, contracts and
other documents and instruments which are listed or referred to on the
Disclosure Schedule and which have been delivered to, or made available for
inspection by, Buyer are true and complete in all respects. Such documents,
together with this Agreement and all certificates, exhibits, schedules and other
instruments furnished by or on behalf of Seller pursuant to this Agreement,
taken as a whole, do not as of the date hereof, and will not as of the Closing
Date, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they are made, not
misleading, except where such misstatements or omissions reflect facts, events
or circumstances, or series of related facts, events of circumstances that would
not have and would not reasonably be expected to have a Material Adverse Effect.
2.21 OVERHEAD EXPENSE.
----------------
The expense of overhead, comprising certain administrative,
logistical, legal and other services, provided by Seller to the Business since
February 28, 1995 that has been paid or accrued by the Company and AME or that
has otherwise been allocated to the Business (the "Overhead Expense") does not
in the aggregate exceed the amounts set forth in Section 2.21 of the Disclosure
Schedule for the Business for the fiscal years ending May 31, 1995 and 1996, as
prorated through the date of the Disclosure Schedule.
2.22 STOCK EXCHANGE INFORMATION.
--------------------------
As of the date of the Disclosure Schedule, AME has complied in all
material respects with the disclosure requirements applicable to AME under
Listing Rule 3A(1) of the Listing Rules of Australian Stock Exchange Limited.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date of the
Disclosure Schedule as follows:
3.1 ORGANIZATION AND RELATED MATTERS.
--------------------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of Singapore. Buyer has all necessary corporate power
and authority to carry on its business as now being conducted. Buyer has the
necessary corporate power
15
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and authority to execute, deliver and perform this Agreement and any
transactions contemplated by this Agreement.
3.2 AUTHORIZATION
-------------
The execution, delivery and performance of this Agreement by Buyer,
and the consummation by Buyer of the transactions contemplated under this
Agreement, have been duly and validly authorized by the Board of Directors of
Buyer and by all other necessary corporate action on the part of Buyer. This
Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting creditors' rights
generally.
3.3 NO CONFLICTS; CONSENTS AND APPROVALS.
------------------------------------
The execution, delivery and performance of this Agreement by Buyer
will not (a) violate or constitute a breach or default under the charter
documents or by-laws of Buyer or (b) violate or constitute a breach or default
(whether upon lapse of time and/or the occurrence or any act or event or
otherwise) under (i) any Law to which Buyer is subject or (ii) any Contract to
which Buyer is a party, except (in the case of clause (b)) as is not reasonably
be expected to materially and adversely affect the ability of Buyer to
consummate the transactions contemplated by, or perform its obligations under,
this Agreement. Sections 6.1 (II) and 3.3 of the Disclosure Schedule lists all
material Permits and Approvals which are required to be obtained by Buyer, or
filings or registrations with any third party or Governmental Entity required
for Buyer to consummate the transactions contemplated by this Agreement.
3.4 NO BROKERS OR FINDERS.
---------------------
Except as set forth in Section 3.4 of the Disclosure Schedule, no
Investment Banker engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions.
3.5 LEGAL PROCEEDINGS.
-----------------
There is no Order or Action pending or, to the best knowledge of
Buyer, threatened, against or affecting Buyer that individually or when
aggregated with one or more other Actions has, or is reasonably expected to,
materially and adversely effect Buyer's ability to consummate the transactions
contemplated by, or perform its obligations under, this Agreement.
16
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3.6 INVESTMENT.
----------
Buyer is acquiring the Stock for Buyer's own account, or for the
account of Buyer and one or more of its Affiliates, for investment purposes only
and not with a view to or for sale in connection with the public distribution
thereof.
3.7 FUNDS AVAILABLE.
---------------
Buyer has sufficient cash, lines of credit, commitment letters or
other sources of available funds to enable it to make the payments contemplated
by Section 1.2.
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT
PRIOR TO CLOSING
4.1 ACCESS.
------
Subject to applicable laws and fiduciary obligations, and to the terms
of the Letter Agreement, dated March 17, 1995 (the "Letter Agreement"), entered
into between Seller and Buyer, Seller (but only with respect to the Business)
shall, and shall cause the Company and, consistent with and to the extent
authorized by the Deed of Release, dated February 14, 1995, among Seller,
Company and AME, as amended by the Deed, dated April 10, 1995, and the
agreement, dated May 4, 1995 between Buyer and AME, AME and its Subsidiaries to,
authorize and permit Buyer, Buyer's Affiliates (subject to the execution of
customary confidentiality agreements) and their representatives (which term
shall be deemed to include its independent accountants, counsel, financial
advisors and bankers (including, without limitation, potential lenders)) to have
reasonable access during normal business hours, upon reasonable notice and in
such manner as will not unreasonably interfere with the conduct of their
respective businesses, to all of their respective properties, books, records,
board and shareholder minutes (including agenda for meetings), accounts,
ledgers, budgets, operating instructions and procedures, Tax Returns (provided,
however, that to the extent that such Tax Returns are combined or consolidated
returns, Buyer's access will be limited to information pertaining to the Company
and AME and its Subsidiaries only) and all other information with respect to the
Business as Buyer may from time to time request. Without limiting the
foregoing, Seller agrees to provide Buyer and its Affiliates and their
representatives with such access, subject to the terms of this Section 4.1, to
the extent necessary in connection with any proposed financings (including any
public securities offering) by any of Buyer and its Affiliates. Buyer agrees
that it will with reasonable expedition inform Seller prior to the Closing if
Buyer has obtained knowledge that the covenants, representations or warranties
of Seller hereunder have been breached. For purposes of the preceding sentence
only, the knowledge of Buyer shall mean the actual knowledge of Tony Tan Choon
Keat, Managing Director,
17
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or Tan Kai Seng, Finance Director, of Buyer or Dr. Lim Cheok Peng, Managing
Director of Gleneagles Hospital.
4.2 MATERIAL ADVERSE CHANGES.
------------------------
Seller will promptly notify Buyer of any event of which Seller obtains
knowledge which has had or might reasonably be expected to have a Material
Adverse Effect or which, if known as of the date hereof, would have been
required to be disclosed to Buyer, or which constitutes a breach of any
representation, warranty, obligation, covenant or undertaking by Seller under
this Agreement. For purposes of the preceding sentence only, the knowledge of
Seller shall mean the actual knowledge of Jeffrey C. Barbakow, Chief Executive
Officer, Maris Andersons, Senior Vice President and Treasurer, or T.P. McMullen,
Vice President of Seller.
4.3 CONDUCT OF BUSINESS.
-------------------
Except as set forth in Section 4.3 of the Disclosure Schedule or
otherwise expressly permitted by the terms of this Agreement, from the date
hereof to the Closing, Seller shall cause the Company, and the representatives
of the Company on the Board of Directors of AME, subject to their fiduciary and
other duties to AME, shall use their reasonable best efforts to cause the
Business to be conducted in the ordinary course of business consistent with past
practice (including with respect to advertising, promotions, capital
expenditures and inventory levels) and shall make all reasonable best efforts
consistent with past practices to preserve the Business's structure and
organization and its relationships with its customers, doctors, employees,
suppliers and others with whom the Company, AME and its Subsidiaries deal.
Seller shall not, and agrees that the Company will not (with respect to the
Company), and the Company and the representatives of the Company on the Board of
Directors of AME, subject to their fiduciary and other duties to AME, shall not
consent to (with respect to AME) take any action that would, or that could
reasonably be expected to, cause Seller to be in breach of any representations,
warranties, covenants or agreements contained in this Agreement or otherwise
result in any of the conditions to Closing not being satisfied.
In addition, between the date of this Agreement and the Closing Date,
except as set forth in Section 4.3 of the Disclosure Schedule or as specifically
contemplated by this Agreement, Seller covenants and agrees that the Company
will not (with respect to the Company) take, and the Company and the
representatives of the Company on the Board of Directors of AME, subject to
their fiduciary and other legal duties to AME, will not consent to (with respect
to AME and its Subsidiaries) the taking of, any of the following actions without
the prior consent in writing of Buyer:
(a) change or amend its memorandum and articles of association or
bylaws;
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(b) with respect to the Company only, declare, issue, make, pay or
set aside any dividend or other distribution of assets, whether consisting
of money or property, to its shareholders, or split, combine or reclassify
any shares of its Equity Securities;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for property not material in amount, (ii) in the
ordinary course of business consistent with past practice or (iii) as
contemplated by this Agreement;
(d) redeem or otherwise acquire any shares of its Equity Securities
or issue any Equity Securities or any option, warrant or right relating
thereto or any securities convertible into or exchangeable for any shares
of Equity Securities, except, with respect to AME, pursuant to options,
warrants, rights or other securities outstanding on the date of this
Agreement;
(e) adopt or amend in any respect any Benefit Plan or collective
bargaining agreement, except as required by applicable Law and except as
may be required under existing agreements;
(f) grant to any executive officer or employee any increase in
compensation or benefits, including grants of any options, except, in the
case of non-management employees of AME or any of its Subsidiaries, in the
ordinary course of business consistent with past practice, or as may be
required under applicable Law or existing agreements and except for any
increases for which Seller shall be solely obligated;
(g) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee or issue any letters of comfort or letters of
moral intent or enter into any keepwell agreement or similar arrangement
relating to, any such liabilities, obligations or indebtedness, other than
in the ordinary course of business consistent with past practice; provided,
however, in no event shall the Company incur, assume or guarantee any long-
term indebtedness for borrowed money;
(h) permit, allow or suffer any of its assets to become subjected to
any mortgage, lien, security interest, encumbrance, easement, covenant,
right-of-way or other similar restriction of any nature whatsoever, except
items in the ordinary course of business consistent with past practice;
(i) forgive any indebtedness or waive any claims or rights of value
other than in the ordinary course of business consistent with past practice
and in amounts that are not material in the aggregate;
19
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(j) pay, loan or advance any amount to, or sell, transfer or lease
any of its assets to, or enter into any agreement or arrangement with,
Seller or any of its Affiliates (other than the Company or AME), except
cash management activities in the ordinary course of business consistent
with past practice;
(k) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(l) change any tax accounting method, principle or practice;
(m) acquire by merging or consolidating with, or by purchasing the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets (other than inventory in the ordinary
course of business consistent with past practice) which are material,
individually or in the aggregate, to the Business; or
(n) terminate or materially change any of the insurance policies
(other than insurance policies of Seller) as they existed on the date of
this Agreement;
(o) enter into any new service or employment agreement, or any
renewals thereof, with any employee except for agreements for which Seller
will be solely obligated and which will not result in any obligation or
liability of any kind whatsoever to the Company or AME;
(p) allow or cause to lapse any right under any material Contract or
Intellectual Property or cause to expire any Approvals or Permits relating
to the Business;
(q) enter into any transaction other than on arm's length terms in
the ordinary course of business consistent with past practice, between any
of the Company or AME, on the one hand, and any director, officer,
stockholder or Affiliate thereof, on the other hand;
(r) otherwise enter into a transaction or a series of connected
transactions which would have, or is reasonably expected to have, in the
case of the Company, a value in excess of $100,000 or, in the case of the
Company, AME or any of its Subsidiaries, a Material Adverse Effect;
(s) pay Overhead Expense in the aggregate exceeding the amounts set
forth in Section 2.21 of the Disclosure Schedule for the Business for the
fiscal years ending May 31, 1995 and 1996, as prorated through the date of
the Closing; or
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(t) agree, whether in writing or otherwise, to do any of the
foregoing.
4.4 PERMITS AND APPROVALS.
---------------------
Seller and Buyer each agrees to, and to cause its Subsidiaries and
Affiliates to, cooperate and use its reasonable best efforts to obtain or
transfer, and will promptly prepare all registrations, filings and applications,
requests and notices preliminary to, all Approvals and Permits that may be
necessary to consummate the transactions contemplated by this Agreement
including, without limitation, confirmation issued by or on behalf of the
Treasurer of the Commonwealth of Australia that the Government of Australia does
not object to the purchase of the Stock by Buyer by virtue of the Foreign
Acquisitions and Takeovers Act 1975; provided, however, that with respect to any
approval of a meeting of the disinterested shareholders of AME of the purchase
of the Stock under section 623 of the Australian Corporations Law, Seller's
obligation shall be limited to using its best efforts to procure that the Board
of Directors of AME (i) commissions an expert to provide a report to
shareholders in accordance with Australian Securities Commission Policy
Statement 74 in relation to the acquisition by Buyer of the Stock and (ii)
convenes a general meeting to consider the approval under Section 623 of the
Australian Corporations Law of the acquisition by Buyer of the Stock. Without
limiting the generality of the foregoing, Seller and Buyer shall consult with
each other in advance regarding how to obtain or transfer, and shall cooperate
in obtaining or transferring, the Approvals and Permits referred to in Sections
2.8, 3.3 and 6.2 of the Disclosure Schedule. Seller and Buyer shall permit each
other to review and comment upon all such registrations, filings, applications,
requests and notices prior to submitting any of the foregoing.
4.5 CONFIDENTIALITY.
---------------
In the event that the Closing occurs, Seller shall, and shall cause
its subsidiaries, Affiliates, directors, officers and representatives to, keep
confidential all information, documents and other materials relating to the
Business (whether or not any such information remains in their possession),
except to the extent that disclosure is required by applicable Law or stock
exchange rules. From and after the Closing, the Letter Agreement (solely as it
relates to the Business) shall terminate and shall thereafter be null and void,
and no party shall have any liability or obligation thereunder. Unless and
until the Closing occurs, the terms of the Letter Agreement shall apply to the
transaction contemplated by, and all discussions and negotiations in connection
with, this Agreement.
4.6 INSURANCE PROCEEDS.
------------------
If prior to the Closing Date the Business shall suffer any loss that
is covered by insurance carried by any Seller or any of its Affiliates (other
than the Company or AME or any of
21
<PAGE>
its Subsidiaries), Seller shall, or shall cause such Affiliate to, make a claim
under its insurance policy for recovery in respect of such loss and to pursue
such claim actively. If Seller or such Affiliate, as the case may be, receives
insurance proceeds in respect of such loss, Seller shall, or cause such
Affiliate to, remit promptly such proceeds to the Company or AME or any of its
Subsidiaries, as the case may be.
4.7 AMOUNTS DUE TO SELLER.
---------------------
The Company and AME shall repay to Seller and its Affiliates at the
Closing the liability as set forth in Section 4.7 of the Disclosure Schedule.
4.8 PROPRIETARY INFORMATION.
-----------------------
Prior to the Closing, Seller shall request the recovery, or shall
request the destruction (and request written notice of such destruction), of all
Proprietary Information (as defined in the Letter Agreement) made available to
or otherwise in possession of any potential acquirors or bidders relating to the
Proposed Acquisition (as defined in the Letter Agreement but only as it relates
to the Business).
ARTICLE V
ADDITIONAL CONTINUING COVENANTS AND INDEMNITIES
5.1 COOPERATION IN AUDITS.
---------------------
Subject to execution of customary confidentiality agreement, Buyer
will cause the Company and AME to cooperate in all reasonable respects during
normal business hours and in such manner as will not unreasonably interfere with
the conduct of their respective businesses, in an audit, at Seller's cost, by
Seller's independent accountants of the financial statements of the Company and
AME through periods ending on or prior to the fiscal year of Seller first ending
on or after the Closing Date (and, if desired, as of the Closing Date). Without
limiting the foregoing, such cooperation shall include providing access to
records and personnel, cooperating in verification of accounts receivable and
such access to the premises of the Company and AME, in each case as is
reasonable and customary in an audit.
5.2 TAX MATTERS.
-----------
(a) Seller agrees to indemnify, defend and hold harmless Buyer and
the Company and AME against (i) any Tax payable by or on behalf of Seller
or any of its Affiliates or the Company or AME for the Pre-Closing Tax
Period, except to the extent adequate provision for such Tax has been made
in the financial statements referred to in Section 2.3 hereof; (ii) any
deficiencies in any Tax payable by or on behalf of Seller or any of its
Affiliates or the Company or AME arising from any audit by a Governmental
Entity with
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<PAGE>
respect to the Pre-Closing Tax Period, except to the extent adequate
provision for such Tax has been made in the financial statements referred
to in Section 2.3 hereof; (iii) Taxes of any member of a consolidated,
combined or unitary tax group of which Seller or any of its Affiliates or
the Company is or was at any time, part, of which the Company or AME is
jointly or severally liable as a result of its inclusion in such group at
any time on or prior to the Closing Date, except to the extent adequate
provision for such Taxes has been made in the financial statements referred
to in Section 2.3 hereof; and (iv) any Tax liability of the Company arising
from, relating to or otherwise in respect of any breach of the
representations and warranties contained in Section 2.4 of this Agreement
which, notwithstanding Section 7.4, will survive the Closing for purposes
of this Section 5.2 only.
(b) Buyer agrees to indemnify, defend and hold harmless Seller and
its Affiliates against (i) any Tax payable by or on behalf of Buyer or any
of its Affiliates or the Company for any taxable period other than the Pre-
Closing Tax Period; (ii) any deficiencies in any Tax payable by or on
behalf of Buyer or any of its Affiliates or the Company arising from any
audit by a Governmental Entity with respect to any taxable period other
than the Pre-Closing Tax Period; (iii) Taxes of any member of a
consolidated, combined or unitary tax group of which Buyer or any of its
Affiliates or the Company is or was at any time, part, of which the Company
is jointly or severally liable as a result of its inclusion in such group
at any time after the Closing Date; and (iv) if the Closing Date occurs
after June 29, 1995, Seller's Transition Tax Exposure Amount. Any refund of
Tax received after Closing by Buyer, any of its Affiliates, the Company or
any Subsidiary which is attributable to the Pre-Closing Tax Period shall
immediately be remitted to Seller. Buyer may retain any refund which is
attributable to carryback losses, credits and other tax items arising in a
period other than the Pre-Closing Tax Period and carried back to the Pre-
Closing Tax Period.
(c) Seller and Buyer will each provide the other, and subsequent to
the Closing Buyer will cause the Company and AME to provide Seller (at
Seller's sole cost and expense), with such assistance as may reasonably be
requested in connection with the preparation of any matter relating to Tax,
including any Tax Return, any audit or other examination by a Governmental
Entity, or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain and provide the requesting party with any
records or information that may be reasonably relevant to such return,
audit or examination, proceedings or determination for a period not to
exceed ten years after the Closing Date. Prior to disposing of any records
or information, the party retaining such records or information shall
notify the other party and provide it with the
23
<PAGE>
opportunity to obtain or duplicate (at its own expense) such records or
information for its own purposes. The party requesting assistance shall
reimburse the other party for reasonable out-of-pocket expenses (other than
salaries or wages of any employees of the parties) incurred in providing
such assistance. In the event AME is the party from which assistance under
this Section 5.2(c) is requested or is the party in possession of records
or information subject to this Section 5.2(c), Buyer shall use its
reasonable efforts to, and shall cause the Company to use its reasonable
efforts to cause, AME to comply with the provisions hereof. Any information
obtained pursuant to this Section 5.2(c) or pursuant to any other Section
hereof providing for the sharing of information or the review of any Tax
Return or other schedule relating to Tax shall be subject to Section 4.5.
(d) Subject to the provisions of the foregoing clause (c), Seller
shall (i) have the responsibility for, and the right to control, at
Seller's expense, the audit (and disposition thereof) of any Tax Return
relating to periods ended on or prior to the Closing Date; and (ii) have
the right to participate in and approve the disposition of the audit of any
Tax Return relating to the periods ended after the Closing Date if, as a
result of such audit or disposition, Buyer makes or intends to make a claim
for indemnification under Section 5.2(a). Buyer shall have the right,
directly or through its designated representatives, to participate in and
review in advance and comment upon all submissions made in the course of
audits or appeals thereof to a Governmental Entity relating to periods
ending (or treated by this Agreement as ending) on or prior to the Closing
Date and to approve the disposition of any audit adjustment or filing of
any amended Tax Returns with respect to such periods if such disposition
will result in an increase in the Tax liability of Buyer or the Company for
any period beginning after (or treated by the Agreement as beginning after)
February 28, 1995. Seller and Buyer shall each promptly notify the other
party of any audit of any Tax Return which may result in claims for
indemnification under this Agreement.
(e) In the event that Buyer makes an election under section 338(a) or
section 338(g) of the Code in connection with its purchase of the Company
or AME:
(i) Section 5.2(f) hereof and clause (iv) of Section 5.2(b)
hereof shall not apply with respect to the Company or AME, as the case
may be; and
(ii) Buyer shall indemnify and hold harmless Seller and its
Affiliates against the difference between (A) all U.S. Federal, state
and local income tax liability incurred by Seller and its Affiliates
as a result of such election and (B) all U.S. Federal,
24
<PAGE>
state and local income tax liability determined without regard to such
election. For this purpose, U.S. Federal, state and local income tax
liability shall be calculated by taking into account any foreign tax
credits available to Seller and its Affiliates and by taking into
account the effect of an increase in an overall foreign loss or
increase in separate limitation loss (each as defined in section
904(f) of the Code) or the ability of Seller and its Affiliates to
utilize foreign tax credits for U.S. Federal income tax purposes.
(f) Buyer and each of its Affiliates shall, with respect to the
occurrence of any of the following events with respect to the Company or
AME on or before May 31, 1996, (i) notify Seller of the occurrence of any
such event and (ii) cause the Company and AME to furnish to Seller any
records or information reasonably requested by Seller for the purpose of
determining the Seller's Transition Tax Exposure Amount, including any
records or information relating to the occurrence of any such event:
(i) any investment in "United States property" (as that term
is defined in Section 956 of the Code);
(ii) the acquisition of any "passive asset" (as that term is
defined in Section 956A(c)(2) of the Code);
(iii) the issuance of any Equity Security; any alteration in
corporate, capital or legal structure; any merger, reorganization or
consolidation; any liquidation, winding-up or dissolution; and any
amendment or change in charter documents, by-laws or other governing
documents;
(iv) the declaration, issuance or payment of any dividend or
other distribution of assets; or any split, combination or
reclassification of any Equity Securities;
(v) any sale, assignment, pledge or other encumbrance or
disposition of any Equity Security of any Subsidiary (and any entity
becoming a subsidiary of the Company or AME during the Transition
Period);
(vi) the receipt of any income that is foreign personal holding
company income (as that term is defined in section 954(c) of the
Code); and
(vii) the conduct of any business other than the business
conducted by the Company or AME on the Closing Date.
25
<PAGE>
In making a claim for indemnification under clause (iv) of Section 5.2(b)
hereof, Seller shall furnish to Buyer in writing a description of the
manner in which Seller determined the Seller's Transition Tax Exposure
Amount, including a worksheet illustrating the computation of such amount.
(g) Buyer covenants that it will cause the purchasers of any interest
in the Company, which acquisition occurs on or before May 31, 1996, to
comply with the provisions of this Section 5.2 as if such purchasers were
the Buyer.
(h) Buyer shall cooperate, will cause its Affiliates and the Company
to cooperate and shall use its reasonable efforts to cause AME to
cooperate, with Seller and its Affiliates in connection with the filing of
any amended Tax Returns requested by Seller or any of its Affiliates that
related to taxable periods ending on or prior to Closing.
(i) Disputes arising under this Section 5.2 that are not resolved by
mutual agreement shall, unless otherwise provided for, be resolved by an
internationally recognized accounting or law firm (the "Tax Referee")
chosen and mutually acceptable to Buyer and Seller within a reasonable
amount of time from the date on which the dispute arises. The Tax Referee
shall resolve any disputed items within a reasonable amount of time taking
into consideration all relevant facts and circumstances. The costs, fees
and expenses of the Tax Referee shall be borne equally by Buyer and Seller.
(j) Payments made pursuant to this Section 5.2 shall be made no later
than fifteen (15) business days following the later of (i) fifteen (15)
business days prior to the date on which the relevant Tax is due; or (ii)
fifteen (15) business days after the indemnified party gives written notice
to the indemnifying party that such Tax is due. Any payment not made
within such time period shall bear interest at the rate in effect from time
to time on underpayments of U.S. Federal income tax calculated in
accordance with sections 6621 and 6622 of the Code.
5.3 ACCESS.
------
(a) Subject to the execution of customary confidentiality
agreements, Buyer will cause the Company and AME and its Subsidiaries, for
a period of five years after the Closing, to afford promptly to Seller and
its agents reasonable access to the properties, books, records, employees
and auditors of the Company and AME and its Subsidiaries relating to
periods prior to the Closing Date to the extent necessary or desirable to
permit Seller to determine any matter relating to its rights and
obligations hereunder or to any period ending on or before the Closing
Date; provided, however, that Seller recognizes that certain
-------- -------
26
<PAGE>
records and other information of Buyer may contain information relating to
the Company or AME or its Subsidiaries as well as information relating to
other activities of Buyer not connected with any of the Company or AME or
its Subsidiaries in which event Buyer shall provide access only to the
relevant portions thereof.
(b) Subject to the execution of customary confidentiality
agreements, Seller will for a period of five years after the Closing, to
afford promptly to Buyer, its Affiliates, and their respective agents,
counsel, financial advisors and auditors reasonable access to the
properties, books and records, employees and auditors of Seller and its
Subsidiaries relating to periods prior to the Closing Date to the extent
necessary or desirable with respect to the Business; provided, however,
-------- -------
that Buyer recognizes that certain records and other information of Seller
may contain information relating to the Company and AME and its
Subsidiaries as well as information relating to other activities of Seller
not connected with the Company or AME or its Subsidiaries, in which event
Seller shall provide access only to the relevant portions thereof.
5.4 USE OF AND RIGHT TO NAMES.
-------------------------
Commencing with the 90th day following the Closing Date, none of Buyer
or the Company or any Affiliates of Buyer or the Company (other than AME and its
Subsidiaries) shall use the names or trademarks "National Medical Enterprises,
Inc.," "NME," "N.M.E.," "Tenet Healthcare Corporation," "Tenet" or any
derivative thereof.
5.5 EMPLOYMENT MATTERS.
------------------
In no event will Buyer, the Company or AME assume, or have any
liability or obligation under, any Benefit Plan or any other employment,
compensation, severance or benefit plan, agreement or arrangement of Seller and
its subsidiaries, other than those of the Company and AME, with or for the
benefit of any officer or employee of the Company or AME.
5.6 RECORDS.
-------
(a) Promptly following the Closing Date, Seller will deliver or cause
to be delivered to Buyer all original agreements, documents, accounts,
ledgers, books, records and files, including records and files stored on
computer disks or tapes or any other storage media (collectively,
"Records"), in the possession of Seller relating to the Business, and the
business and operations of the Company, in each of the foregoing instances,
not then in the possession of the Company or AME or its Subsidiaries,
subject to the following exceptions:
27
<PAGE>
(i) Seller may retain all Records prepared in connection with
the sale of the Stock, including bids received from other parties and
analyses relating to the Company and AME and its Subsidiaries; and
(ii) Seller may retain any Tax returns, reports or forms, and
Buyer shall be provided with copies of such returns, reports or forms
to the extent that they relate to the separate returns or separate tax
liability of the Company or AME or its Subsidiaries.
(b) Except as otherwise provided in this Agreement, for a period of
seven (7) years following the Closing Date, Buyer agrees that it will not
destroy any Records in the possession of Buyer relating to the business and
operations of the Company and AME and its Subsidiaries, relating to the
period prior to the Closing Date with respect to the Company or AME or its
Subsidiaries without first offering such Records to Seller.
5.7 AGREEMENT NOT TO COMPETE.
------------------------
(a) Interpretation. This Section shall apply after the Closing and
--------------
this Section and Section 5.8 of the Disclosure Schedule shall have effect
as if they consisted of separate provisions, each being severable from the
other and each separate provision consisting of a covenant set forth in
Section 5.8(b) hereof combined with a separate period listed in Section
5.8(c) hereof and an area listed in Section 5.8(d) hereof. If any of these
separate provisions is invalid or otherwise unenforceable for any reason,
the invalidity or unenforceability shall not affect the validity or
enforceability of any of the other separate provisions.
(b) Undertaking Not to Compete. In consideration of Buyer agreeing,
--------------------------
at its request, to purchase the Stock, Seller in consideration of the
premises covenant with Buyer that, within any of the periods and in any of
the areas specified in Section 5.8(d) hereof, none of:
(i) Seller, whether:
(A) directly or indirectly;
(B) on its own account;
(C) jointly with or on behalf of any other person or
corporation as an officer, employee, independent contractor,
partner, joint venturer or agent; or
(D) as principal, employee, partner, agent, director or
otherwise on any account or pretense; or
28
<PAGE>
(ii) any agent, independent contractor or employee employed or
engaged by Seller or by any firm or corporation in which it has a
substantial interest whether that interest is legally enforceable or
not; or
(iii) any firm or corporation in which Seller may be interested
a shareholder, beneficial owner or controller (whether or not that
control can be legally enforced) of shares, or advisor of otherwise,
shall do any of the following:
(iv) canvass or solicit orders for the supply of any goods or
services of the general description of any of those supplied by the
Company or AME or any of its Subsidiaries within one year before the
Closing Date from any person, firm or company who or which has at any
time within that period before the Closing Date transacted business
with the Company or AME or any of its Subsidiaries; or
(v) carry on or be engaged or concerned in:
(A) the Business or any business competitive with the
Business;
(B) any business in which the Company or AME or any of
its Subsidiaries has been engaged in within a year before the
Closing Date; or
(C) any business providing goods or services
substitutable for those of the Company or AME or any of its
Subsidiaries.
(c) Period of Non-Competition. Within any of the following periods:
-------------------------
(i) For a period of one year after the Closing Date.
(ii) For a period of two years after the Closing Date.
(iii) For a period of three years after the Closing Date.
(d) Area of Non-Competition. In any of the following areas:
-----------------------
(i) Within a radius of 50 kilometers from the General Post
Office in each of the following:
(A) Sydney.
(B) Melbourne.
(C) Brisbane.
29
<PAGE>
(D) Adelaide.
(E) Perth.
(F) Hobart.
(G) Canberra.
(H) Darwin.
(ii) (A) New South Wales.
(B) Victoria.
(C) Queensland.
(D) South Australia.
(E) Western Australia.
(F) Tasmania.
(G) Australian Capital Territory.
(H) Northern Territory.
(e) Exception. Section 5.8(b) hereof shall not restrict the holding
---------
of less than ten percent (10%) of the issued capital of any company whose
shares are listed on the Australian Stock Exchange Limited.
5.8 THIRD PARTY OFFERS.
------------------
If, between June 20, 1995 and the date the meeting of the shareholders
of AME contemplated by Section 6.1 (the "Meeting") is held (the "Relevant
Period"), an offer to acquire all or any of the Stock or issued shares of AME is
made (other than an offer by Buyer or any of its Affiliates):
(a) under a takeover scheme (as defined in Chapter 6 of the
Australian Corporations Law); or
(b) under a takeover announcement (as defined in Chapter 6 of the
Australian Corporations Law); or
(c) under an agreement with Seller, the Company or AME, as the case
may be, which requires approval by resolution of the shareholders
of AME in a general meeting; or
(d) at an official meeting of the Australian Stock Exchange Limited
in the ordinary course of trading on the market; or
(e) as described in any of the paragraphs (a) to (d) above subsequent
to the Meeting but which is made during the period while any
offer previously made during the Relevant Period is open or
during the period while any such subsequent offer made during
such period is open (for the purposes of this Section 5.8(e),
Relevant Period shall be interpreted to include any such
subsequent period or periods),
and Seller, the Company or AME accepts such offer for all or any of the Stock or
the AME Stock, as the case may be; then Seller
30
<PAGE>
shall thereafter pay to Buyer by wire transfer of immediately available funds
within two business days of the date of the receipt of the consideration of such
sale (the "Sale Date") an amount in cash (the "Cash Amount") equal to one-half
of the "Spread" (as hereinafter defined) times the number of shares of the Stock
or the AME Stock, as the case may be, that have been so sold by Seller or the
Company. As used herein "Spread" shall mean the excess, if any, of (i) the U.S.
Dollar equivalent of the per share consideration paid by such Person or Persons
to acquire the Stock or the AME Stock, as the case may be, from Seller or the
Company (the "Per Share Price") over (ii) in the case of the sale of all or part
of the Stock, U.S. $0.8016, or in the case of the sale of all or part of the AME
Stock, U.S.$0.6238 per share. For purposes of this Section 5.8, U.S. Dollar
equivalents shall be calculated on the basis of the average of the Australian
Dollar/U.S. Dollar exchange rates published in the "Currency Rates in New York"
section of The Asian Wall Street Journal for the ten business day period ending
on the second business day prior to the Sale Date. If the consideration paid to
Seller or the Company, as the case may be, includes any property other than
cash, the Per Share Price shall be the sum of (i) the fixed cash amount, if any,
included in the Per Share Price and (ii) the Fair Market Value of such other
property. If such other property consists of securities with an existing public
trading market, the Fair Market Value of such securities shall be deemed to be
the average of the closing prices (or the average of the closing bid and asked
prices) for such securities in their principal public trading market for the
five trading days ending on the Sale Date. If such other property consists of
something other than cash or securities with an existing public trading market,
the Per Share Price shall be deemed to equal the closing price of the shares of
AME on the Australian Stock Exchange on the Sale Date. If the consideration
paid to Seller or the Company, as the case may be, includes any property other
than cash, the Cash Amount shall be paid in combination of cash and such non-
cash consideration in the same proportion as the aggregate amount of cash and
such non-cash consideration paid to Seller and the Company; provided that, if
any such non-cash consideration to be received by Buyer as a part of the Cash
Amount would restrict the ability of Buyer to own such non-cash consideration,
Buyer may request Seller to sell at Buyer's expense and risk such non-cash
consideration in a reasonable manner as Seller and Buyer may agree on and
transmit the proceeds thereof, net of cost to Seller of such sale.
ARTICLE VI
CONDITIONS OF PURCHASE
6.1 CONDITIONS PRECEDENT TO BINDING EFFECT.
--------------------------------------
(a) Except for the provisions of this Section 6.1, Articles IV and
VIII and Section 5.8, the provisions of this Agreement will not be binding
unless and until:
31
<PAGE>
(i) the Treasurer of the Commonwealth of Australia shall have
issued written notice to the effect that, subject to the conditions,
if any, specified therein, the Government of the Commonwealth of
Australia does not object to any of the transactions contemplated by
this Agreement, or such official ceases under s.25(2) of the Foreign
Acquisitions and Takeovers Act 1975 to be empowered to make an order
relating to any of the transactions contemplated by this Agreement;
and
(ii) a resolution approving the Buyer's purchase of the Stock
has been agreed to at a meeting of the members of AME held in
compliance with s.623 of the Corporations Law of the Commonwealth of
Australia, as modified by the Australian Securities Commission, and
the terms of Policy Statement 74 of the Australian Securities
Commission within sixty (60) days of the date of this Agreement.
(b) Subject to Section 6.1(d), the parties shall each co-operate with
the other and do all things reasonably necessary to procure that this
Agreement does become binding under this Section 6.1.
(c) Without limiting the generality of Section 6.1(b):
(i) each party shall, and the Seller shall cause the Company
to, take all necessary steps and supply all necessary information for
the purpose of enabling this Agreement to become binding under this
Section 6.1 (it being acknowledged that Buyer will make the necessary
notification to the Treasurer of the Commonwealth of Australia under
the Foreign Acquisitions and Takeovers Act 1975 in relation to Buyer's
purchase of the Stock);
(ii) the Buyer may not withdraw or procure the withdrawal of
any application made or information supplied under paragraph (i) of
this Section 6.1(c);
(iii) no party may take any action that would or would be likely
to prevent or hinder completion of this Agreement if this Agreement
becomes binding; and
(iv) each party shall supply to the other details of steps
taken and copies of all applications made and all information supplied
for the purpose of enabling this Agreement to become binding under
this Section 6.1.
(d) Notwithstanding any other provision of this Agreement, the
parties agree that prior to satisfaction of the condition precedent
contained in Section 6.1(a)(ii) Seller is free to sell, transfer or
otherwise dispose of the Stock and the Company is free to sell, transfer or
otherwise
32
<PAGE>
dispose of its shares in AME to any person and the Buyer shall have no
voting power over or with respect to such shares.
(e) Except for this Section 6.1, this Agreement shall be null and
void and of no further effect if the Seller exercises its right under
Section 6.1(d) or if this Agreement does not become binding under this
Section 6.1; provided, however, that the obligations of the parties
contained in Sections 2.19, 3.4, 5.8, 8.4 and 8.13 shall survive any such
termination.
6.2 GENERAL CONDITIONS.
------------------
The obligations of the parties to effect the Closing shall be subject
to the following conditions:
(a) No Orders; Legal Proceedings. No Law or Order shall have been
----------------------------
enacted, entered, issued, promulgated or enforced by any Governmental
Entity and remain so the Closing Date, (i) that prohibits the transactions
contemplated by this Agreement (ii) that imposes or would impose upon the
ownership or operation of, or exercise of control over, the Company, AME
and their respective assets, properties and businesses by Buyer and its
Affiliates, burdens which are material and unreasonable to the Business,
taken as a whole (provided that the condition in this clause (ii) shall be
a condition only to Buyer's obligations hereunder), or (iii) that would
subject either party to this Agreement to any material penalty or liability
if any of the transactions contemplated under this Agreement were
consummated. No Governmental Entity shall have notified any party to this
Agreement that it intends to commence proceedings that, if successful,
would result in the failure to satisfy a condition set forth above in this
Section 6.2(a), unless such Governmental Entity shall have withdrawn such
notice and abandoned any such proceedings prior to the time which otherwise
would have been the Closing Date.
(b) Permits and Approvals. To the extent required by applicable Law
---------------------
and without the imposition of any conditions or provisions that are
material and unreasonably burdensome on Buyer, Buyer's Affiliates, or the
Business, all Permits and Approvals listed in Section 6.2 (I) of the
Disclosure Schedule shall have been received or obtained.
6.3 CONDITIONS TO OBLIGATIONS OF BUYER.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
following conditions except to the extent waived in writing by Buyer:
(a) Representations and Warranties and Covenants of Seller. The
------------------------------------------------------
representations and warranties of Seller herein
33
<PAGE>
(as amended by matters consented to by Buyer pursuant to Section 4.3)
contained shall be true and correct as of the date of the Disclosure
Schedule and, except for the representations and warranties contained in
Section 2.3(c), at the Closing Date with the same effect as though made as
of such time; Seller in all material respects shall have performed all
obligations and complied with all covenants and conditions required by this
Agreement or Clause 4.4 of the Wrap-Around Agreement to be performed or
complied with by it at or prior to the Closing Date, and Seller shall have
delivered to Buyer a certificate of Seller, dated the Closing Date and
signed by its chief executive officer, president, chief financial officer
or treasurer, to such effect.
(b) No Material Adverse Change. Since the date of the Disclosure
--------------------------
Schedule, whether or not in the ordinary course of business, there shall
not have been, occurred or arisen:
(i) any change in or event affecting the Business that has had
or is reasonably expected to have a Material Adverse Effect, except
for changes reflected in the financial statements referred to in
Section 2.3 and changes affecting generally the Australian health care
industry as a whole (it being understood that Buyer assumes the risks
of changes of such type); or
(ii) casualties, losses, damage or destruction of any property
of the Company or AME or its Subsidiaries or that has involved a loss
to the Company or AME or its Subsidiaries in excess of applicable
insurance coverage, in each case that has had or is reasonably
expected to have, in the aggregate, an impact in excess of $500,000 or
a Material Adverse Effect.
(c) Consents. Buyer shall have obtained without the imposition of
--------
any conditions or provisions that are material and unreasonably burdensome
on Buyer, Buyer's Affiliates, or the Business all material Approvals and
Permits from third Persons listed in Sections 2.8(II)(A) and 6.2(II) of the
Disclosure Schedule.
(d) Resignation of Directors. Each of the directors of the Company,
------------------------
or any director of AME or any of its Subsidiaries designated by Seller or
the Company, shall have submitted his resignation in writing to the
Company. Such resignations of directors (in such capacity) shall be
effective as of the Closing.
(e) Failure to Obtain Loan. Buyer shall not have received the
----------------------
amounts contemplated by the commitment letter, dated May 17, 1995, from
Schroders Banking & Capital Markets as a result of the failure of Schroders
Banking & Capital Markets to provide such funds solely as a result of,
during the thirty (30) days preceding the date of the Closing,
34
<PAGE>
there having occurred or be continuing (i) any suspension of trading on the
Singapore Stock Exchange or material governmental restrictions (not in
force on the date hereof on trading in securities generally), or (ii) any
banking moratorium declared by Singapore governmental authorities, or (iii)
any material adverse change in the financial, banking or capital markets,
or (iv) any outbreak or material escalation of hostilities affecting
Singapore or other calamity, panic or crisis, the affect of which on the
financial markets of Singapore in each case described in clauses (i), (ii),
(iii) or (iv) above, is that lending institutions have generally ceased
providing funding for transactions of the size contemplated by such
commitment letter, provided that the occurrence of any such event shall
operate to delay the Closing only until the tenth (10th) day following the
date upon which lending institutions generally have resumed providing
funding for transactions of the size contemplated by such commitment
letter.
(f) Closing Regarding Core Business. The closing of the acquisition
-------------------------------
by Buyer of the Core Business (as defined in the Asia Stock Purchase
Agreement) pursuant to the Asia Stock Purchase Agreement shall have
occurred.
(g) Facility Agreement. The Lenders named in the Facility Agreement
------------------
referred to in Section 2.5 (VI) (A) of the Disclosure Schedule shall have
consented to the substitution of Buyer or an Affiliate of Buyer in place of
Seller and irrevocably waived the requirement for compliance with Clauses
44.8(a)(ii) and 44.8(b) thereof.
(h) Undertaking to Maintain Shareholding. The Lenders named in the
------------------------------------
Undertaking to Maintain Shareholding referred to in Section 2.5(IV) (E) of
the Disclosure Schedule shall have irrevocably waived the requirement for
compliance with Clauses 1 and 2 thereof.
(i) Manpower and Technical Services Agreement. The Manpower and
-----------------------------------------
Technical Services Agreement, dated as of March 4, 1992, among AME (then
known as Markalinga Limited), the Company and Seller, as amended by the
Manpower and Technical Services Variation Agreement, dated as of October
20, 1993, among AME, the Company and Seller (the "Manpower and Technical
Services Agreement") shall have been terminated as of the Closing Date by
written agreement of the parties thereto reasonably acceptable to Buyer.
Buyer, the Company and AME shall have entered into a new manpower and
technical services agreement at the Closing Date, reasonably acceptable to
all parties thereto.
6.4 CONDITIONS TO OBLIGATIONS OF SELLER.
-----------------------------------
The obligations of Seller to effect the Closing shall be subject to
the following conditions, except to the extent waived in writing by Seller:
35
<PAGE>
(a) Representations and Warranties and Covenants of Buyer. The
-----------------------------------------------------
representations and warranties of Buyer herein contained shall be true and
correct as of the date of the Disclosure Schedule and at the Closing Date
with the same effect as though made as of such time; Buyer in all material
respects shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing Date, and Buyer shall have
delivered to Seller certificates of Buyer, dated the Closing Date and
signed by a director, its chief executive officer, chief financial officer
or treasurer, to such effect.
(b) Consents. Seller shall have obtained without the imposition of
--------
any conditions or provisions that are material and unreasonably burdensome
on Seller or Seller's Affiliates (other than the Company and AME and its
Subsidiaries) all material Approvals and Permits from third Persons listed
in Section 2.8 (II)(A) of the Disclosure Schedule that are required to be
obtained by Seller in connection with the transactions contemplated hereby.
(c) Manpower and Technical Services Agreement. The Manpower and
-----------------------------------------
Technical Services Agreement shall have been terminated as of the Closing
Date by written agreement of the parties thereto reasonably acceptable to
Seller.
ARTICLE VII
TERMINATION OF OBLIGATIONS;
INDEMNIFICATION; SURVIVAL
7.1 TERMINATION OF AGREEMENT.
------------------------
Anything herein to the contrary notwithstanding, this Agreement and
the transactions contemplated by this Agreement may be terminated at any time
before the Closing as follows and in no other manner:
(a) By mutual consent in writing of Buyer and Seller;
(b) By Buyer by written notice to Seller if any event occurs or
condition exists which would render impossible the satisfaction of one or
more conditions to the obligations of Buyer to consummate the transactions
contemplated by this Agreement as set forth in Section 6.1, 6.2 or 6.3;
(c) By Seller by written notice to Buyer if any event occurs or
condition exists which would render impossible the satisfaction of one or
more conditions to the obligation of Seller to consummate the transactions
contemplated by this Agreement as set forth in Section 6.1, 6.2 or 6.4; or
(d) by Seller or Buyer, if the Closing does not occur on or prior to
September 15, 1995.
36
<PAGE>
provided, however, that the party seeking termination pursuant to clause (b),
-------- -------
(c), or (d) is not in wilful breach of any of its covenants or agreements
contained in this Agreement.
7.2 EFFECT OF TERMINATION.
---------------------
If this Agreement shall be terminated pursuant to Section 7.1, all
further obligations of the parties under this Agreement shall terminate without
further liability of any party to another; provided that in any event the
obligations of the parties contained in Sections 2.19, 3.4, 5.8, 7.1, 7.2, 8.4
and 8.13 shall survive any such termination.
Nothing in this Section 7.2 shall be deemed to release either party
from any liability for any breach by such party of the terms and provisions of
this Agreement or to impair the right of either party to compel specific
performance by the other party of its obligations under this Agreement;
provided, however, that if a party exercises its right to terminate this
Agreement, such party will be deemed to have waived any claims of breach of
representations or warranties by the other party.
7.3 INDEMNIFICATION.
---------------
(a) Indemnification by Seller. Seller shall indemnify Buyer, its
-------------------------
Affiliates (including the Company and AME and its Subsidiaries) and each of
their respective officers, directors, employees, stockholders, agents and
representatives against, and hold them harmless from, losses, liabilities,
claims, damages or expenses (including reasonable legal fees and expenses)
suffered or incurred by any such indemnified party (other than any relating
to Taxes, for which indemnification provisions are set forth in Section
5.2(a)) arising from, relating to or otherwise in respect of (i) any breach
of any representation or warranty of Seller which survives the Closing
contained in this Agreement or in any certificate delivered pursuant
thereto and (ii) any breach of any covenant or agreement of Seller
contained in this Agreement or in Clause 4.4 of the Wrap-Around Agreement;
provided, however, that Seller shall not have any liability under clause
-------- -------
(i) above unless the aggregate of all losses, liabilities, costs and
expenses relating thereto for which Seller would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to U.S.$100,000, and
then only to the extent of any such excess; and provided further, however,
-------- ------- -------
that Seller's liability shall in no event exceed U.S.$30,000,000.
Notwithstanding the foregoing, Buyer shall not seek indemnification if such
individual claim or a series of claims under clause (i) above which arises
out of any single breach or a series of breaches or a representation and
warranty of Seller, in each case based on a single event or condition or
series of related events or conditions having a relevant common basis in
fact if such individual claim is, or such series of claims add up to, less
than U.S.$25,000.
37
<PAGE>
Buyer acknowledges and agrees that, should the Closing occur, its sole
and exclusive remedy with respect to any and all claims for breaches of
representations and warranties of Seller pursuant to this Agreement shall
be pursuant to the indemnification provisions set forth in this Section
7.3.
Nothing in this Agreement shall be construed to prohibit or restrict
Buyer from pursuing all remedies available to it at law or in equity in
connection with Seller's breach of any provision of this Agreement or
Clause 4.4 of the Wrap-Around Agreement, other than for breaches of
representations and warranties of Seller pursuant to this Agreement, or
from seeking equitable relief in respect of any breach of any covenant or
agreement of Seller contained in this Agreement.
(b) Indemnification by Buyer. Buyer shall indemnify Seller, its
------------------------
Affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives against, and hold them harmless
from, all losses, liabilities, claims, damages and expenses (including
reasonable legal fees and expenses) suffered or incurred by any such
indemnified party (other than any relating to Taxes, for which
indemnification provisions are set forth in Section 5.2(b)) arising from,
relating to or otherwise in respect of (i) any breach of any representation
or warranty of Buyer which survives the Closing contained in this Agreement
or in any certificate delivered pursuant hereto or thereto, and (ii) any
breach of any covenant or agreement of Buyer contained in this Agreement,
provided, however, Buyer shall not have any liability under clauses (i)
-------- -------
above unless the aggregate of all losses, liabilities, costs and expenses
relating thereto for which the Buyer would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to U.S.$100,000, and then
only to the extent of such excess; and provided further that the Buyer's
-------- -------
liability shall in no event exceed U.S.$5,000,000. Notwithstanding the
foregoing, Seller shall not seek indemnification for any individual claim
or a series of claims under clause (i) above which arises out of any single
breach or a series of breaches or a representation and warranty of Buyer,
in each case based on a single event or condition or series of related
events or conditions having a relevant common basis in fact if such
individual claim is, or such series of claims add up to, less than
U.S.$25,000.
Seller acknowledges and agrees that, should the Closing occur, its
sole and exclusive remedy with respect to any and all claims for breaches
of representations and warranties of Buyer pursuant to this Agreement shall
be pursuant to the indemnification provisions set forth in this Section
7.3.
Nothing in this Agreement shall be construed to prohibit or restrict
Seller from pursuing all remedies available to it at law or in equity in
connection with
38
<PAGE>
Buyer's breach of any provision of this Agreement, other than for breaches
of representations and warranties of Seller pursuant to this Agreement, or
from seeking equitable relief in respect of any breach of any covenant or
agreement of Buyer contained in this Agreement.
(c) Losses Net of Insurance, etc. The amount of any loss, liability,
-----------------------------
claim, damage, expense or Tax for which indemnification is provided under
this Section 7.3 shall be net of any amounts recovered or recoverable by
the indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax (collectively, a "Loss") and shall
be (i) increased to take account of any net Tax cost incurred by the
indemnified party arising from the receipt of indemnity payments hereunder
(grossed up for such increase) and (ii) reduced to take account of any net
Tax benefit realized by the indemnified party arising from the incurrence
or payment of any such Loss. In computing the amount of any such Tax cost
or Tax benefit, the indemnified party shall be deemed to recognize all
other items of income, gain, loss, deduction or credit before recognizing
any item arising from the receipt of any indemnity payment hereunder or the
incurrence or payment of any indemnified Loss. Any indemnification payment
hereunder shall initially be made without regard to this paragraph and
shall be increased or reduced to reflect any such net Tax cost (including
gross-up) or net Tax benefit only after the indemnified party has actually
realized such cost or benefit. For purposes of this Agreement, an
indemnified party shall be deemed to have "actually realized" a net Tax
cost or a net Tax benefit to the extent that, and at such time as, the
amount of Taxes payable by such indemnified party is increased above or
reduced below, as the case may be, the amount of Taxes that such
indemnified party would be required to pay but for the receipt of the
indemnity payment or the incurrence or payment of such Loss, as the case
may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the
execution of Form 870-AD or successor form) with respect to the indemnified
party's liability for Taxes and payments between Seller and Buyer to
reflect such adjustment shall be made if necessary. Any indemnity payment
under this Agreement shall be treated as an adjustment to the Purchase
Price for Tax purposes, unless a final determination (which shall include
the execution of a Form 870-AD or successor form) with respect to the
indemnified party or any of its Affiliates causes any such payment not to
be treated as an adjustment to the Adjusted Purchase Price for United
States federal income tax purposes.
(d) Termination of Indemnification. The obligations to indemnify and
------------------------------
hold harmless a party hereto (i) pursuant to Section 5.2, shall terminate
at the time the applicable statutes of limitations with respect to the Tax
liabilities
39
<PAGE>
in question expire (giving effect to any extension thereof), (ii) pursuant
to Sections 7.3(a)(i) and 7.3(b)(i), shall terminate when the applicable
representation or warranty terminates pursuant to Section 7.4 and (iii)
pursuant to Section 7.3(a)(ii) and the other clauses of Section 7.3(b),
shall not terminate; provided, however, that as to clauses (i) and (ii)
-------- -------
above such obligations to indemnify and hold harmless shall not terminate
with respect to any item as to which the person to be indemnified or the
related party thereto shall have, before the expiration of the applicable
period, previously made a claim by delivering a notice of such claim
(stating in reasonable detail the basis of such claim) to the indemnifying
party; provided further, however, that in the case of a claim being made by
-------- ------- -------
reason of a Third Party Claim (as defined in Section 7.3(e) hereof), if the
third party claimant has not asserted its claim in writing, the
requirements of this clause shall nonetheless be deemed to be satisfied
with respect thereto so long as the third party claimant has overtly
threatened or otherwise indicated an intention to bring or pursue a claim,
albeit orally, and the indemnified party, before the expiration of the
applicable period, so notifies the indemnifying party by delivering a
notice of such asserted claim (stating in reasonable detail the basis for
such claim to the extent known to the indemnified party) to the
indemnifying party and such third party claimant subsequently assets its
claim in writing and a copy of the written notice from the third party
claimant is furnished to the indemnifying party in no more than ten (10)
business days after its receipt by the indemnified party.
(e) Procedures Relating to Indemnification. In order for a party
--------------------------------------
(the "indemnified party") to be entitled to any indemnification provided
for under this Section 7.3 in respect of, arising out of or involving a
claim or demand made by any person against the indemnified party (a "Third
Party Claim"), such indemnified party must notify the indemnifying party in
writing, and in reasonable detail, of the Third Party Claim promptly, but
in no event more than ten (10) business days after receipt by such
indemnified party of written notice of the Third Party Claim; provided,
--------
however, that failure to give such notification shall not affect the
-------
indemnification provided hereunder except to the extent the indemnifying
party shall have been actually prejudiced as a result of such failure
(except that the indemnifying party shall not be liable for any expenses of
the indemnified party incurred during the period in which the indemnified
party failed to give such notice). Upon delivering the initial
notification and thereafter, promptly upon the indemnifying party's receipt
thereof, the indemnified party shall deliver to the indemnifying party
copies of all notices and documents (including court papers) received by
the indemnified party relating to the Third Party Claim.
40
<PAGE>
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected
by the indemnifying party (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided that such counsel is not reasonably objected to by the indemnified
--------
party. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to
employ counsel (not reasonably objected to by the indemnifying party), at
its own expense, separate from the counsel employed by the indemnifying
party, it being understood that the indemnifying party shall control such
defense. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local
counsel) (not reasonably objected to by the indemnifying party), and the
indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (not reasonably objected to by the indemnifying
party) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution
of such action or (iii) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. The indemnifying party shall be liable for the
reasonable fees and expenses of counsel employed by the indemnified party
following the failure of the indemnifying party to assume the defense
thereof (other than during the period prior to the time the indemnified
party shall have given notice of the Third Party Claim as provided above).
If the indemnifying party so elects to assume the defense of any Third
Party Claim, all of the indemnified parties shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation
shall include the retention and (upon the indemnifying party's request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder. Whether or not the
indemnifying party shall have assumed the defense of a Third Party Claim,
the indemnified party shall not admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
indemnifying party's prior written consent (which consent shall not be
unreasonably withheld). If the indemnifying party shall
41
<PAGE>
have assumed the defense of a Third Party Claim, the indemnified party
shall agree to any settlement, compromise or discharge of a Third Party
Claim which the indemnifying party may recommend and which by its terms
obligates the indemnifying party to pay the full amount of the liability in
connection with such Third Party Claim, which releases the indemnifying
party completely in connection with such Third Party Claim and which would
not otherwise materially adversely affect the indemnified party.
The indemnification required by Sections 7.3(a) and 7.3(b) shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred. All claims under Sections
7.3(a) or 7.3(b) other than Third Party Claims shall be governed by Section
7.3(f).
(f) Other Claims. In the event any indemnified party should have a
------------
claim against any indemnifying party under Section 7.3(a) or 7.3(b) that
does not involve a Third Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall deliver
notice of such claim with reasonable promptness to the indemnifying party.
The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may
have to such indemnified party under Sections 7.3(a) or 7.3(b), except to
the extent that the indemnifying party has been actually prejudiced by such
failure. If the indemnifying party does not notify the indemnified party
within thirty (30) business days following its receipt of such notice that
the indemnifying party disputes its liability to the indemnified party
under Sections 7.3(a) or 7.3(b), such claim specified by the indemnified
party in such notice shall be conclusively deemed a liability of the
indemnifying party under Sections 7.3(a) or 7.3(b) and the indemnifying
party shall pay the amount of such liability to the indemnified party on
demand or, in the case of any notice in which the amount of the claim (or
any portion thereof) is estimated, on such later date when the amount of
such claim (or such portion thereof) becomes finally determined. If the
indemnifying party has timely disputed its liability with respect to such
claim, as provided above, the indemnifying party and the indemnified party
shall proceed in good faith to negotiate a resolution of such dispute and,
if not resolved through negotiations, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction or by the
method of dispute resolution described in Section 8.4 hereof.
(g) No Contribution from the Company or AME. Neither Seller nor any
---------------------------------------
of its Affiliates shall have any right to seek, and they hereby waive, any
and all claims they may have to, contribution from the Company or AME with
respect
42
<PAGE>
to all or any portion of their indemnification obligations under this
Agreement.
7.4 SURVIVAL OF REPRESENTATIONS.
---------------------------
The representations and warranties in Sections 2.1, 2.2, 2.3, 3.1,
3.2, 3.6 and 3.7 of this Agreement shall survive the Closing solely for purposes
of Sections 7.3(a) and (b) and shall terminate at the close of business on the
later of June 30, 1996 and the close of business one year after the Closing
Date. No other representations or warranties of Seller or Buyer shall survive
the Closing.
ARTICLE VIII
GENERAL
8.1 AMENDMENTS; WAIVERS.
-------------------
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
8.2 SCHEDULES; EXHIBITS; INTEGRATION.
--------------------------------
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement,
although schedules need not be attached to each copy of this Agreement. This
Agreement, together with such schedules and exhibits, constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior agreements and understandings of the parties in connection
therewith, except the Letter Agreement which, subject to Section 4.5 hereof,
shall continue in full force and effect, and the Wrap-Around Agreement. Without
limiting the effect of the foregoing provisions of this Section 8.2, except as
expressly set forth in this Agreement, neither Buyer nor Seller is making or
shall be deemed to have made any representation or warranty of any kind, either
express or implied.
8.3 REASONABLE BEST EFFORTS; FURTHER ASSURANCES.
-------------------------------------------
Each party will use its reasonable best efforts to cause all
conditions to its obligations hereunder to be timely satisfied and to perform
and fulfill all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms as soon as feasible. The
parties shall cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further documents and take
such other actions as may be necessary or appropriate to consummate or implement
the
43
<PAGE>
transactions contemplated hereby or to evidence such events or matters.
8.4 GOVERNING LAW.
-------------
(a) This Agreement and the legal relations between the parties shall
be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines except to the extent that
certain matters are preempted by federal law or are governed by the law of
the jurisdiction of incorporation of the respective parties.
(b) Any dispute arising out of or in connection with this Agreement
or any amendment or modification hereto, other than with respect to matters
covered in Section 5.2 hereof, (i) shall be referred to a single
conciliator to be selected by the parties, or failing their agreement, by
the International Chamber of Commerce, with the mission of attempting to
resolve such dispute during a period of one hundred and twenty (120) days
following the first notification of such dispute given to any party
hereunder and (ii) if such dispute shall otherwise not be so resolved,
shall be finally settled by arbitration conducted in the English language
in London, England under the United Nations Commission on International
Trade Law (UNCITRAL) Arbitration Rules by three arbitrators, one of whom
shall be appointed by each of the parties, and the third by agreement of
the two arbitrators, or failing such agreement by the International Chamber
of Commerce as appointing authority. Either Buyer or Seller may initiate
the procedures in this Section 8.4(b) by giving demand for arbitration to
the other, setting forth the nature of any such dispute. Any written
determination of the arbitrators shall be final and conclusive upon the
parties. Each party hereto shall promptly pay to the prevailing party any
amount determined to be due to it by such arbitration. It is the intention
of each party that, to the maximum extent, actions of the arbitrators shall
not be subject to review in the courts of England.
8.5 NO ASSIGNMENT.
-------------
Neither this Agreement nor any rights or obligations under it are
assignable without the prior written consent of the other party; provided,
--------
however, that Buyer may assign its rights and obligations (including its rights
-------
to purchase the Stock) in whole or in part to one or more of its Affiliates
without the prior written consent of Seller; provided further, however, that no
-------- ------- -------
assignment shall limit or affect the assignor's obligations hereunder. Any
attempted assignment in violation of this Section 8.5 shall be void.
44
<PAGE>
8.6 HEADINGS.
--------
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
8.7 COUNTERPARTS.
------------
This Agreement and any amendment hereto or any other agreement (or
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party and delivered to the other party.
8.8 PUBLICITY AND REPORTS.
---------------------
Seller and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without obtaining the prior
consent of the other party, which shall not be unreasonably withheld, except
(following consultation with the other party to the extent reasonably possible)
to the extent that a particular action is required by applicable Law or stock
exchange rules.
8.9 REMEDIES CUMULATIVE.
-------------------
Except for the limitation on remedies by Buyer and Seller contained in
Section 7.3 of this Agreement, all rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
8.10 PARTIES IN INTEREST.
-------------------
This Agreement shall be binding upon and inure to the benefit of each
party to this Agreement, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to (or to
confer any right of subrogation or action over against) any party to this
Agreement.
8.11 NOTICES.
-------
Any notice or other communication hereunder must be given in writing
and (a) delivered in person, (b) transmitted by telefax or (c) mailed, postage
prepaid, receipt requested as follows:
45
<PAGE>
If to Buyer, addressed to:
Parkway Holdings Limited
80 Marine Parade Road
#22-01/99 Parkway Parade
Singapore 1544
Telephone: (65) 345-8822
Telefax: (65) 344-0356
Attention: Company Secretary
With a copy each to:
Allen, Allen & Hemsley
The Chifley Tower
2 Chifley Square
Sydney, Australia
Telephone: (612) 230-4000
Telefax: (612) 233-7022
Attention: John Allen, Esq.
and
Sullivan & Cromwell
28/F, Nine Queen's Road Central
Hong Kong
Telephone: (852) 2826-8688
Telefax: (852) 2522-2280
Attention: John Evangelakos, Esq.
If to Seller, addressed to:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Telephone: (310) 998-8000
Telefax: (310) 998-4088
Attention: General Counsel
With a copy to:
O'Melveny & Myers
400 South Hope Street, 15th Floor
Los Angeles, California 90071-2899
Telephone: (213) 669-6000
Telefax: (213) 669-6407
Attention: Richard A. Boehmer, Esq.
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 8.11 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with
46
<PAGE>
first class postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when actually received at such address.
8.12 STAMP DUTIES.
------------
Buyer shall pay all stamp duties, goods and services taxes, and any
similar charges (except receipts duties, financial institutions duties or bank
account debits taxes, which shall be paid by the party upon which they fall)
assessed on or in relation to this Agreement or any of the matters or
transactions or sales under this Agreement, the share transfer form or under any
related document.
8.13 EXPENSES AND ATTORNEYS FEES.
---------------------------
Seller and Buyer shall each pay their own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of their respective Investment Bankers, accountants and counsel.
In the event of any Action for the breach of this Agreement, indemnification or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred in connection with
investigating and prosecuting such Action.
8.14 SEVERABILITY.
------------
If any provision of this Agreement is held invalid or unenforceable by
any Governmental Entity, the remaining provisions of this Agreement shall remain
in full force and effect provided that the essential terms and conditions of
this Agreement for both parties remain valid, binding and enforceable.
8.15 DOLLARS.
-------
Unless otherwise specified herein, all references to "$" and "dollars"
shall mean United States Dollars.
ARTICLE IX
DEFINITIONS
9.1 DEFINITIONS.
-----------
For all purposes of this Agreement, except as otherwise expressly
provided:
(a) the terms defined in this Article IX include the plural as well
as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
47
<PAGE>
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement except as otherwise provided in
this Agreement;
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(e) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(f) all references to any Contract shall mean and include such
Contract as it may have been amended, restated, modified, supplemented, renewed
or replaced from time to time.
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply:
"Action" means any action, claim, complaint, petition, investigation, suit
or other proceeding, whether civil or criminal, at law or in equity, or before
any arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified Person.
"Agreement" means this Agreement by and between Buyer and Seller as amended
or supplemented, together with all Exhibits and Schedules attached or
incorporated by reference therein.
"AME Stock" has the meaning assigned to it in Section 2.2(a).
"Approval" means any approval, authorization, consent, waiver,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person
(including, without limitation, any of the foregoing required to be obtained
from any lender or security holder).
"Asia Stock Purchase Agreement" means the Asia Stock Purchase Agreement,
dated May 24, 1995, between Seller and Buyer relating to the purchase by Buyer
of Seller's healthcare businesses in Asia.
"Auditors" means KPMG Peat Marwick L.L.P., independent public accountants
to Seller.
"Balance Sheet" has the meaning assigned to it in Section 2.3(b).
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<PAGE>
"Benefit Plans" has the meaning assigned to it in Section 2.15.
"Business" has the meaning assigned to it in the Recitals to this
Agreement.
"Closing" means the consummation of the purchase and sale of the Stock
under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and successor statutes.
"Company Real Properties" has the meaning assigned to it in Section 2.6(b).
"Contract" means any document, agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Disclosure Schedule" means the Disclosure Schedule dated
June 20, 1995 and delivered by Seller to Buyer, or Buyer to Seller, as the case
may be, pursuant to this Agreement. Any information set forth in any section of
the Disclosure Schedule shall be deemed to be set forth in such other section of
the Disclosure Schedule as contains a cross-reference to the former section.
"Encumbrance" means any claim, charge, easement, encumbrance, security
interest, lien, option, pledge, negative pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable U.S. or
foreign securities law.
"Equity Securities" means any capital stock or other equity interest or any
securities convertible into or exchangeable for such capital stock or other
equity interest or any other rights, warrants or options to acquire any of the
foregoing securities, including the rights to any dividend declared but unpaid
in respect thereof.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time, with such specifically disclosed changes, if
any, as may be required by generally accepted accounting principles.
"Governmental Entity" means any government or any agency, district, bureau,
board, statutory board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
49
<PAGE>
"Intellectual Property" has the meaning assigned to it in Section 2.14.
"Interim Period" has the meaning assigned to it in Section 2.4(b).
"International - NME" has the meaning assigned to it in Section 1.1.
"Investment Bankers" has the meaning assigned to it in Section 2.19.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Leased Real Property" has the meaning assigned to it in Section 2.6(a).
"Letter Agreement" has the meaning assigned to it in Section 4.1.
"Manpower and Technical Services Agreement" has the meaning assigned to it
in Section 6.3(i).
"Material Adverse Effect" means a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Business, taken as a whole, or on the ability of Seller to consummate the
transactions contemplated in this Agreement.
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ.
"Overhead Expenses" has the meaning assigned to it in Section 2.21.
"Permit" means any license, permit, franchise, certificate of authority, or
order, or any waiver of the foregoing, required to be issued by any Governmental
Entity.
"Permitted Encumbrances" means, collectively, (i) mechanics', carriers',
workmen's, repairmen's or other like liens arising or incurred in the ordinary
course of business, liens arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business and liens for Taxes which are not due and payable or
which may thereafter be paid without penalty, (ii) mortgages, liens, security
interests and encumbrances which secure debt that is reflected as a liability on
the financial statements referred to in Section 2.3 and the existence of which
is indicated in the notes thereto and (iii) other imperfections of title or
encumbrances, if any, which do not, individually or in the aggregate, materially
impair the value of or the continued
50
<PAGE>
use and operation of the assets to which they relate in the Business.
"Person" means an association, a corporation, an individual, a partnership,
a joint venture, a trust or any other entity or organization, including a
Governmental Entity.
"Pre-Closing Tax Period" means all taxable periods ending on or before
February 28, 1995 and the portion ending on February 28, 1995 of any taxable
period that includes (but does not end on) such day.
"Purchase Price" has the meaning set forth in Section 1.2.
"Seller's Transition Tax Exposure Amount" means the difference, if any,
between (i) the U.S. Federal, state and local income tax liability of Seller and
its Affiliates for Seller's taxable year ending on May 31, 1996 computed to take
into account (A) any liability incurred by Seller and its Affiliates under
Section 951(a) of the Code as a result of any income earned by the Company or
AME during the Transition Period or the acquisition of any asset or the
undertaking of any transaction or activity by the Company or AME during the
Transition Period and (B) any reduction in the combined earnings and profits of
the Company and AME (as determined under the Code) to an amount less than the
combined earnings and profits of the Company and AME on the Closing Date that is
attributable to any dividend or other distribution declared, issued, made or
paid during the Transition Period by the Company or AME (or any entity becoming
a subsidiary of the Company of AME during the Transition Period) and (ii) the
U.S. Federal, state and local income tax liability of Seller and its Affiliates
for Seller's taxable year ending on May 31, 1996 computed without regard to the
items described in subclauses (A) and (B) of clause (i) of this sentence. For
this purpose, the Tax liability of Seller and its Affiliates shall be calculated
by taking into account foreign tax credits available to Seller and its
Affiliates and by taking into account the effect of an increase in an overall
foreign loss or increase in a separate limitation loss (each as defined in
section 904(f) of the Code) on the ability of Seller to utilize foreign tax
credits for U.S. Federal income tax purposes.
"Stock" means the capital stock of the Company as described in Section 2.1
of the Disclosure Schedule.
"Subsidiary" means any Person in which the Company has a direct or indirect
equity or ownership interest in excess of fifty percent (50%).
"Tax" or "Taxes" means any foreign, federal, state, county or local income,
sales, turnover, use, excise, franchise, ad valorem, goods and services, real
and personal property, transfer, gross receipt, stamp, premium, profits, customs
and excise, duties, windfall profits, capital stock, capital gains or duty,
production, business and occupation, disability,
51
<PAGE>
employment, payroll, severance or withholding taxes, fees, assessments or
charges of any kind whatever imposed by any Governmental Entity, all amounts
equal to the Tax cost of any deprivation of any relief, allowance, set-off or
deduction in computing profits or right to repayment of Tax granted by or
pursuant to Law relating to Tax, any interest, charges and penalties (civil or
criminal), additions to tax, payments in lieu of taxes or additional amounts
related thereto or to the nonpayment thereof, and any Loss in connection with
the determination, settlement or litigation of any Tax liability.
"Tax Return" means a declaration, statement, report, return, computation of
tax, invoice, records (accounting or otherwise) or other document or information
required to be filed or supplied with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes the Company or AME.
"Wrap-Around Agreement" means the Wrap-Around Agreement, dated June 20,
1995, between Buyer and Seller.
52
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officers as of the day and year first above
written.
BUYER
PARKWAY HOLDINGS LIMITED,
a Singapore corporation
By: /s/ TAN KAI SENG
---------------------------
Tan Kai Seng
Its: Director
--------------------------
SELLER
NATIONAL MEDICAL ENTERPRISES, INC.,
a Nevada corporation
By: /s/ MARIS ANDERSONS
---------------------------
Maris Andersons
Its:Senior Vice President-Treasurer
-------------------------------
53
<PAGE>
EXHIBIT 10(q)
AMENDING AGREEMENT
TO THE
AUSTRALIA STOCK PURCHASE AGREEMENT
DATED AS OF JULY 5, 1995
AUGUST 14, 1995
TENET HEALTHCARE CORPORATION
(FORMERLY KNOWN AS NATIONAL MEDICAL ENTERPRISES, INC.)
AND
PARKWAY HOLDINGS LIMITED
<PAGE>
This AMENDING AGREEMENT is entered into as of August 14, 1995 between
PARKWAY HOLDINGS LIMITED, a Singapore corporation ("Buyer") and TENET HEALTHCARE
CORPORATION (formerly known as National Medical Enterprises, Inc.), a Nevada
Corporation ("Seller").
RECITALS
A. As of July 5, 1995 the parties entered into the Australia Stock Purchase
Agreement ("Principal Agreement") relating to the sale by Seller and
acquisition by Buyer of all of the issued shares of Tenet Healthcare
Australia Pty. Limited, an Australian corporation; and
B. The parties desire to enter into this Amending Agreement in order to make
certain changes to the Principal Agreement.
THE PARTIES AGREE:
1. INTERPRETATION
In this Amending Agreement, unless the contrary intention appears:
(a) words having a defined meaning in the Principal Agreement and not
otherwise defined in this Amending Agreement will have the same
meaning in this Amending Agreement;
(b) the provisions of Article VIII and Article IX of the Principal
Agreement will apply to this Amending Agreement mutatis mutandis.
2. AMENDMENTS OF THE PRINCIPAL AGREEMENT
The Principal Agreement is hereby amended in the following manner:
(a) by adding a new Section 1.5 which reads as follows:
"1.5 Payment by Seller
-----------------
Subject to the terms and conditions of this Agreement,
Seller agrees to pay to Buyer or its order at the Closing the amount
of U.S. $3,000,000, payable in funds immediately available in Hong
Kong.";
(b) by deleting in Section 6.1(a)(ii) the words "within sixty (60) days of
the date of this Agreement" and inserting in lieu thereof, "on or
prior to September 11, 1995.";
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<PAGE>
(c) by deleting from Section 6.3(i) the last sentence which states:
"Buyer, the Company and AME shall have entered into a new
manpower and technical services agreement at the Closing Date,
reasonably acceptable to all parties thereto."; and
(d) by deleting in Section 7.1(d) the date "September 15, 1995" and
inserting in lieu thereof "September 25, 1995."
3. AFFIRMATION OF THE PRINCIPAL AGREEMENT
The Principal Agreement shall be read and construed subject to this
Amending Agreement and in all other respects the provisions of the
Principal Agreement are hereby ratified and confirmed and, subject to the
amendments contained herein, the Principal Agreement shall continue in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amending
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
BUYER
PARKWAY HOLDINGS LIMITED,
a Singapore corporation
By: /s/ TAN KAI SENG
--------------------------
Tan Kai Seng
Its: Finance Director
--------------------------
SELLER
TENET HEALTHCARE CORPORATION,
a Nevada corporation
By: /s/ TERRENCE P. MCMULLEN
--------------------------
Terrence P. McMullen
Its: Vice President
--------------------------
2
<PAGE>
EXHIBIT 13
1995 Annual Report
[ARTWORK APPEARS HERE]
[LOGO] TENET
----------------------
HEALTHCARE CORPORATION
<PAGE>
te*net n. Any principle, dogma, belief or doctrine held as true, especially
by an organization. Synonym: See doctrine.
-- Webster's New
Collegiate Dictionary
--------------------------------------------------------------------------------
Tenet Healthcare Corporation's new name and logo convey the importance we place
upon shared values and beliefs. Our logo shows an architectural column stylized
as the letter "t" and framed by the silhouettes of two people facing each other,
indicating the sharing of tenets between partners.
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
ABOUT TENET HEALTHCARE CORPORATION
--------------------------------------------------------------------------------
Tenet Healthcare Corporation, a nationwide leader in providing healthcare
services, owns and operates 70 general hospitals in the United States and many
related businesses. Tenet employs approximately 60,000 people.
Tenet stock trades on the New York and Pacific stock exchanges under the
new stock symbol THC.
Tenet was formed March 1, 1995, through the merger of National Medical
Enterprises, Inc. (NME) and American Medical Holdings, Inc., the parent company
for American Medical International (AMI).
Tenet Facility Locations
[MAP OF THE UNITED STATES LOCATIONS OF TENET APPEARS HERE]
1
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
LETTER TO OUR SHAREHOLDERS
--------------------------------------------------------------------------------
Fiscal 1995 marked the end of one era and the beginning of a new one for your
company, Tenet Healthcare Corporation.
When National Medical Enterprises, Inc. (NME) completed its acquisition of
American Medical Holdings, Inc. (AMI) on March 1, 1995, two familiar names in
healthcare were retired; and a new name was introduced.
But Tenet Healthcare Corporation did more than simply replace the NME and
AMI names. We selected the Tenet name to symbolize the philosophical foundation
upon which we intend to pursue the growth of your company. A tenet is a
principle or belief shared among people. The name Tenet makes it clear that we
believe that those who succeed in tomorrow's healthcare industry will be those
who seek the knowledge, expertise and cooperation of others - through
partnerships, such as joint ventures, alliances and contracting relationships.
Since March 1, we have been busy demonstrating that philosophy in both word
and deed. From California to Florida, in both metropolitan and rural markets, we
have been pursuing partners wherever doing so would strengthen Tenet. We have
been gratified by the positive responses we have received. Farsighted
physicians, forward-looking hospitals, quality-driven insurers, concerned
communities and caring employers share enthusiasm for our message of partnership
in building modern, integrated healthcare delivery systems.
We believe that integrated delivery systems are the future of healthcare in
America. These systems include networks of hospitals, doctors, payors and other
healthcare entities working together to provide quality, efficient patient care
while meeting the needs of local communities. The AMI acquisition nearly doubles
our size, allowing us to more vigorously pursue this vision. We are fortifying
existing integrated systems and forming new ones in communities large and small,
and we plan to strengthen them further in the years ahead.
Competition within the healthcare industry takes place on a local community
level. It is our goal to become a leading provider in each of the communities we
serve. We believe that through a strong community presence we increase the value
of the healthcare delivered and the value of your company.
What we see as the fundamental building blocks of integrated healthcare -
physician partnerships, strategic acquisitions and affiliations, quality and
value measurement, and spectrum of care - are illustrated in this annual report.
The following pages also include examples of our accomplishments from new
acquisitions and affiliations to cost savings and technical improvements. From
the moment we announced the merger, each of us at Tenet has worked very hard to
capitalize quickly on the many opportunities arising from the union of NME and
AMI, and we believe our efforts are succeeding. During the coming year, we will
continue to take on the challenges of combining two large corporations in an
industry undergoing fundamental change.
Fiscal 1995 Results
In fiscal 1995 the company returned to profitability after a loss due to the
sizable loss from our discontinued psychiatric hospital operations in fiscal
1994. Net income for fiscal 1995 was $165 million, compared with a $425 million
net loss in fiscal 1994. Fully diluted earnings per share from continuing
operations, excluding the impact of restructuring charges and gains or losses on
sales of assets, were $1.09 in fiscal 1995 and $1.19 in fiscal 1994.
The financial results for the fourth quarter of fiscal 1995 are the first
for Tenet since the acquisition of AMI. Because the acquisition was a purchase
transaction, results for prior quarters of fiscal 1995 and for all of fiscal
1994 are for NME only and thus are not representative of the earnings or cash-
flow potential of the new company for a full fiscal year. In addition, earnings
are being reduced in the fourth quarter and in future periods by the
amortization of goodwill recorded from the AMI
2
<PAGE>
transaction, which is a noncash charge but provides no income tax benefits. The
annual earnings-per-share impact of this amortization is approximately 28 cents.
Tenet's core general hospital business continues to generate strong cash
flow. As fiscal 1996 progresses, we expect to significantly reduce Tenet's debt.
Our goal is to obtain an investment-grade rating in the near term. Debt
reductions, however, will depend, in part, upon the availability of attractive
acquisition opportunities.
Focus on Domestic Hospitals
To help achieve our debt-reduction goals and maintain a clear focus on our
growing domestic integrated delivery systems, we have taken steps to divest our
noncore assets. We sold our two Singapore hospitals in the first quarter of
fiscal 1996, and we expect to close the sale of our interests in Malaysia,
Thailand and Australia before the end of the second quarter. Proceeds from these
sales of most of our international properties will generate approximately $337
million of cash proceeds net of debt. Effective December 31, 1994, we sold our
management services division, which provided contract managed services in
psychiatric, physical rehabilitation and chemical dependency treatment.
These steps and the sales in the last two years of most of our
rehabilitation and psychiatric hospitals allow Tenet's management to devote its
energies to our domestic general hospitals, and they give us increased financial
flexibility. Additionally, when The Hillhaven Corporation's pending merger with
Vencor, Inc. is completed, we expect to receive approximately $90 million in
cash for our Hillhaven preferred stock and more than 8 million shares of Vencor
common stock in exchange for our Hillhaven common stock. We will continue to
evaluate our interests in Vencor and our other noncore assets. We are also
evaluating our ownership of several selected domestic general hospitals.
Growth
The healthcare industry is in the midst of an unprecedented period of
consolidation. As the industry becomes more competitive, not-for-profit
providers and others are looking closely at the many benefits partnership with
Tenet can offer, among them, access to capital, information systems and
management expertise. As we build our integrated delivery systems, we want to
maintain our reputation as a stable partner that respects and meets local
communities' needs.
We have been attentively evaluating growth opportunities, especially in
areas where we already have a significant presence, but also in communities
where Tenet is not yet as strong. In May we were very pleased to announce our
company's first two major acquisitions since the merger. Tenet's acquisition of
Mercy+Baptist Medical Center in New Orleans, a two-hospital system, will make us
the largest healthcare provider in greater New Orleans, with eight general
hospitals, many related businesses and strong relationships with area
physicians. That transaction is expected to close in the first quarter of fiscal
1996. Our acquisition of Providence Memorial Hospital in El Paso, Texas, where
Tenet already operates a local health system that includes a large general
hospital, a rehabilitation hospital and other related businesses, is expected to
close in the second or third quarter, depending on regulatory approval.
Other areas of expansion for Tenet include affiliations with healthcare
providers, whether through joint ownership, contracting agreements or other
means, and further development of ancillary and niche services. For example, we
have agreed to team with Cleveland Clinic Florida, an extension of the world-
renowned Cleveland Clinic Foundation in Ohio, to build a hospital in Weston,
Fla. Tenet will manage the hospital's operations, and the Cleveland Clinic
Florida group practice will oversee all aspects of clinical care. The facility
will permit Cleveland Clinic Florida to further its mission of providing
3
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Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
LETTER TO OUR SHAREHOLDERS Continued
--------------------------------------------------------------------------------
superior patient care. This project demonstrates Tenet's philosophy of expanding
its healthcare systems in conjunction with quality partners. Furthermore, our
partnership will enhance our South Florida network and put us in a stronger
competitive position when negotiating contracts with managed care payors who are
looking for convenient, one-stop healthcare shopping.
Building relationships with physicians, another of our primary, long-range
goals and an indispensable component of integrated healthcare delivery, also
will be essential to our continued success. This encompasses purchasing
physician practices, managing practices or forming physician-hospital
organizations that share the risk of managed care contracting. Tenet currently
owns or manages more than 400 physician practices affiliated with our local
hospitals.
Cost-Control Success
As promised, we have significantly cut our expenses. In the beginning of fiscal
1995, NME completed a comprehensive management review of corporate overhead,
trimming $32 million from annual expenses. Following the merger, we expect to
save another $20 million or more annually through eliminating duplicate
overhead.
As part of this reorganization, we made the decision to consolidate our
hospital support operations in Dallas. Clearly, it makes sense for the people
who handle the purchasing, outcomes measurement, financial operations, legal
operations, human resources operations, acquisition and development, and other
important support services for our 70 general hospitals and many related
businesses nationwide to be centrally located. Additionally, in keeping with our
goal to customize our services through integrated healthcare delivery systems in
local communities, we have established eight regional offices. Tenet's
consolidated corporate headquarters will remain in Southern California.
Our merger also should result in purchasing savings estimated at another
$20 million in the first full year of combined operations, plus first-year
information systems savings and reductions in bad-debt expenses. All in all, we
are on track to meet our aggregate goal of $60 million in savings in fiscal
1996.
The above actions, as well as savings through staffing our hospitals more
efficiently, are what we think of as traditional healthcare cost control, and
Tenet has done an exemplary job in this area. We expect to continue to find ways
to increase efficiency while maintaining quality care.
We also expect to find even greater cost savings through better management
of resource consumption. We are working closely with our medical staffs to bring
down physician-controlled hospital expenses. This means using outcome studies
and other methods to identify the most appropriate, high-value treatments for
patients - which will be a major focus all across Tenet in fiscal 1996. More
efficient resource consumption works to the benefit of physicians as well as
hospitals and patients; today's intense market pressures make it essential for
physicians to demonstrate that they, too, offer not only quality but value.
Healthcare Legislation
It now appears that 1995 may be the year the federal government takes action to
rein in its healthcare spending. Legislators are broadening their focus from
capping or cutting increases in Medicare and Medicaid to making fundamental
changes in the administration of these programs to meet cost-control goals.
Possibilities include utilizing managed care systems for both programs; issuing
vouchers, which would allow Medicare beneficiaries to buy private-sector
coverage; and making block grants to states, which would cap the growth of
federal Medicaid spending.
4
<PAGE>
For healthcare providers like us, these changes will mean further
reimbursement pressures. We anticipate that the strategies Tenet's predecessor
companies have been following for years in response to intense competition and
the growing role of HMOs and other managed care concepts will mitigate the
potential impact of these changes on our business. Those strategies, of course,
include becoming ever-more efficient while always keeping quality as our
lodestar.
At Tenet, we support restructuring of the nation's healthcare system to
make it more market-driven. What we cannot support are any modifications that
further limit access to healthcare or that place a disproportionate share of the
responsibility for lowering healthcare costs on hospitals.
The Road Ahead
As we go forward, a strong companywide commitment to ethics will guide Tenet's
growth. We believe that all our actions should meet our written Standards of
Conduct and that helping our employees adhere to these standards is imperative.
By the end of June, just four months after our merger, we had provided
comprehensive ethics training to employees at all 37 former AMI hospitals.
Former NME employees who had received this training during the prior year now
are receiving follow-up training. In total, we have trained more than 60,000
employees in participative, face-to-face sessions.
Also guiding the company are three new board members, Thomas J. Pritzker,
Robert W. O'Leary and John T. Casey, who joined Tenet as a result of the
--------------------------------------------------------------------------------
MAJOR ACCOMPLISHMENTS UNDER NEW MANAGEMENT
--------------------------------------------------------------------------------
April 1993 Board of directors makes top management changes at National
Medical Enterprises, Inc. (NME).
Jeffrey C. Barbakow named CEO and, later, chairman.
Michael H. Focht Sr. named COO and, later, president.
June 1993 Hillhaven relationship restructured.
Sept. 1993 Two of three lawsuits with insurance companies settled.
Board of directors reconfigured to reduce the number of employee
directors to two.
Dec. 1993 Remaining insurance lawsuit settled.
NME agrees to sell 28 rehabilitation hospitals.
March 1994 NME agrees to sell 47 psychiatric facilities.
April 1994 NME reaches agreement in principle with the U.S. departments of
Justice and Health and Human Services to settle psychiatric
investigations.
June 1994 Government investigations settled.
July 1994 Corporate downsizing implemented.
Aug. 1994 NME sells controlling interest in its dialysis unit.
Oct. 1994 NME agrees to acquire American Medical Holdings, Inc. (AMI).
March 1995 Tenet Healthcare Corporation created as NME completes AMI
acquisition. Corporate organization restructured.
May 1995 Tenet South Florida HealthSystem created to link hospitals and
other facilities in integrated delivery system.
Tenet announces its first two major acquisition agreements:
Mercy+Baptist Medical Center in New Orleans and Providence
Memorial Hospital in El Paso, Texas.
Tenet agrees to sell Asian and Australian hospitals.
July 1995 Tenet announces joint venture with Cleveland Clinic Florida.
5
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LETTER TO OUR SHAREHOLDERS Continued
--------------------------------------------------------------------------------
AMI acquisition. They add considerable healthcare and business expertise to our
board of directors.
All of the positive news in this report shines even brighter when put in
the perspective of the many changes and difficulties confronted by NME and AMI
in recent years. At NME, we progressed through an intense period of turnaround
and transformation, while AMI came through its own restructuring and
streamlining. With the merger of our two companies and the creation of Tenet
Healthcare Corporation, we have entered a new era of accomplishment. Today, our
goal is to continue to build on our partnership and to form new partnerships so
that we can successfully establish integrated systems that deliver quality
healthcare.
We would like to thank Tenet employees for the hard work that enables us to
make our plans a reality. We also thank our shareholders, old and new, for your
support.
Sincerely,
/s/ Jeffrey C. Barbakow [PHOTO APPEARS HERE]
Jeffrey C. Barbakow
Chairman and Chief Executive Officer Jeffrey C. Barbakow
/s/ Michael H. Focht Sr. [PHOTO APPEARS HERE]
Michael H. Focht Sr.
President and Chief Operating Officer Michael H. Focht Sr.
August 1, 1995
6
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OPERATIONS REVIEW
--------------------------------------------------------------------------------
Tenet Healthcare Corporation holds a strong competitive position in the U.S.
healthcare industry. The company owns 70 general hospitals in the United States
with more than 15,400 beds. It also owns seven long-term-care facilities, five
physical rehabilitation hospitals, five psychiatric facilities and many
ancillary facilities connected with its general hospitals. These facilities have
been well-maintained over the years.
Tenet's business development strategies are customized to each state and
community, depending on local needs, the size of the market, degree of physician
organization, local regulations, managed care environment and other factors.
Some Tenet hospitals are the sole provider in their area; some function as parts
of Tenet networks of two or more hospitals; some maintain affiliations with non-
Tenet facilities in their region.
There are, however, four core strategies Tenet follows in every market to
build community-based integrated healthcare delivery systems. First, Tenet
strives to provide a full spectrum of care to patients. Second, the company
works to strengthen alliances with physicians affiliated with its hospitals.
Third, Tenet pursues selective acquisitions and affiliations that can strengthen
and expand its systems. The company's fourth, overriding strategy is to hold
quality and value paramount in everything it does and to implement ways to
measure the quality of its services while it delivers care most cost-
effectively.
Fiscal 1995
Inpatient admissions to Tenet's hospitals increased by 2.3 percent in the fourth
quarter of fiscal 1995 on a same-facility basis compared with NME and AMI
hospitals in the prior-year quarter. This represents an improvement after small
declines in the first three quarters of the year for NME only. Outpatient visits
continue to increase.
Tenet's single biggest operating challenge of fiscal 1995 - addressing the
continuing conversion of patients covered by indemnity insurance to managed care
plans - will continue to confront the company and the entire healthcare industry
in fiscal 1996. Reimbursement pressure may escalate as the government seeks to
slow the growth of Medicare and Medicaid budgets. Tenet has gained broad
knowledge of and experience in managed care while proving that it can operate
profitably in the face of these pressures. California, in particular, where
Tenet operates 23 hospitals, more than in any other state, has been a managed
care bellwether for several years.
In fact, Tenet sees new opportunity to build on its footholds in areas such
as Alabama, Arkansas, Georgia, Louisiana, North Carolina and South Carolina
where HMOs and other managed care providers are now becoming more of a force.
The company's size and its managed care experience, as well as the strength of
its hospitals' medical staffs, should help Tenet make the alliances that will
enable the company to compete successfully in these areas.
The rudimentary keys to success in all markets are continued cost control
and quality maintenance and improvement.
Cost Control
Pivotal to Tenet's cost-control efforts is its large purchasing group, Buy
Power, which negotiates contracts for $1.3 billion annually in supplies,
equipment and services for 1,430 facilities, including hospitals, clinics and
nursing homes owned by other companies. Tenet is the only for-profit hospital
system with such a buying group.
The company's savings increase significantly with the addition of the 37
former AMI hospitals and renegotiation of all of Tenet's national contracts.
Three months after the merger, Tenet
7
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OPERATIONS REVIEW Continued
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had already renegotiated approximately $15 million in annual savings. In the
medical/surgical area alone, the company has rebid 70 agreements representing
more than $80 million in purchases and has reached total reductions of $7
million or an average of 9 percent. Tenet has already converted the former AMI
hospitals to Tenet pharmaceutical, food and nutrition agreements, reducing
annual costs by approximately $5 million.
Additionally, Tenet continues to control costs by making judicious changes
in staffing mix at its hospitals, by combining hospital management teams and by
consolidating services. The company's growth has facilitated consolidation. In
Central California, for example, a single administrative team will run Twin
Cities Community Hospital, a former NME facility, and Sierra Vista Regional
Medical Center, a former AMI facility 22 miles away. The two hospitals will
coordinate their healthcare services to reduce costs and better serve their
communities. In New Orleans, neighboring former NME and former AMI hospitals
share dietary, human resources, purchasing and other support services. In South
Florida, Tenet is integrating some of its hospitals' neonatal intensive care and
home healthcare programs, among others.
Expanding Networks
Tenet pursues various means of building integrated healthcare delivery systems
in each market. In larger markets, the strategy is to build comprehensive
networks combining Tenet-owned hospitals, ancillary services and affiliated
physicians. Some of Tenet's strongest owned networks are in South Florida,
Greater New Orleans and Southern California.
For example, the South Florida network, known as Tenet South Florida
HealthSystem, covers the three counties of Dade, Broward and Palm Beach. It
unites 43 healthcare facilities with more than 2,100 beds, 3,200 affiliated
physicians and 7,200 employees. Included are six general hospitals; physical
rehabilitation, psychiatric and skilled nursing facilities; and outpatient
surgery, home healthcare, diagnostic, workers' compensation and occupational
therapy centers. In May, Tenet South Florida HealthSystem launched a major
marketing program promoting Tenet's unified regional services. The effort is
intended to raise awareness of Tenet's breadth and quality and to attract
managed care contracts.
In small and medium-size communities, Tenet can succeed as a result of its
size, the quality of its hospitals and affiliated physicians, the breadth of its
services and by establishing alliances outside the company. For example, Tenet's
two Georgia hospitals are founding members of Georgia First, an affiliation of
30 general hospitals that gives the Tenet facilities statewide contracting
power.
Building Partnerships With Physicians
In every market, to develop and augment the growth of integrated healthcare
delivery systems, Tenet emphasizes developing a strong base of primary care
physicians and complements of supportive specialists.
Committed to educating physicians about group practice formation and
managed care contracting, Tenet strives to involve physicians where appropriate
in cooperative ventures. These might include management services organizations
(MSOs), which provide administrative and contract management services to
physicians; independent practice associations (IPAs), groups of physicians who
have joined together to gain managed care contracting leverage; or physician
hospital organizations (PHOs), which unite physicians and hospitals for
contracting purposes. Providing these vehicles to
8
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[ARTWORK APPEARS HERE]
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PARTNERSHIPS WITH PHYSICIANS
--------------------------------------------------------------------------------
Strong relationships with physicians form the core of Tenet's integrated
healthcare delivery systems in every community. Hospitals and doctors are
working more closely together than ever before to provide the best possible
patient care. At Tenet, this means we shoulder administrative work so that
physicians can spend more time with patients, we share managed care risk with
physicians, and we obtain contracts together. Tenet will also continue meeting
physicians' needs by giving them access to excellent hospital facilities, staff
and education as well as a voice in hospital operations.
9
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OPERATIONS REVIEW Continued
--------------------------------------------------------------------------------
physicians frees them to spend more time with patients and increases their
prospects for success in the managed care environment.
Tenet helps its affiliated physicians better serve patients in other ways
as well, including pursuing emerging technologies and equipment and providing
training. Tenet's medical affairs department identifies promising new clinical
developments that may improve patient outcomes, shorten lengths of stay and
improve quality of care. The company strives to obtain agreements to give Tenet
hospitals and physicians early access to this technology. The company also
provides training for physicians in selected new procedures.
A few of the leading projects in which Tenet hospitals participate include:
Barnett Continent Intestinal Reservoir (BCIR) surgery for patients whose colon
or rectum has been removed as a result of bowel disease; the use of a robotic
arm for laparoscopic surgery; laparoscopic Nissen fundoplication, a minimally
invasive procedure that offers new surgical therapy for patients with chronic
heartburn as a result of a hiatal hernia; and a new mechanism to use lasers to
perform endoscopic sinus surgery.
Tenet assists physicians in tracking the results of these innovative
projects. For example, with the company's support and coordination, a group of
Tenet-affiliated physicians recently published a follow-up study of 510 Tenet
BCIR patients, one of the largest bowel disease patient groups ever reported, in
a peer-reviewed medical journal.
Acquisitions and Affiliations
Tenet is actively evaluating opportunities to expand its integrated healthcare
delivery systems through the most direct route - the acquisition of other
hospitals and ancillary providers. The company looks for partners that can help
expand its geographic coverage, enhance growth potential, offer complementary
services and maintain complementary information systems, and that share Tenet's
commitment to quality improvement. However, wholly owning every piece of the
integrated healthcare system is not essential to the company.
Tenet also grows through various types of affiliations. These affiliations
might include managed care agreements, as in North Carolina, where Tenet's
Central Carolina Hospital recently entered a contracting partnership with Duke
University Medical Center. This partnership gives Central Carolina, a small
hospital in a rural area, the ability to offer managed care payors access to
Duke's tertiary services and increased access to major managed care products.
Some more complex affiliations involve joint ventures. In Arkansas, where
the company currently owns three hospitals, Tenet has joined with St. Vincent
Infirmary Medical Center of Little Rock to form Healthstar Ultima. Healthstar
partners operate five hospitals with more than 1,400 beds and more than 1,100
physicians on staff. The five hospitals operate 37 related businesses in the
state, including physician practices and rural health clinics. In June, Tenet
and St. Vincent signed a letter of intent through Healthstar to acquire
Methodist Hospital of Jonesboro, Ark.
Ancillary Services
Providing the full spectrum of care, both inside and outside the general
hospital, is another vital component of the integrated healthcare delivery
system. Both NME and AMI significantly improved their outpatient services over
the past several years to meet increasing demand, and Tenet plans further
expansion of its ancillary services. For example, the company is increasing the
number of senior centers that provide convenient walk-in healthcare services for
10
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[ARTWORK APPEARS HERE]
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SPECTRUM OF CARE
--------------------------------------------------------------------------------
General hospitals remain the hub of Tenet's integrated healthcare delivery
systems, but today many patients receive care outside the hospital or even at
home. To meet this growing demand and to make healthcare more accessible and
affordable, Tenet is expanding its ancillary services, from outpatient surgery
centers to diagnostic clinics, to home healthcare. Services range from
delivering babies to hospice care, to brain scans, rehabilitation and heart
surgery. Offering patients and payors a convenient, full spectrum of care is
another vital component of Tenet's integrated healthcare delivery systems.
11
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OPERATIONS REVIEW Continued
--------------------------------------------------------------------------------
Medicare recipients. Other areas of expansion will include home healthcare
services, occupational health clinics and diagnostic services.
In parts of California, Tenet's integrated healthcare system includes its
own health maintenance organization (HMO), preferred provider organization (PPO)
and managed care insurance company. In fiscal 1994 and 1995, this subsidiary,
National Health Plans, made a major expansion from its base in the Modesto area
in California's Central Valley to Redding in Northern California; won two major
contracts to serve public employees; and launched a new HMO for Medicare
recipients. By the end of fiscal 1995, these expansions had resulted in an HMO
membership gain of more than 16,000, bringing enrollment to 57,000. The number
of National Health Plans insurance products and services policyholders also
increased, from 23,000 to 31,000. Its PPO component has 18,000 members.
Quality Measurement and Outcomes
Tenet strongly believes that the quality of its services must be maintained as
the company grows. Accordingly, the company has been focusing closely on not
only providing outstanding services, but also on measuring quality to prove the
value of its services to payors and patients. This will be a continuing high
priority for Tenet in fiscal 1996. Many programs are already in place either at
individual hospitals or companywide; others are in progress.
One of the most effective methods the company has found to eliminate the
fragmented and wasteful aspects of hospital care is through case management, a
way to deliver care in a more planned and integrated fashion. Tenet's Brookwood
Medical Center in Birmingham, Ala., is an industry leader in case management.
The Brookwood system, begun in 1989 and in place for all patients by 1992,
undertakes the cohesive daily clinical management of patients from before they
enter the hospital to after they leave. Physicians and staff follow "critical
pathways" that detail what should happen to each patient day by day. The
pathways are adjusted, of course, for each individual case. This system has
reduced costs at Brookwood by more than $1 million a year. Most importantly,
the hospital also has improved patient care as a result of case management. The
hospital's outcomes for open-heart surgery, respiratory disease, birth trauma,
and other illnesses and procedures are significantly better than national
averages.
Many other Tenet facilities have successful case management programs of
their own. At Alvarado Hospital Medical Center in San Diego, case management for
cardiovascular patients has led to another success story. Through vigilant
resource management and education, and by ensuring that patients receive the
appropriate level of care at all times, the hospital reduced costs for open-
heart surgery cases by 17 percent from calendar 1993 to 1994 with no deviation
in outcomes.
Tenet has under way several complementary companywide programs that
facilitate its hospitals' ongoing efforts to work with physicians to
simultaneously control costs and measure quality. The intraoperative case
management program, a process used to identify cost-per-procedure variables
among physicians, has resulted in more than $7.6 million in annualized savings
at 30 former AMI hospitals. Tenet's goal is to achieve an additional $12 million
in annualized savings in fiscal 1996 from this program's implementation at all
of its hospitals.
A new, related effort, Tenet's comprehensive, computerized outcomes
management system, is designed to improve quality as it helps control costs.
Currently being launched, it will enable hospitals to compare medical costs and
outcomes among physicians, hospitals, regions and across
12
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[ARTWORK APPEARS HERE]
--------------------------------------------------------------------------------
ACQUISITIONS & AFFILIATIONS
--------------------------------------------------------------------------------
Tenet strengthens and builds its integrated healthcare delivery systems by
pursuing new partnerships. The company looks for partners that share its goals,
while potential partners look to us for our healthcare experience and resources.
Tenet has announced several major acquisitions and has formed successful
partnerships with not-for-profit healthcare providers, including religious and
educational institutions. The company's affiliations range from crosstown
connections with complementary facilities to alliances with major universities
to statewide contracting networks.
13
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Tenet Healthcare Corporation and Subsidiaries
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OPERATIONS REVIEW Continued
--------------------------------------------------------------------------------
the entire corporation. Physicians, who, like hospitals, are under intense
pressure to lower their costs, are willing to work with the system because it
helps them stay competitive. In fact, in many instances, the key to controlling
resource consumption is simply providing doctors and hospital staff with
information so that they can modify their practice patterns when appropriate.
Tenet also has improved NME's quality/risk management computer system,
which tracks unusual occurrences at hospitals so improvements can be made.
Yet another way Tenet monitors quality is through a comprehensive patient
satisfaction monitoring system, begun at AMI in 1982. Today, the company surveys
inpatients, outpatients and rehabilitation and psychiatric patients to measure
their satisfaction with care at all of its hospitals. To underscore the
importance of these studies, results are directly linked to managers'
compensation.
Tenet also believes that employee satisfaction with the work environment
has an impact on quality of care. Since 1992, selected hospitals have been
monitoring employees' satisfaction with such factors as benefits, communication,
orientation and training. Physician surveys that chart satisfaction with nursing
units, diagnostic departments and other areas have been available to hospitals
since 1994.
The Future
Through combining the best of NME and AMI and drawing on the long traditions of
both companies, Tenet today has become even stronger than the sum of its parts.
In addition, the merger has brought an intangible, but invaluable bonus -
renewed excitement throughout the ranks of the business. Tenet Healthcare's more
than 60,000 employees intend to capitalize on this excitement to enhance value
for patients and shareholders in the years to come.
[PHOTO APPEARS HERE]
Barry P. Schochet
Executive Vice President,
Operations
[PHOTO APPEARS HERE]
Thomas B. Mackey
Executive Vice President,
Western Operations
[PHOTO APPEARS HERE]
W. Randolph Smith
Executive Vice President,
Eastern Operations
14
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QUALITY & VALUE MEASUREMENT
--------------------------------------------------------------------------------
Tenet prides itself on excellence, and today the company is making a more
concerted effort than ever before to work with physicians to prove - and
improve - the quality and value of all of its services. What is the best
protocol for this patient? Can that procedure be performed more efficiently?
How can the company further improve patient, employee and physician
satisfaction? Ongoing quality improvement programs, outcomes management studies
and continuing medical education all play a role in quality and value
measurement, an essential element of Tenet's integrated healthcare delivery
systems.
15
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Tenet Healthcare Corporation and Subsidiaries
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FINANCIAL SUMMARY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected Financial Data and Ratios
Continuing Operations Years Ended May 31,
(dollar amounts, except per-share amounts, -------------------------------------------------------------------
are expressed in millions) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results/1/
Net operating revenues $ 3,318 $ 2,943 $ 3,178 $ 2,934 $ 2,604
-------------------------------------------------------------------
Operating expenses:
Salaries and benefits (1,367) (1,293) (1,465) (1,328) (1,158)
Supplies (432) (339) (349) (319) (253)
Provision for doubtful accounts (137) (107) (115) (123) (134)
Other operating expenses (759) (667) (689) (616) (595)
Depreciation and amortization (195) (161) (160) (141) (125)
Restructuring charges (37) (77) (52) (18) 0
-------------------------------------------------------------------
Operating income 391 299 348 389 339
-------------------------------------------------------------------
Interest expense, net of capitalized portion (138) (70) (75) (89) (124)
Investment earnings 27 28 21 29 29
Equity in earnings of unconsolidated affiliates 28 23 13 6 5
Minority interests in income of consolidated
subsidiaries (9) (8) (10) (7) (4)
Net gains on sales of assets 30 88 122 31 0
-------------------------------------------------------------------
Income from continuing operations before income taxes 329 360 419 359 245
Taxes on income (135) (144) (155) (141) (100)
-------------------------------------------------------------------
Income from continuing operations $ 194 $ 216 $ 264 $ 218 $ 145
===================================================================
Earnings per share from continuing operations:
Primary $ 1.10 $ 1.29 $ 1.59 $ 1.27 $ 0.91
Fully diluted $ 1.06 $ 1.23 $ 1.49 $ 1.19 $ 0.87
Cash dividends per common share $ -- $ 0.12 $ 0.48 $ 0.46 $ 0.40
------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Total assets $ 7,918 $ 3,697 $ 4,173 $ 4,236 $ 4,060
Long-term debt 3,273 223 892 1,066 1,140
Total debt 3,560 835 1,177 1,305 1,243
Shareholders' equity 1,986 1,320 1,752 1,674 1,762
Book value per common share $ 9.93 $ 7.95 $ 10.56 $ 10.03 $ 10.08
------------------------------------------------------------------------------------------------------------------------------
Ratios
Pretax margin 9.9% 12.2% 13.2% 12.2% 9.4%
-------------------------------------------------------------------
Current ratio 1.20/1 0.88/1 1.17/1 1.26/1 1.58/1
-------------------------------------------------------------------
Total debt/equity ratio 1.79/1 0.63/1 0.67/1 0.78/1 0.71/1
-------------------------------------------------------------------
Return on assets, after tax 4.4% 5.5% 6.2% 5.3% 3.7%
-------------------------------------------------------------------
Return on equity, after tax 12.6% 13.8% 15.2% 12.2% 10.4%
-------------------------------------------------------------------
Interest expense coverage 3.4 6.1 6.6 5.0 3.0
-------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ On March 1, 1995, the Company acquired all the outstanding common stock of
American Medical Holdings, Inc. for $1.5 billion in cash and 33.2 million
shares of the Company's common stock valued at $488 million. See Note 2 in
the accompanying Notes to Consolidated Financial Statements.
16
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Tenet Healthcare Corporation and Subsidiaries
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MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
The AMH Merger
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired American Medical Holdings, Inc. and its subsidiaries ("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 NME debt. The merger and debt retirements were financed by a
new $2.3 billion bank credit facility and the public issuance of $1.2 billion in
new senior 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, Singapore, Spain and
Malaysia 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 million beginning in the fiscal year ending May 31, 1996. The
$60 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 new credit facility,
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 new credit facility or, depending on capital market conditions, the sale of
additional subordinated debt or equity securities or other bank borrowings. The
Company's unused borrowing capacity under the new credit facility was $326.0
million as of May 31, 1995.
During 1995 net cash provided by operating activities was $420 million
before expenditures of $427 million related to restructuring charges and the
discontinued psychiatric hospital business. Corresponding figures for 1994 were
$466 million and $319 million, respectively. In 1993 they were $494 million and
$96 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 AMH merger, have been adversely affected by
the legal proceedings and investigations related primarily to the Company's
former psychiatric business. (See Note 8B.) 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 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 million during 1995, compared with $569 mil-
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Tenet Healthcare Corporation and Subsidiaries
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MANAGEMENT'S DISCUSSION AND ANALYSIS Continued
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lion during 1994 and $70 million in 1993. In June 1995 the Company sold two
hospitals and related businesses in Singapore for $243.3 million, net of $78.3
million in debt assumed by the buyer. (See Note 18.) The net proceeds were used
to pay off secured bank loans under the Company's term loan and revolving credit
agreement. During fiscal 1996 the Company expects to receive approximately $90
million from the sale of its Hillhaven preferred stock and approximately $94
million from the sale of its holdings in Malaysia, Thailand and Australia. 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 million,
a decrease of $158 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 $393 million increase in current reserves for discontinued
operations and restructuring charges.
Cash payments for property and equipment were $264 million in 1995,
compared with $185 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 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 May 1995 the Company
announced agreements to acquire three general hospitals during fiscal 1996 for
approximately $350 million. (See Note 13.) The Company intends to continue to
invest in existing and new facilities.
The new credit facility and debt securities have affirmative, negative and
financial covenants with which the Company must comply. These covenants include,
among other requirements, limitations on borrowings, liens, investments,
operating leases, capital expenditures, 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 million in 1995,
compared with $360 million and $419 million in 1994 and 1993, respectively. The
most significant transactions affecting the results of continuing operations
were (i) the acquisition of AMH on March 1, 1995; (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 nonhospital subsidiaries, and the 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>
Table I Unusual Items - Continuing Operations: --------------------------------------
(in millions) 1995 1994 1993
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain (loss) on sales of facilities and long-term investments $ (2) $ 88 $ 93
Gains on sales of subsidiaries' common stock 32 0 29
Restructuring charges (37) (77) (52)
--------------------------------------
Net unusual pretax items (after tax -- $0.03 fully diluted per
share in 1995, $0.04 in 1994 and $0.30 in 1993) $ (7) $ 11 $ 70
======================================
</TABLE>
Excluding the unusual items as shown in Table I, income from continuing
operations before income taxes would have been $336 million in 1995 and $349
million in both 1994 and 1993.
18
<PAGE>
The following is a summary of continuing operations for the past three
fiscal years:
Table II
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
(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 $ 2,777 $ 2,133 $ 2,113 83.7% 72.5% 66.5%
Other domestic operations/1/ 310 275 272 9.3% 9.4% 8.5%
International operations 214 175 162 6.5% 5.9% 5.1%
Divested operations/2/ 17 360 631 0.5% 12.2% 19.9%
-----------------------------------------------------------------------------------
Net operating revenues 3,318 2,943 3,178 100.0% 100.0% 100.0%
-----------------------------------------------------------------------------------
Operating expenses:
Salaries and benefits (1,367) (1,293) (1,465) 41.2% 43.9% 46.1%
Supplies (432) (339) (349) 13.0% 11.5% 11.0%
Provision for doubtful accounts (137) (107) (115) 4.1% 3.6% 3.6%
Other operating expenses (759) (667) (689) 22.9% 22.7% 21.7%
Depreciation (164) (143) (141) 5.0% 4.9% 4.4%
Amortization (31) (18) (19) 0.9% 0.6% 0.6%
Restructuring charges (37) (77) (52) 1.1% 2.6% 1.6%
-----------------------------------------------------------------------------------
Operating income $ 391 $ 299 $ 348 11.8% 10.2% 11.0%
===================================================================================
EBITDA/3/ $ 623 $ 537 $ 560 -- -- --
EBITDA margin/3/ 18.8% 18.2% 17.6% -- -- --
Capital expenditures $ 264 $ 185 $ 319 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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)
Total Renal Care, Inc. 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.
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 AMH merger for the three months ended
May 31, 1995. The prior two years include revenues of $360 million and $631
million, respectively, from the sold rehabilitation hospitals and the other
divestitures mentioned above through the date of divestiture.
19
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS Continued
--------------------------------------------------------------------------------
Operating income increased 30.8% to $391 million in 1995 from $299 million
in 1994 and $348 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 AMH 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 III
<TABLE>
<CAPTION>
Increase
(Decrease)
1994 to
1995 1994 1993 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic general hospital operating data:
Number of hospitals (at end of period) 70 35 35 35
Licensed beds (at end of period) 15,622 6,873 6,818 127.3%
Net inpatient revenues (in millions) $ 1,937.9 $ 1,568.4 $ 1,529.5 23.6%
Net outpatient revenues (in millions) $ 786.3 $ 557.2 $ 534.7 41.1%
Admissions 267,868 207,868 210,669 28.9%
Equivalent admissions 358,664 271,004 274,216 32.3%
Average length of stay 5.6 5.6 5.6 --
Patient days 1,507,865 1,154,030 1,187,181 30.7%
Equivalent patient days 1,997,508 1,493,314 1,537,913 33.8%
Net inpatient revenues per patient day $ 1,285 $ 1,359 $ 1,288 (5.4%)
Utilization of licensed beds 46.4% 46.8% 47.8% (0.4%)*
Outpatient visits 2,293,586 1,472,258 1,473,294 55.8%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* The % change is the difference between the 1995 and 1994 percentages shown.
20
<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 12.7% to $310 million in 1995, compared with $275 million in 1994 and
$272 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 22.3% to $214 million in 1995, compared with $175 million in 1994 and
$162 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.) Net operating revenues and operating
profits from the facilities sold and to be sold were $202.4 million and $39.4
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 AMH
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 AMH 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 AMH 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 AMH 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.
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 AMH merger. Goodwill amortization is expected to be at
least $62.5 million annually, based on the amount of goodwill related to the AMH
merger recorded as of May 31, 1995.
Interest expense, net of capitalized interest, was $138 million in 1995,
compared with $70 million in 1994 and $75 million
21
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS Continued
--------------------------------------------------------------------------------
in 1993. All of the increase between 1994 and 1995 was due to the acquisition of
AMH and the $3.5 billion of new senior notes and bank loans used to finance the
acquisition and retire debt in connection with the merger.
Investment earnings were $27 million in 1995, $28 million in 1994 and $21
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 million in 1995,
$23 million in 1994 and $13 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.)
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 Australian Medical Enterprises, Ltd. Minority
interest expense was $9 million in 1995, $8 million in 1994 and $10 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 AMH 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.
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.
22
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended May 31,
-----------------------------------------------
(dollar amounts, except per-share amounts, are expressed in millions) 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------------
<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.
23
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31,
-----------------------
(dollar amounts are expressed in millions) 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
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.
24
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
(dollar amounts are expressed in millions, Outstanding Issued Paid-in Retained Treasury
share amounts in thousands) Shares Amount Capital Earnings Stock
---------------------------------------------------------------------------------------------------------------------------------
<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.
25
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended May 31,
-----------------------------------------
(dollar amounts are expressed in millions) 1995 1994 1993
-------------------------------------------------------------------------------------------------------------------------------
<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 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>
26
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended May 31,
------------------------------------------------
(dollar amounts are expressed in millions) 1995 1994 1993
-------------------------------------------------------------------------------------------------------------------------
<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.
27
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 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.
28
<PAGE>
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.)
29
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
Note 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 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,
------------------------------
(in millions, except per-share amounts) 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net operating revenues $5,256.8 $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.
30
<PAGE>
Note 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.)
Note 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.
Note 5. Property, Plant and Equipment
Property, plant and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
------------------------------
(in millions) 1995 1994
----------------------------------------------------------------------------------------------------------
<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>
31
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
Note 6. Long-Term Debt and Lease Obligations
A. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
--------------------------
(in millions) 1995 1994
------------------------------------------------------------------------------------------------------------------------------
<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,
32
<PAGE>
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 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.
33
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
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 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.
34
<PAGE>
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
(in millions) 1996 1997 1998 1999 2000 Years
---------------------------------------------------------------------------------------------------------------------------------
<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.
Note 7. Income Taxes
Taxes on income from continuing operations consist of the following amounts:
<TABLE>
<CAPTION>
---------------------------------------
(in millions) 1995 1994 1993
---------------------------------------------------------------------------------
<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
(in millions of dollars and ---------------------------------------------------------------------------
as a percent of pretax income) Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------------------------------------------------------
<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 .4% 5 1.1%
---------------------------------------------------------------------------
Taxes on income from continuing
operations and effective tax rates $ 135 41.0% $ 144 40.0% $ 155 37.0%
===========================================================================
</TABLE>
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
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.
Deferred tax assets and liabilities as of May 31, 1995 and 1994 relate to
the following:
<TABLE>
1995 1994
---------------------------------------------------------------------
(in millions) Assets Liabilities Assets Liabilities
-------------------------------------------------------------------------------------------------------------------------------
<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.
36
<PAGE>
Note 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 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
37
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
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 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.
Note 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.
38
<PAGE>
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 non-redeemable 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.
Note 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.
39
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
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>
------------------------------------
(shares of common stock) 1995 1994
-----------------------------------------------------------------------------------------------------------------
<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.
Note 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 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.
40
<PAGE>
Note 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>
------------
(in millions) 1995
-----------------------------------------------------------------------------------------------------------------------------------
<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.
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
Note 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.
Note 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.
42
<PAGE>
Note 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.
Note 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.
Note 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.
43
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
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.
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>
----------------------------------
(dollars in millions) 1995 1994
----------------------------------------------------------------------------------------------------------------------------
<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
(currency in millions) Amount Date Amount Date
--------------------------------------------------------------------------------------------------------------
<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>
44
<PAGE>
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
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
(currency in millions) Amount Rate Date Amount Rate Date
----------------------------------------------------------------------------------------------------------------------------
<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>
Note 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 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.
45
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
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.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
July 25, 1995
46
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
SUPPLEMENTARY FINANCIAL INFORMATION
--------------------------------------------------------------------------------
Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Fiscal 1995 Quarters Fiscal 1994 Quarters
---------------------------------------------------------------------------------
(in millions, except per-share data) First Second Third Fourth First Second Third Fourth
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues $ 663 $ 639 $ 660 $ 1,356 $ 772 $ 758 $ 716 $ 697
=================================================================================
Income from
continuing operations $ 64 $ 46 $ 49 $ 35 $ 53 $ 61 $ 91 $ 11
Net income (loss) $ 64 $ 46 $ 49 $ 6 $ (41) $(226) $(164) $ 6
=================================================================================
Income per share from
continuing operations:
Primary $0.38 $0.27 $0.29 $ 0.17 $0.32 $0.37 $0.55 $0.07
Fully diluted $0.36 $0.27 $0.28 $ 0.17 $0.30 $0.35 $0.51 $0.07
=================================================================================
</TABLE>
Quarterly operating results are not necessarily representative of operations
for a full year for various reasons, including levels of occupancy, interest
rates, acquisitions, disposals, revenue allowance and discount fluctuations,
the timing of price changes, unusual litigation costs, restructuring charges
and fluctuations in quarterly tax rates.
Common Stock Information (unaudited)
<TABLE>
<CAPTION>
Fiscal 1995 Quarters Fiscal 1994 Quarters
---------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High 19 19 1/2 16 17 7/8 12 1/4 12 16 1/4 18 1/8
Low 14 3/4 13 1/8 12 1/2 14 1/2 7 7 3/8 11 1/2 14 3/8
</TABLE>
At May 31, 1995, there were approximately 16,200 holders of record of the
Company's common stock. The Company's common stock is listed and traded on the
New York and Pacific stock exchanges. The stock prices above are the high and
low sales prices as reported in the NYSE Composite Tape for the last two fiscal
years. On October 27, 1993, the Board of Directors suspended payments of
dividends on the Company's common stock in order to give the Company maximum
flexibility to respond to rapidly developing opportunities, to refocus on its
general hospital core business and to resolve its legal issues.
The Company's cash dividends per share were $0.12 in 1994. The Company did
not pay quarterly cash dividends following the first quarter of fiscal 1994.
47
<PAGE>
Tenet Healthcare Corporation and Subsidiaries
--------------------------------------------------------------------------------
DIRECTORS AND MANAGEMENT
--------------------------------------------------------------------------------
Board of Directors
Jeffrey C. Barbakow /1,4/
Chairman and Chief Executive Officer,
Tenet Healthcare Corp.
John T. Casey
Co-Vice Chairman, Tenet Healthcare Corp.
Former President and Chief Operating Officer,
American Medical Holdings, Inc.
Robert W. O'Leary
Co-Vice Chairman, Tenet Healthcare Corp.
Chairman and Chief Executive Officer,
American Healthcare Systems
Former Chairman and Chief Executive Officer,
American Medical Holdings, Inc.
Michael H. Focht Sr. /1,5/
President and Chief Operating Officer,
Tenet Healthcare Corp.
Bernice B. Bratter /1,3,4/
Former Executive Director,
Senior Health and Peer Counseling
Maurice J. DeWald /1,2,3,6,7/
Chairman, Verity Financial Group, Inc.
Peter de Wetter /1/
Retired Executive Vice President,
Tenet Healthcare Corp.
Edward Egbert, M.D. /2,4,6,7/
Retired Physician
Raymond A. Hay /2,4,5/
Chairman, Aberdeen Associates
Lester B. Korn /1,3/
Chairman, Korn Tuttle Capital Group
James P. Livingston /2,4,5/
Retired Executive Vice President,
Tenet Healthcare Corp.
Thomas J. Pritzker
President, Hyatt Corporation
Richard S. Schweiker /2,5,6/
Retired President,
American Council of Life Insurance
Board Committees
1. Executive Committee
2. Audit Committee
3. Compensation and Stock Option Committee
4. Nominating Committee
5. Ethics and Quality Assurance Committee
6. Hillhaven Relationship Committee
7. Performance Investment Plan Funding Committee
Principal Management
Jeffrey C. Barbakow
Chairman and Chief Executive Officer
Michael H. Focht Sr.
President and Chief Operating Officer
Barry P. Schochet
Executive Vice President, Operations
Thomas B. Mackey
Executive Vice President, Western Operations
W. Randolph Smith
Executive Vice President, Eastern Operations
Maris Andersons
Senior Vice President and Treasurer
Scott M. Brown
Senior Vice President, General Counsel and
Corporate Secretary
Stephen F. Brown
Senior Vice President and
Chief Information Officer
Alan R. Ewalt
Senior Vice President, Human Resources
Raymond L. Mathiasen
Senior Vice President and
Chief Financial Officer
Christi R. Sulzbach
Senior Vice President, Public Affairs, and
Associate General Counsel
Senior Vice Presidents
T. Dennis Jorgensen
Administration
Neil M. Sorrentino
Operations, Northern California Region
Frank Tidikis
Physician Management Services
International Division
Michael H. Ford
President and Chief Operating Officer
National Health Plans
Michael Sheley
Chief Executive Officer
Syndicated Office Systems
Arnold M. Robin
President
48
<PAGE>
--------------------------------------------------------------------------------
CORPORATE INFORMATION
--------------------------------------------------------------------------------
COMMON STOCK LISTING
The company's common stock is listed under the new symbol THC on the New York
and Pacific stock exchanges.
9 5/8% Senior Notes due 2002
10 1/8% Senior Subordinated Notes due 2005
Listing New York Stock Exchange
Trustee/Registrar
The Bank of New York
101 Barclay St.
New York, NY 10286
(800) 524-4458
ANNUAL MEETING
The annual meeting of the shareholders of Tenet Healthcare Corporation will be
held at 10 a.m., Wednesday, Sept. 27, 1995, at Loews Santa Monica Beach Hotel,
1700 Ocean Ave., Santa Monica, Calif.
FORM 10-K
The company reports annually to the Securities and Exchange Commission on Form
10-K. You may obtain a copy at no charge by writing to Tenet investor relations
or by telephoning (310) 998-8200.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
For information on stock certificates or for change of address, please contact:
The Bank of New York
101 Barclay St.
New York, NY 10286
(800) 524-4458
Shareholders of the company formerly known as National Medical Enterprises,
Inc. (NME) are not affected by the merger. NME stock certificates remain valid
and do not need to be exchanged for Tenet certificates.
Former shareholders of American Medical Holdings, Inc. (AMI) who have not yet
redeemed their AMI stock for cash and Tenet stock should contact The Bank of New
York at (800) 507-9357.
For all other shareholder inquiries, contact Paul J. Russell, vice president,
investor relations, at (310) 998-8088.
CORPORATE HEADQUARTERS
Tenet Healthcare Corporation
2700 Colorado Ave.
P.O. Box 4070
Santa Monica, CA 90411-4070
(310) 998-8000
[RECYCLED PAPER LOGO] This annual report is printed on recycled paper.
<PAGE>
[ARTWORK APPEARS HERE]
Tenet Healthcare Corporation * 2700 Colorado Ave. * Santa Monica, CA 90404
<PAGE>
TENET HEALTHCARE CORPORATION
FISCAL 1995 ANNUAL REPORT
DESCRIPTIONS OF GRAPHIC ELEMENTS
Cover:
A collage of images symbolizing Tenet Healthcare Corporation. The images
include: a definition of "tenet;" the Tenet headquarters building in Dallas; an
architectural column; an ambulance; a Tenet stock certificate; hospital workers
pushing a patient on a gurney; an ambulance; an adult's hand holding a child's
hand; a U.S. map; the words "innovation," "teamwork" and "integrity."
The Tenet logo appears on the lower right of the cover.
Page 1:
A map of the United States showing the locations of Tenet's 70 domestic acute
care hospitals, 17 specialty facilities and eight regional offices.
Page 6:
Head-and-shoulders color photographs of Jeffrey C. Barbakow, Tenet chairman and
chief executive officer, and Michael H. Focht, Sr., Tenet president and chief
operating officer.
Page 9:
A collage of images symbolizing Tenet's partnerships with physicians. The images
include: a physician talking to two business people; a physician's hand writing
a prescription; a physician's bill for services; a physician at a patient's
hospital bedside; a hospital worker examining brain scans; a microscope; a
stethoscope; a reflex hammer; a tongue depressor; an ear scope; pills; the
abbreviations "IPA," "PHO" and "MSO."
Page 11:
A collage of images symbolizing the spectrum of healthcare services Tenet's
facilities offer. The images include: physicians at work in an operating room;
an engineer building a prosthetic limb; an AIDS ribbon; an elderly woman patient
in a wheelchair; an ultrasound scan; a home healthcare nurse with a child; a
trauma helicopter; a billboard advertising Tenet.
Page 13:
A collage of images symbolizing Tenet's acquisitions and affiliations with other
healthcare providers. The images include: a handshake; newspaper headlines
announcing Tenet acquisitions; an architectural column; a minister at a
patient's bedside; employees outside a Tenet hospital; an anatomy instructor
with s skeleton; a CT scanner.
Page 14:
Head-and-shoulders color photographs of Barry P. Schochet, Tenet executive vice
president, operations; Thomas B. Mackey, Tenet executive vice president, Western
Operations; and W. Randolph Smith, Tenet executive vice president, Eastern
operations.
Page 15:
A collage of images symbolizing the quality and value of Tenet's services and
the company's efforts to measure quality and value. The images include: a
hospital cafeteria worker holding a tray of food; a nurse with a young patient;
a wheelchair race; brain scans; graphs; the words "caring," "efficiency" and
"clinical pathways."
Back cover:
Small photograph of a stethoscope.
<PAGE>
TENET HEALTHCARE CORPORATION ("TENET") EXHIBIT 21
Subsidiary Corporations
Revised August 24, 1995
Note: All subsidiaries are 100% owned by "Tenet" unless otherwise indicated.
American Medical Holdings, Inc. (see attached Exhibit A for subsidiaries of
American Medical Holdings, Inc.)
Assured Investors Life Company
(a) Stanislaus Life Insurance Company
H.F.I.C. Management Company, Inc.
(a) Health Facilities Insurance Corp., Ltd. - Bermuda
International-NME, Inc.
(a) LEIR Canada, Inc.
(a) N.M.E. International (Cayman) Limited - Cayman Islands, B.W.I.
(b) B.V. Hospital Management - Netherlands
(b) Pacific Medical Enterprises Sdn. Bhd. - Malaysia
(b) Westminster Health Care Holdings PLC (UK) - ownership - N.M.E.
International (Cayman) Limited
(42%) and publicly owned (58%)
(c) Hyacinth Sdn. Bhd. - ownership - Pacific Medical Enterprises
Sdn. Bhd.
(a) Subang Jaya Medical Center Sdn. Bhd.- ownership - International NME, Inc.
(30%) and non related (70%)
(a) Bumrungrad Medical Center Limited - ownership - NME Asia Pte Limited
(40%) Bumrungrad Public Hospital (55%) and IFC (5%)
(a) Medicalia International, B.V. - Netherlands
(a) NME Spain, S.A.
(a) NME UK Properties, Limited
NME (Australia) Pty., Limited
(a) Australian Medical Enterprises Ltd. - ownership - NME (Australia) Pty
Limited (51.94%) and publicly owned (48.06%)
(b) AME Trust (Formerly: Markalinga Trust)
(b) AME Hospitals Pty Limited (Formerly: Markalinga Nom Pty Ltd.)
(b) Victoria House Holdings Pty Ltd.
NME Headquarters, Inc.
NME Hospitals, Inc.
(a) Brookhaven Hospital, Inc.
(b) Brookhaven Pavilion, Inc.
(a) Germantown Community Hospital-Methodist East, Inc.
(a) Manteca Medical Management, Inc.
(a) Tenetsub Texas, Inc.
(a) Tenet Hospitals Limited - ownership - NME Hospitals, Inc. (1%)
Tenetsub Texas, Inc. (99%)
(a) National Managed Med, Inc.
(a) National Med, Inc.
(a) National Medical Hospital of Tullahoma, Inc.
(a) National Medical Hospital of Wilson County, Inc.
(a) National Medical Services, Inc.
(a) National Medical Ventures, Inc.
(b) Litho I - LP
(b) McHenry Surgery Center Partners, Ltd - LP
(b) Redding Surgi Center - LP
(a) NM Ventures - California, Inc.
(a) NM Ventures of North County, Inc.
(a) NME Hospitals Dallas, Inc.
(a) NME Medical de Mexico, S.A. de C.V.
(a) NMV Hollywood, Inc.
(b) Hollywood Medical Center - LP
(a) NMV Tennessee
1
<PAGE>
(a) NMV-II, Inc.
(b) West Boca OB Unit - LP
(a) NMV Texas, Inc.
(a) Preferred Medical Systems of California, Inc.
(a) Rehabilitative Driving Resources, Inc.
(a) South Dade Healthcare Ventures, LC
(a) West Coast PT Clinic, Inc.
(a) Tenetsub (Mercy & Baptist Medical Center), Inc.
(a) Tenet Healthcare-Florida, Inc.
NME PIP Funding I, Inc.
NME Properties Corp.
(a) AK, Inc.
(a) Cascade Insurance Company, Ltd.
(a) Guardian Medical Services, Inc.
(a) Hammond Holiday Home, Inc.
(a) Total Renal Care. Inc. ownership - NME Properties Corp. (23%) - DLJ
Merchant Banking Partners, L.P. (59%) - Management (5%) - publicly
owned (13%)
(a) NME Properties, Inc.
(b) Lake Health Care Facilities, Inc.
(b) NME Properties of Western Michigan, Inc.
(b) NME Properties West, Inc.
(c) Morgan Manors, Inc.
(b) Northwest Continuum Care Center, Inc.
(a) NME Property Corp of Texas
(a) NME Property Holding Co., Inc.
(a) Sedgwick Convalescent Center, Inc.
NME Rehabilitation Properties, Inc.
(a) R.H.S.C. Prosthetics, Inc.
(a) Rehabilitation Hospital Division Consolidation, Inc.
NME Specialty Hospitals, Inc.
(a) National Medical Specialty Hospital of Redding
(a) NME Management Services, Inc.
(a) NME New Beginnings, Inc.
(b) Addiction Treatment Centers of Maryland, Inc.
(b) Alcoholism Treatment Centers of New Jersey, Inc.
(b) Health Institutes, Inc.
(c) Fenwick Hall, Inc.
(c) Health Institutes Investments, Inc.
(b) NME New Beginnings-Western, Inc.
(c) Norquest/RCA-W Bitter Lake Partnership
(a) NME Partial Hospital Services Corporation
(a) NME Psychiatric Hospitals, Inc.
(b) The Huron Corporation
(a) NME Rehabilitation Hospitals, Inc.
(a) Psychiatric Management Services Company
NME Psychiatric Properties, Inc.
(a) Alvarado Parkway Institute, Inc.
(a) Baywood Hospital, Inc.
(a) Brawner Hospital, Inc.
(a) Contemporary Psychiatric Hospitals, Inc.
(a) Elmcrest Manor Psychiatric Institute, Inc.
(a) Gwinnett Psychiatric Institute, Inc.
(a) Jefferson Hospital, Inc.
(a) Lake Hospital and Clinic, Inc. - ownership - NME Psychiatric Properties,
Inc. (97.875%) and Ralph Mollycheck, M.D. (2.125%)
(a) Lakewood Psychiatric Hospitals, Inc.
(a) Laurel Oaks Residential Treatment Center, Inc.
(a) Leesburg Institute, Inc.
2
<PAGE>
(a) Manatee Palms Residential Treatment Center, Inc.
(a) Manatee Palms Therapeutic Group Home, Inc.
(a) Medfield Residential Treatment Center, Inc.
(a) Modesto Psychiatric Hospitals, Inc.
(a) Modesto Psychiatric Realty, Inc.
(a) Nashua Brookside Hospital, Inc.
(a) North Houston Healthcare Campus, Inc.
(a) Northeast Behavioral Health, Inc.
(a) Northeast Psychiatric Associates - 2, Inc.
(a) Outpatient Recovery Centers, Inc.
(a) P.D. at New Baltimore, Inc.
(a) P.I.A. Alexandria, Inc.
(a) P.I.A. Canoga Park, Inc.
(a) P.I.A. Cape Girardeau, Inc.
(a) P.I.A. Capital City, Inc.
(a) P.I.A. Central Jersey, Inc.
(a) P.I.A. Colorado, Inc.
(a) P.I.A. Connecticut Development Company, Inc.
(a) P.I.A. Cook County, Inc.
(a) P.I.A. Denton, Inc.
(a) P.I.A. Detroit, Inc.
(b) Harbor Oaks Hospital Limited Partnership
(a) P.I.A. Educational Institute, Inc.
(a) P.I.A. of Fort Worth, Inc.
(a) P.I.A. Green Bay, Inc.
(a) P.I.A. Highland, Inc.
(b) Highland Psychiatric Associates - ownership-P.I.A. Highland,
Inc.(50%) and Psychiatric
Facility at
Asheville,Inc.(50%)
(a) P.I.A. Highland Realty, Inc.
(b) Highland Realty Associates - ownership-(Limited Partnership) - P.I.A.
Highland Realty, Inc.(49%)
Psychiatric Facility at
Ashville, Inc. (49%)
(General Partnership) - P.I.A. Highland Realty, Inc.(1%)
Psychiatric Facility at
Ashville, Inc.(1%)
(a) P.I.A. Indianapolis, Inc.
(a) P.I.A. Kansas City, Inc.
(a) P.I.A. Lincoln, Inc.
(a) P.I.A. Long Beach, Inc.
(a) P.I.A. Maryland, Inc.
(a) P.I.A. Michigan City, Inc.
(a) P.I.A. Milwaukee, Inc.
(a) P.I.A. Modesto, Inc.
(a) P.I.A. Naperville, Inc.
(a) P.I.A. New Jersey, Inc.
(a) P.I.A. North Jersey, Inc.
(a) P.I.A. Northern New Mexico, Inc.
(a) P.I.A. Panama City, Inc.
(a) P.I.A. Randolph, Inc.
(a) P.I.A. Rockford, Inc.
(a) P.I.A. of Rocky Mount, Inc.
(a) P.I.A. Salt Lake City, Inc.
(a) P.I.A. San Antonio, Inc.
(a) P.I.A. San Ramon, Inc.
(a) P.I.A. Sarasota Palms, Inc.
(a) P.I.A. Seattle, Inc.
(a) P.I.A. Slidell, Inc.
(a) P.I.A. Solano, Inc.
(a) P.I.A. Specialty Press, Inc.
3
<PAGE>
(a) P.I.A. Stafford, Inc.
(a) P.I.A. Stockton, Inc.
(a) P.I.A. Tacoma, Inc.
(a) P.I.A. Tidewater Realty, Inc.
(b) I.P.T. Associates
(a) P.I.A. Topeka, Inc.
(a) P.I.A. Visalia, Inc.
(a) P.I.A. Waxahachie, Inc.
(a) P.I.A. Westbank, Inc.
(a) P.I.A.C. Realty Company, Inc.
(a) PIAFCO, Inc.
(a) Pinewood Hospital, Inc.
(a) Potomac Ridge Treatment Center, Inc.
(a) Psychiatric Division Consolidation, Inc.
(a) Psychiatric Facility at Amarillo, Inc.
(a) Psychiatric Facility at Asheville, Inc.
(a) Psychiatric Facility at Azusa, Inc.
(a) Psychiatric Facility at Evansville, Inc.
(a) Psychiatric Facility at Lafayette, Inc.
(a) Psychiatric Facility at Lawton, Inc.
(a) Psychiatric Facility at Medfield, Inc.
(a) Psychiatric Facility at Memphis, Inc.
(a) Psychiatric Facility at Palm Springs, Inc.
(a) Psychiatric Facility at Yorba Linda, Inc.
(a) Psychiatric Institute of Alabama, Inc.
(a) Psychiatric Institute of Atlanta, Inc.
(a) Psychiatric Institute of Bedford, Inc.
(a) Psychiatric Institute of Bucks County, Inc.
(a) Psychiatric Institute of Chester County, Inc.
(a) Psychiatric Institute of Columbus, Inc.
(a) Psychiatric Institute of Delray, Inc.
(a) Psychiatric Institute of Northern Kentucky, Inc.
(a) Psychiatric Institute of Northern New Jersey, Inc.
(a) Psychiatric Institute of Orlando, Inc.
(a) Psychiatric Institute of Richmond, Inc.
(a) Psychiatric Institute of San Jose, Inc.
(a) Psychiatric Institute of Sherman, Inc.
(a) Psychiatric Institute of Washington, D.C., Inc.
(a) Residential Treatment Center of Memphis, Inc.
(a) Residential Treatment Center of Montgomery County, Inc.
(a) The Residential Treatment Center of the Palm Beaches, Inc.
(a) RiverWood Center, Inc.
(a) Sandpiper Company, Inc.
(a) Southern Crescent Psychiatric Institute, Inc.
(a) Southwood Psychiatric Centers, Inc.
(a) Springwood Residential Treatment Centers, Inc.
(a) Tidewater Psychiatric Institute, Inc.
(a) The Treatment Center at Bedford, Inc.
(a) Tucson Psychiatric Institute, Inc.
(a) Tulsa County Health Services, Inc.
Northshore Hospital Management Corporation (LA)
Syndicated Office Systems
Wilshire Rental Corp.
Women's Medical Center of America, Inc.
4
<PAGE>
EXHIBIT A
AMERICAN MEDICAL HOLDINGS, INC
------------------------------
ORGANIZATIONAL CHART OF CORPORATE SUBSIDIARIES
[100% ownership unless otherwise indicated]
AMERICAN MEDICAL HOLDINGS, INC. (DELAWARE)
------------------------------------------
AMERICAN MEDICAL INTERNATIONAL, INC. (DELAWARE)
ALABAMA HEALTH CONNECTION, INC. (Alabama)
ALABAMA MEDICAL GROUP, INC. [FORMERLY KNOWN AS BROOKWOOD PRIMARY CARE
CENTERS, INC.] (Alabama)
AMERICAN MEDICAL (CENTRAL), INC. (California)
Amisub (Heights), Inc. (Delaware)
Amisub (Park Place MRI), Inc. (Texas)
Amisub of Texas, Inc. (Delaware) (11.05%)/1/
Amisub (Twelve Oaks), Inc. (Delaware)
Lifemark Hospitals, Inc. (Delaware)
Amisub (Brownsville MRI), Inc. (Texas)
Amisub of Texas, Inc. (Delaware) (63.68%)
Lifemark Hospitals of Florida, Inc. (Florida)
Palmetto Medical Plan, Inc. (Florida) (50%)
Pain Management Center of Tampa, Inc. (Florida)
T&C and USF Ob/Gyn Center, Inc. (Florida)
Lifemark Hospitals of Louisiana, Inc. (Louisiana)
Kenner Regional Clinical Services, Inc. (Louisiana)
Lifemark Hospitals of Missouri, Inc. (Missouri)
Regional Alternative Health Services, Inc. (Missouri)
Houston Specialty Hospital, Inc. (Texas)
Memphis Specialty Hospital, Inc. (Tennessee)
Tenet Investments-Kenner, Inc. (Louisiana)
Wilson County Management Services, Inc. (Tennessee)
Texas Southwest Healthservices, Inc. (Texas)
AMERICAN MEDICAL FINANCE COMPANY (Delaware)
AMERICAN MEDICAL HOME CARE, INC. (Delaware)
AMERICAN PURCHASING SERVICES, INC. (California)
______________________________
/1/1. Lifemark Hospitals, Inc.-63.68%
American Medical International, Inc.-19.75%
Brookwood Health Services, Inc.-5.10%
AMI Information Systems Group, Inc.-.42%
1
<PAGE>
AMI AMBULATORY CENTRES, INC. (Florida)
Surgical Services, Inc. (Florida) (80%)/2/
Ambulatory Care - Broward Development Corp. (Florida)
Surgical Services of South Lauderdale, Inc. (Florida)
Surgical Services of West Dade, Inc. (Florida)
AMI ARKANSAS, INC. (Arkansas)
AMI BROKERAGE SERVICES, INC. (Texas)
AMI DIAGNOSTIC SERVICES, INC. (Nevada)
AMI INFORMATION SYSTEMS GROUP, INC. (California)
American Medical International B.V. (Netherlands)
American Medical International N.V. (Netherlands Antilles)
Amisub of Texas, Inc. (Delaware) (.42%)
AMI SYSTEM SERVICES, INC. (Delaware)
AMISUB (AMERICAN HOSPITAL), INC. (Florida)
AMISUB (CULVER UNION HOSPITAL), INC. (Indiana)
AMISUB DEVELOPMENT OF SOUTH CAROLINA, INC. (South Carolina)
Hilton Head Clinics, Inc. (South Carolina)
AMISUB (FLORIDA VENTURES), INC. (Florida)
PBG Outpatient Services, Inc. (Florida)
Brookwood Diagnostic Center of Tampa, Inc. (Florida)
Lauderdale Clinical Services, Inc. (Florida)
Ft. Lauderdale Surgery Center, Inc. (Florida)
Tampa MOB 107, Inc. (Florida)
Tampa MOB 104, Inc. (Florida)
Tampa 8313 West Hillsborough, Inc. (Florida)
Tampa 4802 Gunn Highway, Inc. (Florida)
Center for Quality Care, Inc. (Florida)
Tampa 418 W. Platt St., Inc. (Florida)
AMISUB (GTS), INC. (Nevada)
AMISUB (HILTON HEAD), INC. (South Carolina)
AMISUB (IRVINE MEDICAL CENTER), INC. (California)
Alexa Integrated Medical Management, Inc. (California) (50%)/3/
_________________________
/2/2. Randy Phillips-20%
/3/3. David L. Tsoong, M.D.-50%
2
<PAGE>
AMISUB (MCINTOSH TRAIL REGIONAL MEDICAL CENTER), INC. (Georgia)
HEALTH INTERNATIONAL, INC. (GEORGIA)
AMISUB (NORTH RIDGE HOSPITAL), INC. (Florida)
FL Health Complex, Inc. (Florida)
North Ridge Carenet, Inc. (Florida)
North Ridge Partners, Inc. (Florida)
North Ridge Physician-Hospital Organization, Inc. (Florida) (50%)/4/
AMISUB OF CALIFORNIA, INC. (California)
New H Holdings Corp. (Delaware) (.5%)/5/
Valley Doctors' Hospital (California)
Vista Specialty Hospital, Inc. (California)
Quality Medical Management, Inc. (California) (50%)/6/
Physician Practice Management Corporation (California)
Park Plaza Retail Pharmacy, Inc. (Texas)
AMISUB OF NORTH CAROLINA, INC. (North Carolina)
CENTRAL CALIFORNIA MANAGEMENT SERVICES ORGANIZATION, INC. (NORTH CAROLINA)
AMISUB (SMHS), INC. (Florida)
AMISUB OF SOUTH CAROLINA, INC. (South Carolina)
Piedmont Medical Services Company (South Carolina)
Piedmont One, Inc. (South Carolina)
Piedmont Two, Inc. (South Carolina)
Piedmont Three, Inc. (South Carolina)
Piedmont Four, Inc. (South Carolina)
Piedmont Five, Inc. (South Carolina)
Piedmont Six, Inc. (South Carolina)
Piedmont Seven, Inc. (South Carolina)
Piedmont Eight, Inc. (South Carolina)
Piedmont Nine, Inc. (South Carolina)
AMISUB (PSL), INC. (Colorado)
AMISUB (SAINT JOSEPH HOSPITAL), INC. (Nebraska)
Saint Joseph Mental Health Plans, Inc. (Nebraska)
Home-Base Family and Addiction Therapy, Inc. (75%) (Nebraska)
AMISUB (SFH), INC. (Tennessee)
_____________________
/4/4. Physicians-50%
/5/5. American Medical International,Inc.-99%
Brookwood Health Services, Inc.-.5%
/6/6. Physicians-50%
3
<PAGE>
AMISUB (SIERRA VISTA), INC. (California)
AMISUB OF TEXAS, INC. (Delaware) (19.75%)
AMISUB TGDA, INC. (Delaware)
ARKANSAS HEALTHCARE SERVICES, INC. (Arkansas)
BROOKWOOD CENTER DEVELOPMENT CORPORATION (Alabama)
Hoover Doctors Group, Inc. (Alabama)
Medplex Outpatient Medical Centers, Inc. (Alabama)
BROOKWOOD DEVELOPMENT, INC. (Alabama)
Alabama Health Services, Inc. (Alabama) (33 1/3%)/7/
Alabama Health Services (St. Clair), L.L.C. (33 1/3%)/8/
BROOKWOOD HEALTH SERVICES, INC. (Alabama)
Amisub of Texas, Inc. (Delaware) (5.10%)
Brookwood Medical Center of Tampa, Inc. (Florida)
Brookwood - Riverchase Primary Care Center, Inc. (Alabama)
Estes Health Care Centers, Inc. (Delaware)
New H Holdings Corp. (Delaware) (.5%)
CENTRAL ARKANSAS HOSPITAL, INC. (Arkansas)
COLUMBIA LAND DEVELOPMENT, INC. (Missouri)
CUMMING MEDICAL VENTURES, INC. (Georgia)
EAST COOPER COMMUNITY HOSPITAL, INC. (South Carolina)
Charleston Health Services Organization, Inc. (South Carolina)
EASTERN PROFESSIONAL PROPERTIES, INC. (Delaware)
FLORIDA HEALTH NETWORK, INC. (Florida)
FRYE REGIONAL MEDICAL CENTER, INC. (North Carolina)
Frye Home Infusion, Inc. (North Carolina)
Piedmont Health Alliance, Inc. (North Carolina) (50%)/9/
GEORGIA HEALTH SERVICES, INC. (Georgia)
___________________________
/7/7. Eastern Health System, Inc.-33 1/3%
St. Vincent's Hospital-33 1/3%
/8/8. HEALTH SERVICES, INC. - 33 1/3%
UNIVERSAL HEALTH SERVICES - 33 1/3%
/9/9. Physicians-50%
4
<PAGE>
HEARTLAND CORPORATION (Nebraska)
Prairie Medical Clinic, Inc. (Nebraska)
Heartland Physicians, Inc. (Nebraska)
INHALATION THERAPY SERVICES, INC. (Delaware)
KENNER REGIONAL MEDICAL CENTER, INC. (Louisiana)
LUCY LEE HOSPITAL, INC. (Missouri)
MEDICAL CENTER OF GARDEN GROVE (California)
Mid-Orange Medical Management (California) (50%)/10/
MEDICAL COLLECTIONS, INC. (Alabama)
MID-CONTINENT MEDICAL PRACTICES, INC. (Missouri)
MISSOURI HEALTH SERVICES, INC. (Missouri)
NATIONAL PARK MEDICAL CENTER, INC. (Arkansas)
NEW H HOLDINGS CORP. (Delaware) (99%)
New H Acute, Inc. (Delaware)
New H South Bay, Inc. (California)
AMI West Alabama, Inc. (Alabama)
Amiwoodbroke, Inc. (Massachusetts)
NORTH CAROLINA HEALTH SERVICES, INC. (North Carolina)
NORTH FULTON IMAGING VENTURES, INC. (Georgia)
NORTH FULTON MEDICAL CENTER, INC. (Georgia)
North Fulton Health Care Associates, Inc. (Georgia)
North Fulton Regional Cancer Center, Inc. (Georgia)
North Fulton 001, Inc. (Georgia)
North Fulton 002, Inc. (Georgia)
North Fulton 003, Inc. (Georgia)
North Fulton 004, Inc. (Georgia)
North Fulton 005, Inc. (Georgia)
North Fulton 006, Inc. (Georgia)
North Fulton 007, Inc. (Georgia)
North Fulton 008, Inc. (Georgia)
North Fulton 009, Inc. (Georgia)
North Fulton 010, Inc. (Georgia)
North Fulton 011, Inc. (Georgia)
North Fulton 012, Inc. (Georgia)
________________________
/10/10. David L. Tsoong, M.D.-50%
5
<PAGE>
NORTH FULTON MOB VENTURES, INC. (Georgia)
OCCUPATIONAL HEALTH MEDICAL SERVICES OF FLORIDA, INC. (Florida)
PALM BEACH GARDENS COMMUNITY HOSPITAL, INC. (Florida)
PARTNERS IN SERVICE, INC. (Delaware)
PHYSICIANS DEVELOPMENT, INC. (Florida)
PIEDMONT HOME HEALTH, INC. (South Carolina)
PIEDMONT REHAB CENTER, INC. (North Carolina)
PINNACLE HEALTHCARE SERVICES, INC. (Tennessee)
PROFESSIONAL HEALTHCARE SYSTEMS LICENSING CORPORATION (Delaware)
PROMED PHARMICENTER, INC. (Florida)
ROSWELL MEDICAL VENTURES, INC. (Georgia)
SAINT JOSEPH MENTAL HEALTH PHYSICIANS, INC. (Nebraska non-profit)
SAN DIMAS COMMUNITY HOSPITAL (California)
SEMO MEDICAL MANAGEMENT COMPANY, INC. (Missouri)
SIERRA VISTA HOSPITAL, INC. (California)
SIERRA VISTA SUB ONE, INC. (California)
SIERRA VISTA SUB TWO, INC. (California)
SOUTH CAROLINA HEALTH SERVICES, INC. (South Carolina)
SOUTHEAST MISSOURI LAB, INC. (Missouri)
ST. MARY'S REGIONAL MEDICAL CENTER, INC. (Arkansas)
Amisub (St. Mary's), Inc. (Arkansas)
TENNESSEE HEALTH SERVICES, INC. (Tennessee)
TEXAS HEALTHCARE SERVICES, INC. (Texas)
TEXAS PROFESSIONAL PROPERTIES, INC. (Texas)
6
<PAGE>
Exhibit 23(a)
ACCOUNTANTS' CONSENT AND
REPORT ON CONSOLIDATED SCHEDULE
The Board of Directors and Stockholders
Tenet Healthcare Corporation:
Under date of July 25, 1995, we reported on the consolidated balance sheets
of Tenet Healthcare Corporation and subsidiaries as of May 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended May 31, 1995, as
contained in the 1995 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for fiscal year 1995. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule listed in the accompanying
index. The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits. In our opinion, based on our audits,
such schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also consent to the incorporation by reference of our report dated July
25, 1995, in the Company's Registration Statements on Form S-3 (Nos. 33-39130,
33-39563, 33-40212, 33-45689, 33-57801, 33-57057 and 33-55285), Registration
Statement on Form S-4 (No. 33-57485) and Registration Statements on Form S-8
(Nos. 33-11478, 2-95774, 2-87611, 2-69472, 2-79401, 33-35688, 33-50180, 33-50182
and 33-57375).
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
August 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 155,000
<SECURITIES> 139,000
<RECEIVABLES> 1,256,000
<ALLOWANCES> 184,000
<INVENTORY> 116,000
<CURRENT-ASSETS> 1,624,000
<PP&E> 4,143,000
<DEPRECIATION> 824,000
<TOTAL-ASSETS> 7,918,000
<CURRENT-LIABILITIES> 1,356,000
<BONDS> 3,273,000
<COMMON> 16,000
0
0
<OTHER-SE> 1,970,000
<TOTAL-LIABILITY-AND-EQUITY> 7,918,000
<SALES> 0
<TOTAL-REVENUES> 3,318,000
<CGS> 0
<TOTAL-COSTS> 2,753,000
<OTHER-EXPENSES> 37,000
<LOSS-PROVISION> 137,000
<INTEREST-EXPENSE> 138,000
<INCOME-PRETAX> 329,000
<INCOME-TAX> 135,000
<INCOME-CONTINUING> 194,000
<DISCONTINUED> 9,000
<EXTRAORDINARY> 20,000
<CHANGES> 0
<NET-INCOME> 165,000
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.06
</TABLE>
