<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended May 31, 1996. [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.)
3820 STATE STREET
SANTA BARBARA, CALIFORNIA 93105
(Address of principal executive (Zip Code)
offices)
</TABLE>
AREA CODE (805) 563-7000
(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
8 5/8% Senior Notes due 2003 New York Stock Exchange
6% Exchangeable Subordinated Notes due 2005 New York 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 (Section229.405 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, 1996, there were 216,288,503 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 $4,179,259,051. 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, 1996, have been incorporated by reference into Parts I, II
and IV of this Report. Portions of the definitive Proxy Statement for the
Registrant's 1996 Annual Meeting of Shareholders have been incorporated by
reference into Part III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT -- 1996
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 19
Item 3. Legal Proceedings.................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders.................................. 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 20
Item 6. Selected Financial Data.............................................................. 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 21
Item 8. Financial Statements and Supplementary Data.......................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 21
Item 11. Executive Compensation............................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 21
Item 13. Certain Relationships and Related Transactions....................................... 21
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.................... 21
</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, 1996, or the definitive Proxy
Statement for the Registrant's 1996 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 (together with its subsidiaries, "Tenet", the
"Registrant" or the "Company") is the second-largest investor-owned healthcare
services company in the United States. Tenet's subsidiaries own or operate
general hospitals and related healthcare facilities serving urban and rural
communities in 13 states and hold investments in other healthcare companies. At
May 31, 1996, Tenet operated 74 domestic general hospitals, with a total of
16,666 licensed beds, located in Alabama, Arkansas, California, Florida,
Georgia, Indiana, Louisiana, Missouri, Nebraska, North Carolina, South Carolina,
Tennessee and Texas. During fiscal 1996, Tenet acquired five general hospitals,
converted one general hospital to a specialty hospital and closed one
rehabilitation hospital.
At May 31, 1996, Tenet's subsidiaries also owned or operated various
ancillary healthcare operations, discussed in more detail under Other Domestic
Operations on page 8 below, and held as investments interests in Vencor, Inc.
("Vencor"), Total Renal Care Holdings, Inc. ("TRC") and Health Care Property
Partners ("HCPP"). These investments are discussed in more detail under
Investments on page 8 below.
Tenet continues to focus on its core business of building integrated
healthcare delivery systems within the communities it serves in the United
States. Tenet's focus is reflected in its fiscal 1996 acquisitions and the sales
of substantially all of its international operations, as discussed below.
During fiscal 1996, Tenet acquired (i) the Memorial Medical Center (formerly
known as the Mercy+Baptist Medical Center) and related physician practices in
New Orleans, Louisiana, (ii) the Providence Memorial Hospital in El Paso, Texas,
(iii) the Methodist Hospital of Jonesboro in Jonesboro, Arkansas (iv) a
long-term lease of the Medical Center of Manchester and its home health business
in central Tennessee, and (v) a one-third interest in St. Clair Hospital (which
subsequently was increased to a 50% interest) located outside of Birmingham,
Alabama. In addition, during the first quarter of fiscal 1997 Tenet acquired
Hialeah Hospital in Hialeah, Florida, and entered into a definitive agreement to
purchase Lloyd Noland Hospital in Birmingham, Alabama, which purchase Tenet
expects to complete prior to the end of the second quarter of fiscal 1997.
1
<PAGE>
The Company also has been actively pursuing the acquisition and management
of physician practices where doing so would enhance the Company's goal of
building integrated healthcare delivery systems within the communities it
serves. As discussed on page 3 below, during fiscal 1996 the Company acquired or
assumed the management of physician practices in many key geographic areas.
Tenet also has established the Tenet Physician Services department, based at its
Dallas, Texas, Operations Center, to plan Tenet's strategy for and coordinate
its efforts towards developing innovative ways of working with physicians.
In fulfillment of management's decision to focus on the Company's core
business of operating domestic general hospitals, during fiscal 1996 the Company
completed its program of selling substantially all of its international
operations. The Company sold its two Singapore hospitals and its interests in
Australian Medical Enterprises Limited ("AME"), a hospital in Malaysia and a
hospital in Thailand. In addition, in May 1996 Tenet sold its approximately 42%
interest in Westminster Health Care Holdings PLC ("Westminster").
During fiscal 1996, Tenet issued $500 million of 8 5/8% Senior Notes due
2003 and $320 million of 6% Exchangeable Subordinated Notes due 2005 (which are
described in more detail on page 9 below). Tenet used the net proceeds of those
issuances, and the asset sales referred to above, to repay indebtedness under
its then-existing term loan and revolving credit agreement. In March 1996, Tenet
entered into a new $1.55 billion unsecured revolving credit agreement and repaid
amounts then outstanding under its secured term loan and revolving credit
agreement. The new revolving credit agreement allows the Company to reborrow
amounts repaid prior to its March 1, 2001, maturity date. The Company had
approximately $575 million available under its new revolving credit agreement at
May 31, 1996.
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 1996 Annual Report to Shareholders.
2
<PAGE>
OPERATIONS
DOMESTIC GENERAL HOSPITALS
All of Tenet's general hospital and other healthcare operations are owned or
operated by Tenet HealthSystem Hospitals, Inc. (formerly known as NME Hospitals,
Inc.), subsidiaries of Tenet HealthSystem Medical, Inc. (formerly known as
American Medical International, Inc.) and various other subsidiaries and
affiliates. At May 31, 1996, Tenet's subsidiaries and affiliates operated 74
general hospitals (16,666 beds) serving urban and rural communities in 13
states. Of those hospitals, 57 are owned (including one owned facility that is
on leased land) and 17 are owned by and leased from others (including two leased
from HCPP, as discussed on page 8 below).
In July 1995, Tenet acquired a one-third interest (which subsequently was
increased to a 50% interest) in the 82-bed St. Clair Hospital located outside of
Birmingham, Alabama, which formerly was a not-for-profit general hospital. In
August 1995, Tenet acquired Memorial Medical Center (formerly known as
Mercy+Baptist Medical Center), formerly a not-for-profit system, consisting of
two general hospitals with an aggregate of 759 licensed beds located in New
Orleans, Louisiana, and related physician practices. In September 1995, Tenet
acquired the Providence Memorial Hospital located in El Paso, Texas, which also
was a not-for-profit general hospital. Providence is licensed for 471 general
hospital beds (34 of which may be used as skilled nursing beds) and is licensed
for 30 additional rehabilitation and subacute care beds. In October 1995, Tenet
entered into a long-term lease of the 49-bed Medical Center of Manchester and
its home health business, in central Tennessee. In November 1995, Tenet acquired
the 104-bed not-for-profit Methodist Hospital of Jonesboro, a general hospital
located in Jonesboro, Arkansas. That hospital now is owned by a limited
liability company of which Tenet owns 95% and is the manager and Tenet's not-for
profit partner, St. Vincent TotalHealth Corporation, owns 5%. In addition, in
August 1995, Tenet entered into an agreement with the Cleveland Clinic Florida
to develop a new 150-bed general hospital in western Broward County, Florida.
Completion of that project is subject to governmental approvals. In the first
quarter of fiscal 1997, Tenet acquired the 378-bed Hialeah Hospital in Hialeah,
Florida, and entered into a definitive agreement to purchase Lloyd Noland
Hospital in Birmingham, Alabama, which purchase Tenet expects to complete prior
to the end of the second quarter of fiscal 1997. In the fourth quarter of fiscal
1996, Tenet converted the Jo Ellen Smith general hospital in New Orleans,
Louisiana, into a specialty hospital.
The Company also has been actively pursuing the acquisition and management
of physician practices where doing so would enhance the Company's goal of
building integrated healthcare delivery systems within the communities it
serves. During fiscal 1996, the Company acquired or assumed the management of
physician practices in many key geographic areas, such as Alabama, Arkansas,
Southern California, South Carolina, South Florida, the greater New Orleans,
Louisiana, area and Texas. Tenet also has established the Tenet Physician
Services department, based at its Dallas Operations Center, to plan Tenet's
strategy for and coordinate its efforts towards developing innovative ways of
working with physicians. The Company has developed and is continuing to expand
information systems for more efficiently managing all aspects of physician
practices, including billing, medical records, tracking managed care contracts
and accounting.
3
<PAGE>
Each of Tenet's general hospitals offers acute care services and most offer
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. Three
of the Company's hospitals, Memorial Medical Center (formerly known as
Mercy+Baptist Medical Center), USC University Hospital and Sierra Medical
Center, offer quartenary care in such areas as heart, lung, liver and kidney
transplants and USC University Hospital and Sierra Medical Center also offer
gamma knife brain surgery. With the exception of one general hospital that was
acquired in fiscal 1996 and 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
rehabilitation hospitals) or another appropriate accreditation agency. With such
accreditation, the Company's hospitals are eligible to participate in the
Medicare and Medicaid 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 separate
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 quality, cost-effective basis and that the Company believes will
experience increased demand. The patient volumes and net operating revenues at
both the Company's general hospitals and its outpatient surgery centers 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 patients and physicians and other factors
relating to the timing of elective procedures.
In addition, inpatient care is continuing to move from acute care to
sub-acute care, where a less-intensive level of care is provided. 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, rehabilitation and long-term care
sub-acute units. Such units utilize less intensive staffing levels to provide
the range of services sought by payors with a lower cost structure.
4
<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, 1996:
OWNED OR LEASED GENERAL HOSPITALS
<TABLE>
<CAPTION>
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
- ---------------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
ALABAMA
Brookwood Medical Center Birmingham 586
St. Clair Hospital(1)(3) Birmingham 82
ARKANSAS
Central Arkansas Hospital Searcy 193
Methodist Hospital of Jonesboro(2) Jonesboro 104
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(3) Los Angeles 190
Community Hospital & Rehabilitation
Center of Los Gatos(3) Los Gatos 164
Doctors Hospital of Manteca Manteca 73
Doctors Hospital of Pinole(3) Pinole 137
Doctors Medical Center of Modesto Modesto 433
Encino Hospital(3)(4) Encino 151
Garden Grove Hospital and Medical Center Garden Grove 167
Garfield Medical Center Monterey Park 211
Irvine Medical Center(3) 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 160
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(3) Redondo Beach 201
Tarzana Regional Medical Center(3)(4) Tarzana 231
Twin Cities Community Hospital Templeton 84
USC University Hospital(5) Los Angeles 286
FLORIDA
Delray Community Hospital Delray Beach 211
Hollywood Medical Center Hollywood 324
Memorial Hospital of Tampa Tampa 174
North Ridge Medical Center Ft. Lauderdale 391
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
- ---------------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
Palm Beach Gardens Medical Center(3) 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(3) Roswell 167
Spalding Regional Hospital Griffin 160
INDIANA
Culver Union Hospital Crawfordsville 120
LOUISIANA
Doctors Hospital of Jefferson(3) Metairie 138
Kenner Regional Medical Center Kenner 300
Meadowcrest Hospital Gretna 200
Memorial Medical Center Mid-City New Orleans 272
Memorial Medical Center Uptown New Orleans 487
Northshore Regional Medical Center(3) Slidell 174
St. Charles General Hospital New Orleans 173
MISSOURI
Columbia Regional Hospital(6) Columbia 265
Kirksville Osteopathic Medical Center(3) Kirksville 119
Lucy Lee Hospital(3) 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(3) Hickory 355
SOUTH CAROLINA
East Cooper Community Hospital Mount Pleasant 100
Hilton Head Hospital(7) Hilton Head 68
Piedmont Medical Center Rock Hill 268
TENNESSEE
John W. Harton Regional Medical Center Tullahoma 137
Medical Center of Manchester(3) Manchester 49
Saint Francis Hospital Memphis 890
University Medical Center Lebanon 260
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
- ---------------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
TEXAS
Brownsville Medical Center Brownsville 177
Doctors Hospital Dallas 268
Mid-Jefferson Hospital Nederland 138
Nacogdoches Medical Center Nacogdoches 150
Odessa Regional Hospital(8) Odessa 100
Park Place Hospital Port Arthur 236
Park Plaza Hospital(9) Houston 468
Providence Memorial Hospital El Paso 471
RHD Memorial Medical Center(3) Dallas 190
Sierra Medical Center El Paso 365
Trinity Medical Center(3) Carrollton 149
Twelve Oaks Hospital Houston 336
</TABLE>
- ------------------------
(1) A Tenet subsidiary owns a 50% interest in the limited liability company
that leases this hospital. That hospital's financial results are not
consolidated with Tenet's financial results and it is not included in the
count of the total number of hospitals owned or leased by Tenet because
Tenet does not manage or control the management of this hospital.
(2) Owned by a limited liability company of which Tenet owns 95% and is the
managing member.
(3) Leased from a third party.
(4) Leased by a partnership in which Tenet's subsidiaries own a 75% interest.
(5) On leased land.
(6) 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.
(7) Owned by a partnership in which Tenet's subsidiaries own a 70% interest.
(8) Owned by a partnership in which Tenet's subsidiaries own an 83% interest.
(9) Excludes the 38-bed Plaza Specialty Hospital in Houston, Texas, the
financial results of which are combined with Park Plaza Hospital.
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>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total number of facilities........................................ 74 70 35 35 35
Total number of licensed beds..................................... 16,666 15,451 6,873 6,818 6,559
Average occupancy during the period............................... 45% 47% 47% 48% 51%
</TABLE>
The above tables do not include rehabilitation hospitals, long-term care
facilities, psychiatric facilities, outpatient surgery centers or other
ancillary facilities.
7
<PAGE>
INTERNATIONAL HOSPITALS
At May 31, 1996, a subsidiary of the Company continued to operate a 184-bed
tertiary-care hospital in Barcelona, Spain. A subsidiary of the Company also is
developing a 56-bed hospital in Cham, Canton Zug, Switzerland. The opening of
that hospital, which had been scheduled to open in the second quarter of fiscal
1997, has been postponed indefinitely due to a decision by the Cantonal Health
Authority. The decision, purportedly made in an effort to limit the number of
hospital beds available in the area, has the effect of the government not paying
for its portion of the hospital's patients' expenses. The Company is appealing
that decision, but is unable to predict at this time the outcome of the appeal.
If the hospital opens, ownership is to be transferred to a joint venture of
which the Company's subsidiary will own 90% and a local community organization
will own 10%.
In fulfillment of management's decision to focus on the Company's core
business of operating domestic general hospitals, during fiscal 1996 the Company
completed its program of selling substantially all of its international
operations, with the sale of (i) its two Singapore hospitals, (ii) its 52%
interest in AME, (iii) its 30% interest in and management of a hospital in
Malaysia and (iv) its 40% interest in a hospital in Thailand.
OTHER DOMESTIC OPERATIONS
At May 31, 1996, Tenet's subsidiaries owned or operated a small number of
rehabilitation hospitals, specialty hospitals, long-term care facilities and
psychiatric facilities as well as various ancillary healthcare businesses,
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. Tenet
closed one rehabilitation hospital in the first quarter of fiscal 1996 and
converted one general hospital into a specialty hospital in the fourth quarter
of fiscal 1996.
INVESTMENTS
At May 31, 1996, Tenet held as investments (i) an approximately 11.5%
interest in Vencor, which operates nursing homes and other healthcare
businesses, (ii) an approximately 11.6% interest in TRC, which operates kidney
dialysis units and certain related healthcare businesses and (iii) an
approximately 23% interest in 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 Vencor (as successor to The Hillhaven Corporation ("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. In May 1996, Tenet sold its approximately
42% interest in Westminster.
In connection with the September 1995 merger transaction in which Vencor
acquired Hillhaven, Tenet received 8,301,067 shares of Vencor common stock in
exchange for its 8,878,147 shares of Hillhaven common stock. As part of that
transaction, Tenet also received approximately $92 million for the redemption of
its Hillhaven Series C Preferred Stock and Hillhaven Series D Preferred Stock.
In January 1996, Tenet sold $320 million principal amount of its 6% Exchangeable
Subordinated Notes due 2005, which Notes are exchangeable into Tenet's 8,301,067
shares of Vencor common stock.
8
<PAGE>
PROPERTIES
In fiscal 1996, Tenet relocated its principal executive offices from an
approximately 310,000-square-foot building owned by a Tenet subsidiary in Santa
Monica, California to an approximately 31,000-square-foot office building
located at 3820 State Street, Santa Barbara, CA 93105. The Santa Barbara
building is leased by a Tenet subsidiary under a five-year lease with one
five-year renewal option. The Santa Monica building was sold in June 1996. The
telephone number of Tenet's Santa Barbara headquarters is (805) 563-7000.
Hospital support services for Tenet's subsidiaries are located in space leased
by a subsidiary in its operations center in Dallas, Texas. At May 31, 1996,
Tenet and its subsidiaries also were leasing space for regional offices in
Little Rock, Arkansas; Carlsbad, Encino, San Ramon and Santa Ana, California;
Fort Lauderdale, Florida; Atlanta, Georgia; Metairie, Louisiana; and Dallas,
Texas.
As of May 31, 1996, Tenet's subsidiaries operated domestically 69 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 2,500 physicians.
The number of licensed beds and locations of the Company's general hospitals
are described on pages 5 through 7 above. As of May 31, 1996, Tenet had
approximately $83 million of outstanding loans secured by real property and
approximately $33 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
some or all of their admissions to competing hospitals at any time. Although the
Company recently has begun to purchase more physician practices and, where
permitted by law, employ physicians, most of the physicians who practice at the
Company's hospitals are not employees of the Company. The Company also has begun
to manage more physician practices in states where corporations are not
permitted to purchase physician practices. Nurses, therapists, lab technicians,
facility maintenance staff and the administrative staff of hospitals, however,
normally are employees of the Company.
Tenet's operations are dependent on the efforts, ability and experience of
its officers, employees and physicians. Tenet's continued growth depends on its
ability to attract and retain skilled employees, on the ability of its officers
to manage growth successfully and on Tenet's ability to attract and retain
physicians and other healthcare professionals at its hospitals. In addition, the
success of Tenet is, in part, dependent upon the quality, number and
specialities of physicians on its hospitals' medical staffs, most of whom have
no long-term contractual relationship with Tenet and may terminate their
association with Tenet's hospitals at any time. Although Tenet currently
believes it will continue to be able to successfully attract and retain key
officers, qualified physicians and other healthcare professionals, the loss of
some or all of its key officers or an inability to attract or retain sufficient
numbers of qualified physicians and other healthcare professionals could have a
material adverse impact on future results of operations.
9
<PAGE>
The number of Tenet employees (of which approximately 30% were part-time
employees) at May 31, 1996, was approximately as follows:
<TABLE>
<S> <C>
General Hospitals and Other Businesses(1)...................................... 64,000
Dallas Operations Center and Regional and Support Offices...................... 600
Corporate Headquarters......................................................... 80
---------
Total.......................................................................... 64,680
---------
---------
</TABLE>
- ------------------------
(1) Includes employees whose employment relates to the operations of general
hospitals, rehabilitation hospitals, psychiatric facilities, specialty
hospitals, outpatient surgery centers, the Company's managed services
organizations, including physicians whose practices have been acquired by
the Company, the Company's print center and debt collection subsidiaries,
other domestic healthcare operations, a hospital in Barcelona, Spain, and a
hospital under development in Cham, Switzerland.
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, specialty hospitals,
long-term care facilities, psychiatric facilities, outpatient surgery centers
and other ancillary businesses 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, the quality of services provided by the hospital to
patients and their physicians, 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.
One factor of ever-increasing importance in the competitive position of
Tenet's facilities is the ability of those facilities to obtain managed care
contracts. The importance of obtaining managed care contracts has increased over
the years and is expected to continue to increase as employers, private and
government payors and others turn to the use of managed care in an attempt to
control rising healthcare costs. In fact, the revenues and operating results of
most of the Company's hospitals' are significantly affected by the hospitals'
ability to negotiate favorable contracts with managed care payors. Under such
contracts, healthcare providers agree to provide services on a discounted-fee or
capitated basis in exchange for the payors agreeing to send some or all of their
members/employees to those providers. With capitated contracts, a healthcare
provider such as Tenet receives specific fixed periodic payments from a health
maintenance organization, preferred provider organization or employer based on
the number of members of such organization being serviced by the provider. In
return, the provider agrees to provide healthcare services to such members
regardless of the actual costs incurred and services provided. A healthcare
provider's ability to compete for such contracts is affected by many factors,
such as the competitive factors referred to above, the scope, breadth and
quality of services a hospital offers in a given geographic area, its ability to
form its own, or to join with other healthcare providers to form,
10
<PAGE>
integrated healthcare delivery systems and the scope, breadth and quality of
services offered by competing healthcare providers and/or systems. Tenet
evaluates changing circumstances in each geographic area on an ongoing basis and
positions itself to compete in the managed care market by forming its own or
joining with others to form integrated healthcare delivery systems, such as
Tenet South Florida HealthSystem in South Florida, Sierra Providence Health
Network in El Paso, Texas, and Tenet Louisiana HealthSystem in the greater New
Orleans area, that actively pursue and enter into managed care contracts.
Tenet's integrated healthcare delivery systems also compete for traditional fee-
for-service patients and contracts with traditional health insurers.
The healthcare industry also has been characterized in recent years by
increased competition for patients and staff physicians, significant excess
capacity at general hospitals, a shift from inpatient to outpatient treatment
settings and increased consolidation. The principal factors contributing to
these trends are cost-containment efforts by managed care payors, employers and
traditional health insurers, advances in medical technology, changes in
regulations and reimbursement policies, increases in the number and type of
competing healthcare providers and changes in physician practice patterns.
Tenet's future success will depend, in part, on the ability of the Company's
hospitals to continue to attract staff physicians, enter into managed care
contracts and organize and structure integrated healthcare delivery systems,
including those with other healthcare providers and physician practice groups.
The Company's hospitals, and the healthcare industry as a whole, also face
the challenge of continuing to provide quality patient care while dealing with
strong competition for patients and with pressure on reimbursement rates not
only by private payors, but also by government payors. National and state
efforts to reform the United States healthcare system may further impact
reimbursement rates. Changes in medical technology, existing and future
legislation, regulations and interpretations and competitive contracting for
provider services by payors may require changes in the Company's facilities,
equipment, personnel, procedures, rates and/or services in the future.
Inpatient admissions, average lengths of stay and average occupancy at
general hospitals, including the Company's general hospitals, continue to be
adversely affected by payor-required pre-admission authorization and utilization
review and payor pressure to maximize outpatient and alternative healthcare
delivery services for less acutely ill patients. Increased competition,
admissions constraints and payor pressures are expected to continue. Inpatient
acuity and intensity of services continue to increase as less intensive services
shift from an inpatient to an outpatient basis or to alternative healthcare
delivery services because of technological improvements and as payors continue
to limit or reduce payments. Those pressures imposed by government and private
payors and the increasing percentage of business negotiated with purchasers of
group healthcare services are expected to continue to put pressure on the
per-patient revenues received by the Company. To meet these challenges, the
Company (i) has expanded or converted many of its general hospitals' facilities
to include distinct outpatient centers, (ii) offers discounts to private payor
groups, (iii) enters into capitation contracts in some service areas, (iv)
upgrades facilities and equipment, (v) offers new programs and services, (vi)
has been reducing its costs, for example, through the implementation of a case
management system designed to maximize efficiency by identifying
cost-per-procedure variables among physicians performing the same procedures,
standardizing supplies used and negotiating volume discounts for purchases and
(vii) has developed a computerized outcomes management system that contains
clinical and demographic information from the Company's hospitals and physicians
and allows users to identify "best practices" for treating specific diagnostic
related groups. Nevertheless, there can be no assurance that these measures will
be successful or, if successful, will serve to compensate for the reduction in
inpatient admissions, average lengths of stay and average occupancy, and the
consequent reductions in per-patient revenue, resulting from the payor pressures
referred to above.
As noted above, the Company also is responding to these changes by forming
integrated healthcare delivery systems. Components of these systems include: (i)
encouraging physicians practicing at
11
<PAGE>
its hospitals to form independent physician associations ("IPAs"), (ii) 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 payors and (iii) forming management services organizations ("MSOs") to (A)
purchase physician practices or their assets, as appropriate, (B) provide
management and administrative services to physicians, physician group practices
and IPAs and (C) enter into managed care contracts both on behalf of those
groups and, in certain circumstances, on behalf of PHOs.
In large part, a hospital's revenues, whether from managed care payors,
traditional health insurance payors or directly from patients, depends on the
quality and scope of practices of physicians on staff. 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 and state of the art
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, sponsoring training programs to educate
physicians on advanced medical procedures and otherwise creating a healthcare
environment within which physicians prefer to practice. 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 ethical and professional standards, it will attract and retain
qualified physicians with a variety of specialties.
There has been significant consolidation in the hospital industry over the
past decade due, in large part, to continuing pressures on payments from
government and private payors and increasing shifts away from the provision of
traditional in-patient services. Those economic trends have caused many
hospitals to close and many to consolidate either through acquisitions or
affiliations. Tenet's management believes that these cost-containment pressures
will continue and will lead to further consolidation in the hospital industry.
Tenet and its hospitals strive, on terms favorable to the Company, to
attract physicians to their staffs, enter into managed care contracts, organize
and structure integrated healthcare delivery systems, acquire hospitals or other
healthcare facilities and acquire or assume the management of physician
practices. Other healthcare companies with greater financial resources, with
more facilities in a given geographic area or offering a wider range of services
may be competing in each of these areas. These competitive factors may result in
Tenet and its hospitals being less successful than they would hope to be in
accomplishing one or more of these goals.
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, physical rehabilitation and nursing home care 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, 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.
12
<PAGE>
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,
---------------------------------------------------------------
1996 1995(1) 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Medicare........................................ 39.7% 38.9% 35.9% 33.9% 32.1%
Medicaid........................................ 6.7 7.2 8.5 7.5 6.4
Private and Other............................... 53.6 53.9 55.6 58.6 61.5
----- ----- ----- ----- -----
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 its March 1, 1995, acquisition of American Medical
Holdings, Inc. (now known as Tenet HealthSystem Holdings, Inc.) ("TH
Holdings") (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 TH
Holding'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
prospective payment system ("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. As discussed below, 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.
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 the Health Care Financing Administration 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, 1996, currently
is projected to be 2.7%. The Omnibus Budget Reconciliation Act of 1993 ("OBRA
'93") provides that 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 Federal budget). Unless
changed by subsequent legislation, the result will be an increase of 2.2% in the
DRG rates for Federal fiscal year 1997 over what they were for Federal fiscal
year 1996. Congress is in the process of establishing the healthcare budget for
future periods, including Federal fiscal year 1997. Tenet 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.
13
<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") generally
became effective with respect to the Company's general hospitals. During Tenet's
fiscal year ended May 31, 1996, Tenet's hospitals in the aggregate received
reimbursement for approximately 95% of their actual capital costs under the
PPS-CC. Tenet anticipates that future legislation may reduce the aggregate
reimbursement received, but is unable to predict what the amount of the final
reduction will be.
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.
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 3.4% in target rates effective for cost reporting periods commencing
in Federal fiscal year 1996. Based on OBRA '93, the target rates for Tenet's
hospitals exempt from the PPS are scheduled to be adjusted in cost reporting
years 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. The
Omnibus Budget Reconciliation Act of 1990 requires the Department of Health and
Human Services ("HHS") to develop a proposal to modify the current target rate
system or to replace it with a prospective payment system. It is not known if
any such proposals will be implemented.
OBRA '93 provides for certain budget targets through Federal fiscal year
1997, which, if not met, may result in adjustments in payment rates. Both
Congress and the current Administration have proposed healthcare budgets that
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.
14
<PAGE>
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. In addition, the healthcare industry is governed by a
framework of Federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of little or no regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in material violation of such laws, rules or
regulations, its operations and financial results could be materially adversely
affected.
There continue to be Federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as Tenet and proposals to increase co-payments and deductibles from program
and private patients. Tenet's facilities also are affected by controls imposed
by government and private payors designed to reduce admissions and lengths of
stay. Such controls, including what is commonly referred to as "utilization
review," have resulted in fewer of certain treatments and procedures being
performed. Utilization review entails the review of the admission and course of
treatment of a patient by a third party. Utilization review by third-party peer
review organizations ("PROs") is required in connection with the provision of
care paid for by Medicare and Medicaid. Utilization review by third parties also
is a requirement of many managed care arrangements.
Many states have enacted or are considering enacting measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private healthcare insurance. Tennessee has implemented a revision to its
Medicaid program that covers its Medicaid and uninsured population through a
managed care program. Louisiana and Texas also are considering wider use of
managed care for their Medicaid populations. 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 limits the amount by which a hospital's net revenues per
admission may be increased each year, has enacted a program creating a system of
local purchasing cooperatives and has proposed other changes that have not yet
been enacted. Florida also 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. A number of other states are considering
the enactment of managed care initiatives designed to provide universal low-cost
coverage. These proposals also may attempt to include coverage for some people
who presently are uninsured.
There is an initiative that will appear on the ballot in California on
November 5, 1996, which, if passed and implemented, would require all general
hospitals in California to maintain specified nurse-to-patient ratios. The
proposed ratios would require the Company to hire additional nurses. If the
proposal is passed and implemented, and the Company is not able to pass on the
increased costs of hiring the additional nurses, the Company's financial
performance could be materially adversely affected. The Company opposes the
ballot measure because it believes the ballot measure would impose staffing
levels that are not medically necessary and will result in increased healthcare
costs. The Company is unable to predict whether the ballot measure will be
passed, or if it is passed, whether it will overcome legal challenges and be
implemented.
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
15
<PAGE>
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 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.
ANTIKICKBACK 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
antikickback, antifraud and abuse amendments codified under Section 1128B(b) of
the Social Security Act (the "Antikickback 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 Antikickback Amendments include criminal penalties and civil sanctions,
including fines and possible exclusion from government programs such as the
Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Patient
and Program Protection Act of 1987, HHS has issued regulations that describe
some of the conduct and business relationships permissible under the
Antikickback Amendments ("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.
Both Federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts. One pilot project, Operation
Restore Trust, is focused on investigating healthcare providers in the home
health and nursing home industries as well as on medical suppliers to these
providers in California, Florida, Texas, Illinois and New York. The Company
provides home health and nursing home care in California, Florida and Texas.
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 Tenet's financial condition.
16
<PAGE>
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, as
well as the Company's purchases and sales of facilities, 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 rehabilitation hospitals) or another appropriate
accreditation agency. With such accreditation, the Company's hospitals are
eligible to participate in government-sponsored provider programs such as the
Medicare and Medicaid programs.
UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE. 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
The Company maintains a multi-faceted corporate compliance and ethics
program. A portion of the program results from a 1994 settlement between the
Company and HHS. The mandated portion of the program, which is in effect until
June 1999, provides, in part, that the Company will not own or operate
psychiatric facilities (defined for the purposes of the agreement to include
residential treatment centers and substance abuse facilities) except as
specifically provided for under the terms of the agreement (which permits the
Company's subsidiaries to own and operate a small number of psychiatric
facilities on the same campus as or nearby certain of Tenet's general hospitals)
and requires self-reporting of credible evidence of violations of criminal law
or material violations of civil laws, rules or regulations governing federally
funded programs. The Company now has in place a program designed to provide
annual ethics training to every employee and to encourage all employees to
report any ethical violations to a toll-free telephone hotline.
MANAGEMENT
The executive officers of the Company who also are not Directors as of
August 22, 1996 are:
<TABLE>
<CAPTION>
NAME POSITION AGE
- --------------------------- ------------------------------------------------------------------------------- ---
<S> <C> <C>
Scott M. Brown Senior Vice President, General Counsel and Secretary 51
Trevor Fetter Executive Vice President and Chief Financial Officer 36
Raymond L. Mathiasen Senior Vice President and Chief Accounting Officer 53
</TABLE>
17
<PAGE>
Scott M. Brown is Senior Vice President, General Counsel and Secretary of
the Company. He joined Tenet in 1981. Mr. Brown was elected Secretary in 1984
and Senior Vice President in 1990. He was appointed acting General Counsel in
July 1993 and General Counsel in February 1994.
Trevor Fetter is Executive Vice President and Chief Financial Officer of the
Company. Mr. Fetter joined Tenet as an Executive Vice President in October 1995.
In March 1996, he was appointed to the additional position of Chief Financial
Officer. Mr. Fetter served as Executive Vice President and Chief Financial
Officer of Metro-Goldwyn-Mayer, Inc. ("MGM") from 1990 to October 1995, and as
Senior Vice President of MGM from 1988 to 1990. From 1982 to 1988, Mr. Fetter
worked in the investment banking division of Merrill Lynch Capital Markets.
Raymond L. Mathiasen is Senior Vice President and, since March 1996, Chief
Accounting Officer of the Company. From February 1994 to March 1996, Mr.
Mathiasen served as Senior Vice President and Chief Financial Officer of the
Company and from September 1993 to February 1994, Mr. Mathiasen served as Senior
Vice President and acting Chief Financial Officer. Mr. Mathiasen was elected to
the position of Senior Vice President in 1990 and Chief Operating Financial
Officer in 1991. Prior to joining Tenet as a Vice President in 1985, he was a
partner with Arthur Young & Company (now known as Ernst & Young).
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 and by policy period from $500,000 to $3 million per occurrence,
through an insurance company owned by several healthcare companies and in which
the Company has a majority 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 a 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 (described under Legal
Proceedings below) may not be insured. If actual payments of claims materially
exceed projected payments of claims, Tenet's financial condition could be
materially adversely affected.
INCOME TAX EXAMINATION
The Internal Revenue Service (the "IRS") currently is examining Tenet's
Federal income tax returns for fiscal years 1986 through 1994 and TH Holding's
Federal income tax returns for fiscal years 1992 through 1994. The IRS has not
yet begun examining any of Tenet's or TH Holding's returns for subsequent years
(collectively, the "Open Years"). Various state taxing authorities currently are
examining Tenet's and its subsidiaries' income and franchise tax returns for the
Open Years. Although the IRS and the states have not proposed any material
adjustments to Tenet's returns in the Open Years, there can be no assurance that
significant issues will not be raised. While management has no reason to believe
that the reserves for tax liabilities it has recorded will be inadequate, if
audits of the Open Years or fiscal 1996, for which Tenet has not yet filed a tax
return, result in determinations materially in excess of such reserves, Tenet's
financial condition could be materially adversely affected. Although, based upon
information currently available to it, management believes that additional
income tax liabilities, if any, in excess of the recorded reserves for tax
liabilities that might be due as a result of any of the foregoing IRS or state
examinations cannot reasonably be estimated, management does not believe it is
likely that any such additional tax liabilities will have a material adverse
effect on the Company's results of operations, liquidity or capital resources.
18
<PAGE>
ITEM 2. PROPERTIES.
The response to this item is included in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
The Company continues to defend a greater than normal level of litigation
relating to its subsidiaries' former psychiatric operations. The majority of the
lawsuits filed contain allegations of medical malpractice as well as allegations
of fraud and conspiracy against the Company and certain of its subsidiaries and
former employees. Also named as defendants are numerous doctors and other
healthcare professionals. 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 file claims against the Company and
certain of its subsidiaries. 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 involving
a psychiatric subsidiary of the Company. As previously reported in the Company's
Annual Report on Form 10-K for fiscal year 1995, among the suits filed during
fiscal 1995 were two lawsuits in Texas state court with approximately 740
individual plaintiffs at present who purport to have been patients in certain
Texas psychiatric facilities. During fiscal 1996, 64 plaintiffs voluntarily
withdrew from one of the lawsuits and the Company's motion to recuse the
original trial judge in that lawsuit has been granted. In the second lawsuit,
the Texas Supreme Court has ruled that lead counsel for the plaintiffs may not
continue to represent the plaintiffs due to a conflict of interest as asserted
by the defendants. Neither of the two cases currently is set for trial.
During fiscal 1995 and 1996, lawsuits with approximately 210 plaintiffs at
present who purport to have been patients in certain Washington, D.C.
psychiatric facilities, containing allegations similar to those contained in the
Texas cases described above, were filed in the District of Columbia.
In addition to the above, as previously reported in the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995, a purported class
action was filed in Texas state court in May, 1995, entitled Justin Love vs.
National Medical Enterprises, et al. The case contains allegations of fraud and
conspiracy similar to those described in the preceding paragraphs. The plaintiff
purports to represent all persons who were voluntarily admitted to one of 11
psychiatric hospitals in Texas between January 1, 1981, and December 31, 1991,
and who also fit into one or more of eight categories based on such factors as
their age at the time of admission, status of their insurance at the time of
discharge and whether a certain type of examination was conducted prior to their
being admitted. In February 1996, an insurance company that purports to have
paid claims on behalf of the potential class intervened in the action and the
case was removed to the U.S. District Court in Houston, Texas. A motion by the
plaintiffs to remand the case to Texas state court currently is pending. The
class has not been certified and the Company believes that the class is not
capable of being certified.
The Company expects that additional lawsuits with similar allegations will
be filed. The Company believes it has a number of defenses to each of these
actions and will defend the litigation vigorously. Until the lawsuits are
resolved, however, the Company will continue to incur substantial legal
expenses. Although, based upon information currently available to it, management
believes that the amount of damages, if any, in excess of the reserves the
Company has recorded for unusual litigation costs that may be awarded in any of
the foregoing unresolved legal proceedings cannot reasonably be estimated,
management does not believe it is likely that any such damages will have a
material adverse effect on the Company's results of operations, liquidity or
capital resources. There can be no assurance, however, that the ultimate
liability will not exceed such reserves.
19
<PAGE>
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 years ended
May 31, 1994, and May 31, 1995, 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, which motion is still pending. The Company believes it
has meritorious defenses to this action and will defend this litigation
vigorously.
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1995, a total of nine purported class actions,
entitled In re: American Medical Holdings, Inc., Shareholders Litigation, C.A.
No. 13797, 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 (the
"Merger Class Actions"), were filed challenging the Merger in both Delaware and
California. In April 1996, the parties to the Merger Class Actions executed a
stipulation of settlement and in August 1996, the court issued an order
approving the settlement. Under the terms of that settlement, the Company agreed
to pay $350,000 for the plaintiffs' attorneys fees and agreed that for a period
of one year following final approval of the settlement it will not engage in any
transaction that will be dilutive to existing shareholders without that
transaction being approved by a majority of its outside directors.
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
in its normal course of business is adequately covered by insurance or is
adequately provided for in its consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The response to this item is included on page 48 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 1996. 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, 1996. The required information
hereby is incorporated by reference.
20
<PAGE>
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 23 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 1996. The
required information hereby is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included on pages 24 through 45 and page 48 of
the Registrant's Annual Report to Shareholders for the year ended May 31, 1996.
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 6 of the definitive
Proxy Statement for Registrant's 1996 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 20 above. Information regarding compensation of executive officers and
Directors of the Registrant is included on pages 9 through 17 and pages 22
through 27 of the definitive Proxy Statement for the Registrant's 1996 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 7 and 28 of the definitive
Proxy Statement for the Registrant's 1996 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 page 27 of the definitive Proxy
Statement for the Registrant's 1996 Annual Meeting of Shareholders. The required
information hereby is incorporated by reference.
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 1996 Annual Report to
Shareholders. (See Exhibit (13)).
21
<PAGE>
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.
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as amended October
13, 1987 and June 22, 1995 (Incorporated by reference to Exhibit 3(a) to
Registrant's Annual Report on Form 10-K dated August 25, 1995, for the
fiscal year ended May 31, 1995)
(b) Restated Bylaws of Registrant, as amended July 31, 1996
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Indenture, dated as of March 1, 1991, between the Registrant and The
Bank of New York, as Trustee, relating to Medium Term Notes
(b) 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, for the fiscal quarter ended
February 28, 1995)
(c) 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, for the fiscal
quarter ended February 28, 1995)
(d) Indenture, dated as of October 16, 1995, between Tenet and The Bank of
New York, as Trustee, relating to 8 5/8% Senior Notes due 2003
(e) Indenture, dated as of January 10, 1996, between Tenet and The Bank of
New York, as Trustee, relating to 6% Exchangeable Subordinated Notes due
2005 (Incorporated by reference to Exhibit 4(a) to Registrant's
Quarterly Report on Form 10-Q dated January 15, 1996, for the fiscal
quarter ended November 30, 1995)
(f) Escrow Agreement, dated as of January 10, 1996, among the Company,
NME Properties, Inc., NME Property Holding Co., Inc. and The Bank of New
York, as Escrow Agent (Incorporated by reference to Exhibit 4(b) to
Registrant's Quarterly Report on Form 10-Q, dated as of January 15,
1996, for the fiscal quarter ended November 30, 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, for the fiscal year ended May 31, 1992)
22
<PAGE>
(b) First Amendment to Guarantee Reimbursement Agreement, dated as of May
30, 1991, by and between the Registrant and The Hillhaven Corporation
(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, for the fiscal year ended May
31, 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, for the fiscal year ended May
31, 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, for the fiscal year ended May 31, 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, for the fiscal year ended May 31, 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, for the fiscal year ended May 31, 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, for the fiscal year ended May
31, 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, for the fiscal year ended May
31, 1994)
(j) $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, for the fiscal quarter ended
February 28, 1995)
(k) Amendment to Reimbursement Agreement, dated as of March 1, 1996, among
the Company, as Account Party, 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 the Issuing Bank (Incorporated by reference to Exhibit 10(b) to
Registrant's Quarterly Report on Form 10-Q, dated as of April 12, 1996,
for the fiscal quarter ended February 29, 1996)
23
<PAGE>
(l) Credit Agreement, dated as of March 1, 1996, among the Company, as
Borrower, the Lenders and Managing Agents party thereto, Bank of America
National Trust and Savings Association, as Documentation Agent, The Bank
of New York as, Syndication Agent, and Morgan Guaranty Trust Company of
New York, as Administrative Agent (Incorporated by reference to Exhibit
10(a) to Registrant's Quarterly Report on Form 10-Q, dated as of April
12, 1996, for the fiscal quarter ended February 29, 1996)
(m) Agreement, dated August 22, 1995, among the Registrant, The Hillhaven
Corporation and Vencor, Inc. (Incorporated by reference to Exhibit 10(n)
to Registrant's Annual Report on Form 10-K dated August 25, 1995, for
the fiscal year ended May 31, 1995)
(n) Asia Stock Purchase Agreement, dated as of May 24, 1995, between the
Registrant and Parkway Holdings Limited (Incorporated by reference to
Exhibit 10(o) to Registrant's Annual Report on Form 10-K dated August
25, 1995, for the fiscal year ended May 31, 1995)
(o) Australian Stock Purchase Agreement, dated as of July 5, 1995, between
the Registrant and Parkway Holdings Limited (Incorporated by reference
to Exhibit 10(p) to Registrant's Annual Report on Form 10-K dated August
25, 1995, for the fiscal year ended May 31, 1995)
(p) Amending Agreement to the Australia Stock Purchase Agreement, dated as
of August 14, 1995, between the Registrant and Parkway Holdings Limited
(Incorporated by reference to Exhibit 10(q) to Registrant's Annual
Report on Form 10-K dated August 25, 1995, for the fiscal year ended May
31, 1995)
(q) 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, for the fiscal year ended May
31, 1993)
(r) 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, for the fiscal year ended May
31, 1993)
(s) 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, for the fiscal year ended May
31, 1993)
(t) Memorandum of Understanding, dated May 21, 1996, from Jeffrey C.
Barbakow to the Company
(u) Memorandum of Understanding, dated May 21, 1996, from Michael H.
Focht, Sr. to the Company
(v) Executive Officers Relocation Protection Agreement
(w) Executive Officers Severance Protection Plan
(x) Board of Directors Retirement Plan, effective January 1, 1985
24
<PAGE>
(y) 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, for the
fiscal year ended May 31, 1993)
(z) 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, for the fiscal year ended May
31, 1994)
(aa) Supplemental Executive Retirement Plan, as amended May 21, 1986
(Incorporated by reference to Exhibit 10(o) to Registrant's Annual
Report on Form 10-K dated August 21, 1992, for the fiscal year ended
May 31, 1992)
(bb) 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, for the
fiscal year ended May 31, 1994)
(cc) 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, for the fiscal year
ended May 31, 1994)
(dd) 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, for the fiscal year ended May 31, 1994)
(ee) Long Term Incentive Plan (Incorporated by reference to Exhibit 10(p)
to Registrant's Annual Report on Form 10-K dated August 21, 1992, for
the fiscal year ended May 31, 1992)
(ff) 1994 Annual Incentive Plan (Incorporated by reference to Exhibit B
to the Definitive Proxy Statement, dated as of August 25, 1994, for
the Registrant's 1994 Annual Meeting of Shareholders)
(gg) Deferred Compensation Plan, effective March 23, 1983
(hh) 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, for the fiscal year
ended May 31, 1994)
(ii) 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, for the fiscal year ended May 31, 1994)
(jj) 1994 Directors Stock Option Plan (Incorporated by reference to
Exhibit A to the Definitive Proxy Statement, dated as of August 25,
1994, for the Registrant's 1994 Annual Meeting of Shareholders)
(kk) 1991 Stock Incentive Plan
25
<PAGE>
(ll) 1995 Stock Incentive Plan (Incorporated by reference to Exhibit A to
the definitive Proxy Statement, dated as of August 25, 1995, for the
Registrant's 1995 Annual Meeting of Shareholders)
(mm) 1995 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit B to the definitive Proxy Statement, dated as of August 25,
1995, for the Registrant's 1995 Annual Meeting of Shareholders)
(11) Statement Re: Computation of Per Share Earnings, page 31
(13) 1996 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 1996
fiscal year.
26
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
(1) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(EXHIBIT 11)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period....... 199,938 166,081 165,898 166,963 174,765
Shares issued in connection with merger......... -- 8,358 -- -- --
Shares issued upon exercise of stock options.... 1,015 311 60 27 299
Dilutive effect of outstanding stock options.... 2,961 2,068 1,114 172 495
Shares issued as grants of restricted stock, net
of cancellations............................... -- (1) (48) (52) 75
Shares repurchased as treasury stock............ -- -- -- (999) (4,295)
Shares issued upon conversion of notes and
debentures..................................... 5,578 -- -- -- 529
Other........................................... -- -- -- -- (15)
----------- ----------- ----------- ----------- -----------
Weighted average number of shares and share
equivalents outstanding........................ 209,492 176,817 167,024 166,111 171,853
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income from continuing operations............... $ 398,330 $ 194,381 $ 215,901 $ 263,644 $ 218,199
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per share from continuing operations... $ 1.90 $ 1.10 $ 1.29 $ 1.59 $ 1.27
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in
primary calculation............................ 209,492 176,817 167,024 166,111 171,853
Additional dilutive effect of stock options..... 294 203 97 23 1
Assumed conversion of dilutive convertible notes
and debentures................................. 6,890 13,119 13,966 14,356 20,990
----------- ----------- ----------- ----------- -----------
Fully diluted weighted average number of
shares......................................... 216,676 190,139 181,087 180,490 192,844
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income from continuing operations used in
primary calculation............................ $ 398,330 $ 194,381 $ 215,901 $ 263,644 $ 218,199
Adjustments:
Interest expense on convertible debentures...... 9,061 14,596 10,537 8,752 23,040
Reduced reimbursement of above interest expense
by Medicare.................................... (2,422) (2,203) (650) (974) (3,029)
Income tax on interest less Medicare
reimbursement.................................. (2,602) (4,846) (3,906) (3,150) (7,804)
----------- ----------- ----------- ----------- -----------
Adjusted income from continuing operations...... $ 402,367 $ 201,928 $ 221,882 $ 268,272 $ 230,406
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per share from continuing operations... $ 1.86 $ 1.06 $ 1.23 $ 1.49 $ 1.19
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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.
27
<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 26, 1996.
Tenet Healthcare Corporation
<TABLE>
<S> <C>
By: /s/ Trevor Fetter By: /s/ Scott M. Brown
- -------------------------------------------- --------------------------------------------
Trevor Fetter Scott M. Brown
Executive Vice President and Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Raymond L. Mathiasen
- --------------------------------------------
Raymond L. Mathiasen
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on August 26, 1996, 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 (Principal Executive
Jeffrey C. Barbakow Officer)
/s/ Michael H. Focht, Sr.
- -------------------------------------------- President, Chief Operating Officer
Michael H. Focht, Sr. and Director
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------- -------------------------------------------------
<S> <C>
/s/ Bernice Bratter
- --------------------------------------- Director
Bernice Bratter
/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
/s/ Lester B. Korn
- --------------------------------------- Director
Lester B. Korn
/s/ James P. Livingston
- --------------------------------------- Director
James P. Livingston
/s/ Thomas J. Pritzker
- --------------------------------------- Director
Thomas J. Pritzker
/s/ Richard S. Schweiker
- --------------------------------------- Director
Richard S. Schweiker
</TABLE>
29
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1994, 1995 AND 1996
(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
1994.......................... $ 115 $ 111 $ 35 $ (128) $ (56) $ 77
1995.......................... $ 77 $ 140 $ 25 $ (153) $ 95 $ 184
1996.......................... $ 184 $ 290 -- $ (331) $ 13 $ 156
</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.
F-1
<PAGE>
RESTATED BY-LAWS OF
TENET HEALTHCARE CORPORATION
A NEVADA CORPORATION
AS AMENDED JULY 31, 1996
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1.1 PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the principal office of
the Corporation in the State of California, or at any other place within or
without the State of Nevada as may be designated for that purpose from time to
time by the Board of Directors.
SECTION 1.2 ANNUAL MEETINGS.
The Annual meeting of the shareholders shall be held not later than 210
days after the close of the fiscal year, on the date and at the time set by the
Board of Directors, at which time the shareholders shall elect by plurality vote
an annual Class of the Board of Directors, consider reports of the affairs of
the Corporation, and transact such other business as may properly be brought
before the meeting.
SECTION 1.3 SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the Chief Executive Officer or by the
Board of Directors.
SECTION 1.4 NOTICE OF MEETINGS.
1.4.1. Notice of each meeting of shareholders, whether annual or
special, shall be given at least 10 and not more than 60 days prior to the day
thereof by the Secretary or any Assistant Secretary causing to be delivered to
each shareholder of record entitled to vote at such meeting a written notice
stating the time and place of the meeting and the purpose or purposes for which
the meeting is called. Such notice shall be signed by the Chief Executive
Officer, the President, the Secretary or any Assistant Secretary and shall be
mailed postage prepaid to each shareholder at his address as it appears on the
stock books of the Corporation. If any shareholder has failed to supply an
address, notice shall be deemed to have been given if mailed to the address of
the principal office of the Corporation, or published at least once in a
newspaper having general circulation in the county in which the principal office
is located.
<PAGE>
- 2 -
1.4.2. It shall not be necessary to give any notice of the
adjournment of or the business to be transacted at an adjourned meeting other
than by announcement at the meeting at which such adjournment is taken; provided
that when a meeting is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting.
SECTION 1.5 CONSENT BY SHAREHOLDERS.
Any action which may be taken at a regular meeting of the shareholders,
except election of directors, may be taken without a meeting, if authorized by a
writing signed by holders of the number of shares required under the law to give
their approval for such purpose.
SECTION 1.6 QUORUM.
1.6.1. The presence in person or by proxy of the persons entitled
to vote a majority of the voting shares at any meeting constitutes a quorum for
the transaction of business. Shares shall not be counted in determining the
number of shares represented or required for a quorum or in any vote at a
meeting, if voting of them at the meeting has been enjoined or for any reason
they cannot be lawfully voted at the meeting.
1.6.2. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
1.6.3. In the absence of a quorum, a majority of the shares present
in person or by proxy and entitled to vote may adjourn any meeting from time to
time, but not for a period of more than 30 days at any one time, until a quorum
shall attend.
SECTION 1.7 VOTING RIGHTS.
1.7.1. Every shareholder of record of the Corporation shall be
entitled at each meeting of the shareholders to one vote for each share of stock
standing in his name on the books of the Corporation. Except as otherwise
provided by law, or by the Articles of Incorporation or any amendment thereto,
or by the By-Laws, if a quorum is present, the majority of votes cast in person
or by proxy shall be binding upon all shareholders of the Corporation.
1.7.2. The Board of Directors shall designate a day not more than
60 days prior to any meeting of the shareholders as the day as of which
shareholders entitled to notice of and to vote at such meetings shall be
determined.
<PAGE>
- 3 -
SECTION 1.8 PROXIES.
Every shareholder entitled to vote or to execute consents may do so either
in person or by written proxy executed in accordance with the provisions of
Section 78.355 of the Nevada Revised Statutes and filed with the Secretary of
the Corporation.
SECTION 1.9 MANNER OF CONDUCTING MEETINGS.
To the extent not in conflict with the provisions of the law relating
thereto, the Articles of Incorporation, or express provisions of these By-Laws,
meetings shall be conducted pursuant to such rules as may be adopted by the
chairman presiding at, or a majority of the shares represented at, the meeting.
ARTICLE II
DIRECTORS - MANAGEMENT
SECTION 2.1 POWERS.
Subject to the limitation of the Articles of Incorporation, of the By-Laws,
and of the laws of the State of Nevada as to action to be authorized or approved
by the shareholders, all corporate powers shall be exercised by or under
authority of, and the business and affairs of this Corporation shall be
controlled by, a Board of Directors.
SECTION 2.2 NUMBER AND QUALIFICATION.
The authorized number of directors of this Corporation shall be not less
than nine nor more than 15, with the exact number to be established from time to
time by resolution of the Board of Directors of this Corporation. All directors
of this Corporation shall be at least 21 years of age and at least a majority
shall be citizens of the United States.
SECTION 2.3 CLASSIFICATION AND ELECTION.
The Board of Directors shall be classified into three annual Classes, with
four directors in Class 1, four directors in Class 2, and five directors in
Class 3. Each Class of directors shall be elected for terms of three years.
Each term shall continue for the number of years stated and until their
successors are elected and have qualified. Their term of office shall begin
immediately after election. These By-Laws are being adopted subsequent to the
initial classification of directors in 1975. The directors in office as of the
date of adoption hereof shall continue to serve the terms for which they have
been previously elected.
<PAGE>
- 4 -
SECTION 2.4 INCREASE IN THE NUMBER OF DIRECTORS.
The Board of Directors may change the number of directors from time to
time; provided, however, neither the Board of Directors nor the shareholders may
ever increase the number of directorships by more than one during any
twelve-month period, except upon the affirmative vote of two-thirds of the
directors of each Class, or the affirmative vote of the holders of two-thirds of
all outstanding shares voting together and not by class. This provision may not
be amended except by a like vote.
SECTION 2.5 VACANCIES.
2.5.1. Any vacancies in the Board of Directors, except vacancies
first filled by the shareholders, may be filled by the affirmative vote of
two-thirds of the remaining directors of each Class, though less than a quorum,
or by a sole remaining director. Each director so elected shall hold office for
the balance of the term of the resigning director and until his successor is
elected. The power to fill vacancies shall in no event be delegated to any
committee appointed in accordance with these By-Laws.
2.5.2. The shareholders may at any time elect a director to fill
any vacancy not filled by the directors, and may elect the additional directors
at the meeting at which an amendment of the By-Laws is voted authorizing an
increase in the number of directors.
2.5.3. A vacancy or vacancies shall be deemed to exist in case of
the death, resignation, or removal of any director, or if the directors or
shareholders shall increase the authorized number of directors but shall fail at
a meeting at which such increase is authorized or at an adjournment thereof to
elect the additional director so provided for, or in case the shareholders fail
at any time to elect the full number of authorized directors.
2.5.4. If the Board of Directors accepts the resignation of a
director tendered to take effect at a future time, the Board or the shareholders
shall have power to immediately elect a successor who shall take office when the
resignation shall become effective.
2.5.5. No reduction of the number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
SECTION 2.6 REMOVAL OF DIRECTORS.
The entire Board of Directors or any individual director may be removed
from office, with or without cause, by the vote or written consent of
shareholders representing two-thirds of the issued and outstanding capital stock
entitled to vote.
<PAGE>
- 5 -
SECTION 2.7 RESIGNATIONS.
Any director of the Corporation may resign at any time either by oral
tender of resignation at any meeting of the Board or by giving written notice
thereof to the Secretary, the Chief Executive Officer or the President. Such
resignation shall take effect at the time it specifies, and the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 2.8 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the principal office of
the Corporation in the State of California, or at such other place within or
without the State of Nevada as may be designated for that purpose by the Board
of Directors. Any meeting shall be valid, wherever held, if held by the written
consent of all members of the Board of Directors, given before or after the
meeting and filed with the Secretary of the Corporation.
SECTION 2.9 MEETINGS AFTER ANNUAL SHAREHOLDERS' MEETING.
The first meeting of the Board of Directors held after the annual
shareholders' meeting shall be held at such time and place within or without the
State of Nevada as shall be fixed by announcement of the Chief Executive Officer
or the President given at the annual shareholders' meeting, and no other notice
of such meeting shall be necessary, provided a majority of the whole Board shall
be present. Alternatively, such meeting may be held at such time and place as
shall be fixed pursuant to notice given under other provisions of these By-Laws.
SECTION 2.10 OTHER REGULAR MEETINGS.
2.10.1. Regular meetings of the Board of Directors shall be held at
such time and place within or without the State of Nevada as may be agreed upon
from time to time by the Board.
2.10.2. No notice need be given of regular meetings, except that a
written notice shall be given to each director of the resolution establishing
specific meeting dates or a regular meeting date, which notice shall set forth
the date of the month, the time, and the place of the meetings.
SECTION 2.11 SPECIAL MEETINGS.
Special meetings of the Board of Directors shall be held whenever called by
the Chief Executive Officer or the President or by two-thirds of the directors
of each Class. Notice of any such meeting shall be mailed to each director not
later than three days before the day on which the meeting is to be held, or
shall be sent to him by telegraph, or delivered personally or by telephone, not
later than midnight of the day before the day of the meeting. Any meeting of
the Board of Directors shall be a legal meeting without any notice thereof
having been given, if each director consents to the
<PAGE>
- 6 -
holding thereof or waives notice by a writing filed with the Secretary, or is
present thereat and their oral consents are entered on the minutes, or they take
part in the deliberations thereat without objection. Except as otherwise
provided in the By-Laws or as may be indicated in the notice thereof, any and
all business may be transacted at any special meeting.
SECTION 2.12 WAIVER OF NOTICE.
Anything herein to the contrary notwithstanding, notice of any meeting of
directors shall not be required as to any director who shall waive notice in
writing (including telex, facsimile telephonic transmission, telegram, cablegram
or radiogram) before or after such meeting.
SECTION 2.13 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned.
SECTION 2.14 QUORUM.
A majority of the number of directors as fixed by the Articles of
Incorporation or By-Laws shall be necessary to constitute a quorum for the
transaction of business, and the action of a majority of the directors present
at any meeting at which there is a quorum, when duly assembled, is valid as a
corporate act; provided, that a minority of the directors, in the absence of a
quorum, may adjourn from time to time or fill vacant directorships in accordance
with Section 2.5 but may not transact any business.
SECTION 2.15 ACTION BY UNANIMOUS WRITTEN CONSENT.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing thereto. Such written consent
shall be filed with the minutes of the proceedings of the Board and shall have
the same force and effect as a unanimous vote of such directors.
SECTION 2.16 COMPENSATION.
The directors may be paid their expenses of attendance at each meeting of
the Board of Directors. Additionally, the Board of Directors may from time to
time, in its discretion, pay to directors either or both a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary for
services as a director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee meetings.
<PAGE>
- 7 -
SECTION 2.17 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
directors of the Corporation are in any way interested in, or connected with,
any other party to, such contract or transaction or are themselves parties to
such contract or transaction, provided that such transaction satisfies Section
78.140 of the Nevada Revised Statutes; and each and every person who may become
a director of the Corporation is hereby relieved, to the extent permitted by
law, from any liability that might otherwise exist from contracting in good
faith with the Corporation for the benefit of himself or any person in which he
may be in any way interested or with which he may be in any way connected. Any
director of the Corporation may vote and act upon any matter, contract or
transaction between the Corporation and any other person without regard to the
fact that he is also a stockholder, director or officer of, or has any interest
in, such other person.
SECTION 2.18 EMERITUS POSITIONS.
The Board of Directors may authorize parties to serve in an emeritus
position with respect to the Board of Directors, included by way of example but
not by way of limitation, as an Emeritus Director, as a Chairman Emeritus of the
Board of Directors or as a Vice-Chairman Emeritus of the Board of Directors.
These positions shall be honorary positions and parties elected to those
positions may be asked to attend meetings of the board of directors and meeting
of the shareholders from time to time. A party holding an emeritus position
shall not be an officer or director of the Company, shall have no vote at a
director's meeting, shall receive no fees for service in that position and shall
not be given access to material, non-published information pertaining, to the
Company. A party filling an emeritus position shall be requested to do so
because of his or her experience with and contributions to the Company.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a Chairman, a Vice
Chairman, a Chief Executive Officer, a President, one or more Senior Executive
Vice Presidents, one or more Executive Vice Presidents, one or more Group
Presidents and Chief Executive Officers, one or more Senior Vice Presidents, one
or more Vice Presidents, a Secretary, and a Treasurer. Any person may hold two
or more offices. The executive officers of the Corporation shall be elected
annually by the Board of Directors and shall hold office for one year or until
their respective successors shall be elected and shall qualify.
<PAGE>
- 8 -
SECTION 3.2 APPOINTED OFFICERS: TITLES.
3.2.1. The Chief Executive Officer or the Secretary in the case of
Assistant Secretaries or the Treasurer in the case of Assistant Treasurers may
appoint one or more Assistant Secretaries or one or more Assistant Treasurers,
each of whom shall hold such title at the pleasure of the appointing officer,
have such authority and perform such duties as are provided in the By-Laws, or
as the Chief Executive Officer or the appointing officer may determine from time
to time. Any person appointed under this Section 3.2.1 to serve in any of the
foregoing positions shall be deemed by reason of such appointment or service in
such capacity to be an "officer" of the corporation.
3.2.2. The Chief Executive Officer or a person designated by the
Chief Executive Officer may also appoint a president, one or more executive vice
presidents, one or more senior vice presidents, one or more vice presidents and
one or more assistant vice presidents for each operating group and division of
the Corporation and one or more senior vice presidents, one or more vice
presidents and one or more assistant vice presidents for each corporate staff
function and a corporate controller and one or more assistant controllers. Each
of such persons will hold such title at the pleasure of the Chief Executive
Officer and have authority to act for and shall perform duties with respect to
only the group, division or corporate staff function for which the person is
appointed. Any person appointed under this Section 3.2.2 to serve in any of the
foregoing positions shall not be deemed by reason of such appointment or service
in such capacity to be an "officer" of the Corporation.
SECTION 3.3 REMOVAL AND RESIGNATION.
3.3.1. Any officer may be removed, either with or without cause, by
a majority of the directors at the time in office, at any regular or special
meeting of the Board. Any appointed person may be removed from such position at
any time by the person making such appointment or his successor.
3.3.2. Any officer may resign at any time, by giving written notice
to the Board of Directors, the Chief Executive Officer, the President or the
Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice, or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3.4 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the By-Laws for regular appointments to such office.
<PAGE>
- 9 -
SECTION 3.5 CHAIRMAN AND VICE CHAIRMAN.
The Chairman shall preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors. The Vice Chairman shall, in the
absence of the Chairman, preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors.
SECTION 3.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
affairs of the Corporation. He shall preside at all meetings of the
shareholders and, in the absence of the Chairman of the Board and the Vice
Chairman of the Board, at all meetings of the Board of Directors. He shall be
ex officio a member of the Executive Committee and shall have the general powers
and duties of management usually vested in the office of chief executive officer
of a corporation and such other powers and duties as may be prescribed by the
Board of Directors.
SECTION 3.7 PRESIDENT.
In the absence or disability of the Chief Executive Officer, the President
shall perform all of the duties of the Chief Executive Officer and when so
acting shall have all the powers and be subject to all the restrictions upon the
Chief Executive Officer, including the power to sign all instruments and to take
all actions which the Chief Executive Officer is authorized to perform by the
Board of Directors or the By-Laws. The President shall have the general powers
and duties usually vested in the office of president of a corporation and such
other powers and duties as may be prescribed by the Chief Executive Officer or
the Board of Directors.
SECTION 3.8 SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR
VICE PRESIDENT AND VICE PRESIDENT.
In the absence or disability of the Chief Executive Officer and the
President, a Senior Executive Vice President, an Executive Vice President or a
Group President and Chief Executive Officer, in the order of his rank and
seniority shall perform all of the duties of the Chief Executive Officer, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer, including the power to sign all
instruments and to take all actions which the Chief Executive Officer is
authorized to perform by the Board of Directors or the By-Laws. The Senior
Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents and
Vice Presidents shall have the general powers and duties usually vested in the
office of a vice president of a corporation; the Group Presidents and Chief
Executive Officers shall have the general powers and duties of a principal
executive officer of an operating group of a corporation; and each of them shall
have such other powers and perform such other duties as from time to time may be
prescribed for
<PAGE>
- 10 -
them respectively by the Board of Directors, the Executive Committee of the
Board of Directors, the Chief Executive Officer or the By-Laws.
SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES.
3.9.1. The Secretary shall (1) attend all sessions of the Board and
all meetings of the shareholders; and (2) record and keep, or cause to be kept,
all votes and the minutes of all proceedings in a book to be kept for that
purpose at the principal office of the Corporation, or at such other place as
the Board of Directors may from time to time determine, specifying therein (i)
the time and place of holding, (ii) whether regular or special, and if special,
how authorized, (iii) the notice thereof given, (iv) the names of those present
at directors' meetings, (v) the number of shares present or represented at
shareholders' meetings, and (vi) the proceedings thereof; and (3) perform like
duties for the Executive and other standing committees, when required. In
addition, he shall keep or cause to be kept, at the principal office of the
Corporation in the State of Nevada, those documents required to be kept thereat
by Section 5.2 of the By-Laws and Section 78.105 of the Nevada Revised Statutes.
3.9.2. The Secretary shall give, or cause to be given, notice of
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer, under whose supervision he shall be. He shall
keep in safe custody the seal of the Corporation, and, when authorized by the
Board, affix the same to any instrument requiring it, and when so affixed, it
shall be attested by his signature or by the signature of the Treasurer or an
Assistant Secretary. The Secretary is hereby authorized to issue certificates,
to which the corporate seal may be affixed, attesting to the incumbency of
officers of this Corporation or to actions duly taken by the Board of Directors
or the shareholders.
3.9.3. The Assistant Secretaries, in the order of their seniority,
shall in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary, and shall perform such other duties as the
Chief Executive Officer or the Secretary shall prescribe.
SECTION 3.10 TREASURER AND ASSISTANT TREASURERS.
3.10.1. The Treasurer shall deposit all moneys and other valuables
in the name, and to the credit, of the Corporation, with such depositories as
may be ordered by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
Chief Executive Officer and directors, whenever they request it, an account of
all his transactions as Treasurer, and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the By-Laws.
3.10.2. The Assistant Treasurers, in the order of their seniority,
shall in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer, and shall perform such other duties as the
Chief Executive Officer or the Treasurer shall prescribe.
<PAGE>
- 11 -
SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS.
In addition to the foregoing powers and duties specifically prescribed for
the respective officers, the Board of Directors may from time to time by
resolution (i) impose or confer upon any of the officers such additional duties
and powers as the Board of Directors may see fit, (ii) determine the order of
seniority among the officers, and/or (iii) except as otherwise provided above,
provide that in the absence of any officer or officers, any other officer or
officers shall substitute for and assume the duties, powers and authority of the
absent officer or officers. Any such resolution may be final, subject only to
further action by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the Chairman, the
Vice Chairman, the Chief Executive Officer, the President (or in his absence the
Senior Executive Vice President or the Executive Vice President serving in his
place) to impose or confer additional duties and powers, to determine the order
of seniority among officers, and/or to provide for substitution of officers as
above described.
SECTION 3.12 COMPENSATION.
The officers of the Corporation shall receive such compensation as shall be
fixed from time to time by the Board of Directors. No officer shall be
prohibited from receiving such salary by reason of the fact that he is also a
director of the Corporation.
SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
officers of the Corporation are in any way interested in, or connected with, any
other party to such contract or transaction, or are themselves parties to such
contract or transaction, provided that such transaction complies with
Section 78.140 of the Nevada Revised Statutes; and each and every person who is
or may become an officer of the Corporation is hereby relieved, to the extent
permitted by law, when acting in good faith, from any liability that might
otherwise exist from contracting with the Corporation for the benefit of himself
or any person in which he may be in any way interested or with which he may be
in any way connected.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 4.1 STANDING COMMITTEES.
The Board of Directors shall appoint an Executive Committee, an Audit
Committee and a Compensation and Stock Option Committee, consisting of such
number of its members as it may designate, consistent with the Articles of
Incorporation, the By-Laws and the laws of the State of Nevada.
<PAGE>
- 12 -
4.1.1. The Executive Committee shall have and may exercise, when
the Board is not in session, all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, but the Executive
Committee shall not have the power to fill vacancies on the Board, or to change
the membership of or to fill vacancies in the Executive Committee or any other
Committee of the Board, or to adopt, amend or repeal the By-Laws, or to declare
dividends.
4.1.2. The Audit Committee shall select and engage on behalf of the
Corporation, subject to the consent of the shareholders, and fix the
compensation of, a firm of certified public accountants whose duty it shall be
to audit the books and accounts of the Corporation and its subsidiaries for the
fiscal year in which they are appointed, and who shall report to such Committee.
The Audit Committee shall confer with the auditors and shall determine, and from
time to time shall report to the Board of Directors upon, the scope of the
auditing of the books and accounts of the Corporation and its subsidiaries. The
Audit Committee shall also be responsible for determining that the business
practices and conduct of employees and other representatives of the Corporation
and its subsidiaries comply with the policies and procedures of the Corporation.
None of the members of the Audit Committee shall be officers or employees of the
Corporation.
4.1.3. The Compensation and Stock Option Committee shall establish
a general compensation policy for the Corporation and shall have responsibility
for the approval of increases in directors' fees and in salaries paid to
officers and senior employees earning in excess of an annual salary to be
determined by the Committee. The Compensation and Stock Option Committee shall
have all of the powers of administration under all of the Corporation's employee
benefit plans, including any stock option plans, long-term incentive plans,
bonus plans, retirement plans, stock purchase plans and medical, dental and
insurance plans. In connection therewith, the Compensation and Stock Option
Committee shall determine, subject to the provisions of the Corporation's plans,
the directors, officers and employees of the Corporation eligible to participate
in any of the plans, the extent of such participation and the terms and
conditions under which benefits may be vested, received or exercised. None of
the members of the Compensation and Stock Option Committee shall be officers or
employees of the Corporation.
SECTION 4.2 OTHER COMMITTEES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada as to action to be authorized or approved by
the shareholders, or duties not delegable by the Board of Directors, any or all
of the corporate powers may be exercised by or under authority of, and the
business and affairs of this Corporation may be controlled by, such other
committee or committees as may be appointed by the Board of Directors. The
powers to be exercised by any such committee shall be designated by the Board of
Directors.
SECTION 4.3 PROCEDURES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada regarding the conduct of business by the
Board of Directors and its appointed
<PAGE>
- 13 -
committees, any committee created under this Article may use any procedures for
conducting its business and exercising its powers, including but not limited to
actions by the unanimous written consent of its members in the manner set forth
in Section 2.15. A majority (but not less than two members) shall constitute a
quorum. Notices of meetings may be in any reasonable manner and may be waived
as for meetings of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
SECTION 5.1 RECORDS.
The Corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its principal place of business in the State of California, as
fixed by the Board of Directors from time to time.
SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER.
The Corporation shall maintain and keep the following documents at its
principal place of business in the State of Nevada: (i) a certified copy of the
Articles of Incorporation and all amendments thereto; (ii) a certified copy of
the By-Laws and all amendments thereto; and (iii) a statement setting forth the
following: "The Secretary of the Corporation, whose address is 2700 Colorado
Avenue, Santa Monica California 90404, is the custodian of the duplicate stock
ledger of the Corporation."
SECTION 5.3 INSPECTION.
Any person who has been a shareholder of record for at least six months
immediately preceding his demand, or any person holding, or thereunto authorized
in writing by the holders of, at least five percent of all of the Corporation's
outstanding shares, upon at least five days' written demand, or any judgment
creditor without prior demand, shall have the right to inspect in person or by
agent or attorney, during usual business hours, the duplicate stock ledger of
the Corporation and to make extracts therefrom; provided, however, that such
inspection may be denied to any shareholder or other person upon his refusal to
furnish to the Corporation an affidavit that such inspection is not desired for
a purpose which is in the interest of a business or object other than the
business of the Corporation and that he has not at any time sold or offered for
sale any list of shareholders of any corporation or aided or abetted any person
in procuring any such record of shareholders for any such purpose.
<PAGE>
- 14 -
SECTION 5.4 CHECKS, DRAFTS, ETC.
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness, issued in the name of, or payable to, the
Corporation, shall be signed or endorsed by such person or persons, and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
ARTICLE VI
OTHER AUTHORIZATIONS
SECTION 6.1 EXECUTION OF CONTRACTS.
The Board of Directors, except as the By-Laws otherwise provide, may
authorize any officer or officers or agent or agents to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general, or confined to specific instances. Unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority, except in the ordinary course of business, to bind the
Corporation by any contract or engagement or to pledge its credit, or to render
it liable for any purpose or in any amount.
SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS.
All shares of any other corporation, standing in the name of the
Corporation, shall be voted, represented, and all rights incidental thereto
exercised as directed by written consent or resolution of the Board of Directors
expressly referring thereto. In general, such rights shall be delegated by the
Board of Directors under express instructions from time to time as to each
exercise thereof to the Chief Executive Officer, the President, any Senior
Executive Vice President, any Executive Vice President, any Senior Vice
President, any Vice President, the Treasurer or the Secretary of this
Corporation, or any other person expressly appointed by the Board of Directors.
Such authority may be exercised by the designated officers in person, or by any
other person authorized so to do by proxy, or power of attorney, duly executed
by such officers.
SECTION 6.3 DIVIDENDS.
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and on the terms and
conditions provided by the laws of the State of Nevada, and the Articles of
Incorporation, subject to any contractual restrictions to which the Corporation
is then subject.
<PAGE>
- 15 -
ARTICLE VII
CERTIFICATES FOR AND TRANSFER OF SHARES
SECTION 7.1 CERTIFICATES FOR SHARES.
7.1.1. Certificates for shares shall be of such form and device as
the Board of Directors may designate and shall be numbered and registered as
they are issued. Each shall state the name of the record holder of the shares
represented thereby; its number and date of issuance; the number of shares for
which it is issued; the par value; a statement of the rights, privileges,
preferences and restrictions, if any; a statement as to rights of redemption or
conversion, if any; and a statement of liens or restrictions upon transfer or
voting, if any, or, alternatively, a statement that certificates specifying such
matters may be obtained from the Secretary of the Corporation.
7.1.2. Every certificate for shares must be signed by the Chief
Executive Officer or the President and the Secretary or an Assistant Secretary,
or must be authenticated by facsimiles of the signatures of the Chief Executive
Officer or the President and the Secretary or an Assistant Secretary. Before it
becomes effective, every certificate for shares authenticated by a facsimile or
a signature must be countersigned by a transfer agent or transfer clerk, and
must be registered by an incorporated bank or trust company, either domestic or
foreign, as registrar of transfers.
7.1.3. Even though an officer who signed, or whose facsimile
signature has been written, printed, or stamped on a certificate for shares
ceases, by death, resignation, or otherwise, to be an officer of the Corporation
before the certificate is delivered by the Corporation, the certificate shall be
as valid as though signed by a duly elected, qualified and authorized officer,
if it is countersigned by the signature or facsimile signature of a transfer
clerk or transfer agent and registered by an incorporated bank or trust company,
as registrar of transfers.
7.1.4. Even though a person whose facsimile signature as, or on
behalf of, the transfer agent or transfer clerk has been written, printed or
stamped on a certificate for shares ceases, by death, resignation, or otherwise,
to be a person authorized to so sign such certificate before the certificate is
delivered by the Corporation, the certificate shall be deemed countersigned by
the facsimile signature of a transfer agent or transfer clerk for purposes of
meeting the requirements of this section.
SECTION 7.2 TRANSFER ON THE BOOKS.
Upon surrender to the Secretary or transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
<PAGE>
- 16 -
SECTION 7.3 LOST OR DESTROYED CERTIFICATES.
The Board of Directors may direct, or may authorize the Secretary to
direct, a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate for shares so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or Secretary may, in its or his discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 7.4 TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, who may be the same person, and may be the
Secretary of the Corporation, or an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate.
SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC.
The Board of Directors may fix a time, not exceeding 50 days preceding the
date fixed for the payment of any dividend or distribution, or for the allotment
of rights, or when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the shareholders entitled to
receive any such dividend or distribution, or any such allotment of rights, or
to exercise the rights in respect to any such change, conversion, or exchange of
shares, and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive such dividend, distribution, or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid.
SECTION 7.6 RECORD OWNERSHIP.
The Corporation shall be entitled to recognize the exclusive right of a
person registered as such on the books of the Corporation as the owner of shares
of the Corporation's stock to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by law.
<PAGE>
- 17 -
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 BY SHAREHOLDERS.
New or restated by-laws may be adopted, or these By-Laws may be repealed or
amended, at the annual shareholders' meeting or at any other meeting of the
shareholders called for that purpose, by a vote of shareholders entitled to
exercise a majority of the voting power of the Corporation.
SECTION 8.2 BY DIRECTORS.
Subject to the right of the shareholders to adopt, amend, or repeal
by-laws, as provided in Section 8.1, the Board of Directors may adopt, amend, or
repeal any of these By-Laws by the affirmative vote of two-thirds of the
directors of each Class except as otherwise provided in Section 2.4. This power
may not be delegated to any committee appointed in accordance with these
By-Laws.
SECTION 8.3 RECORD OF AMENDMENTS.
Whenever an amendment or a new By-Law is adopted, it shall be copied in the
book of minutes with the original By-Laws, in the appropriate place. If any
By-Law is repealed, the fact of repeal, with the date of the meeting at which
the repeal was enacted, or written assent was filed, shall be stated in said
book.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") (other than an action by or in the right of the
Corporation), by reason of the fact that he, or a person of whom he is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director, officer,
employee, fiduciary or agent shall be
<PAGE>
- 18 -
indemnified and held harmless by the Corporation to the fullest extent permitted
by the laws of Nevada, as the same exist or may hereafter be amended, against
all costs, charges, expenses, liabilities and losses (including attorneys' fees,
judgments, fines, employee benefit plan exercise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection with such proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as a director, officer, employee, fiduciary or agent, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article IX (unless ordered by a court or
advanced pursuant to Section 9.6 hereof) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.1 or Section 9.2 of this
Article IX, as the case may be. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if a majority vote
of a quorum consisting of directors who were not parties to the act, suit or
proceeding so orders, by independent legal counsel in a written opinion, or
(iii) if such a quorum is
<PAGE>
- 19 -
not obtainable, by independent legal counsel in a written opinion, or (iv) by
the shareholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
SECTION 9.4 GOOD FAITH DEFINED.
For purposes of any determination under Section 9.3 of this Article IX, a
person shall be deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to him by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in
this Section 9.4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 9.4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 9.1
or 9.2 of this Article IX, as the case may be.
SECTION 9.5 INDEMNIFICATION BY A COURT.
If a claim under Sections 9.1 or 9.2 is not paid in full by the Corporation
within thirty days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Nevada law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including the Board, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
Corporation (including the Board, independent legal counsel, or its
shareholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
<PAGE>
- 20 -
SECTION 9.6 EXPENSES PAYABLE IN ADVANCE.
The right to indemnification conferred in this Article IX shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
Nevada General Corporation Law required, the payment of such expenses incurred
by a director or officer in his capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director of officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 9.6 or otherwise.
SECTION 9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article IX shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Articles of
Incorporation, By-Law, agreement, vote of shareholders or disinterested
directors or otherwise.
SECTION 9.8 INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee, fiduciary or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under Nevada law.
SECTION 9.9 CERTAIN DEFINITIONS.
For purposes of this Article IX, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or
was a director or officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article IX with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article IX, references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer
<PAGE>
- 21 -
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article IX.
SECTION 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by or granted
pursuant to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee, fiduciary or agent and shall inure to the benefit of his heirs,
executors and administrators.
SECTION 9.11 LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article IX to the contrary,
except as provided in Section 9.3, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized or consented to by the Board.
SECTION 9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Corporation may, by action of the Board, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
SECTION 9.13 INDEMNIFICATION OF WITNESSES.
To the extent that any director, officer, employee, fiduciary or agent of
the Corporation is by reason of such position, or a position with another entity
at the request of the Corporation, a witness in any action, suit or proceeding,
he shall be indemnified against all costs and expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 9.14 INDEMNIFICATION AGREEMENTS.
The Corporation may enter into agreements with any director, officer,
employee, fiduciary or agent of the Corporation providing for indemnification to
the full extent permitted by Nevada law.
SECTION 9.15 DEFINITION OF BOARD.
For purposes of this Article IX, the term "Board" shall mean the Board of
Directors of the Corporation or, to the extent permitted by the laws of Nevada,
as the same exist or may hereafter be amended, its Executive Committee. On vote
of the Board, the Corporation may assent to the adoption of this Article IX by
any subsidiary, whether or not wholly owned.
<PAGE>
- 22 -
SECTION 9.16 ACTIONS PRIOR TO ADOPTION OF ARTICLE IX.
The rights provided by this Article IX shall be available whether or not
the claim asserted against the director, officer, employee, fiduciary or agent
is based on matters which antedate the adoption of this Article IX.
SECTION 9.17 SEVERABILITY.
If any provision of this Article IX shall for any reason be determined to
be invalid, the remaining provisions hereof shall not be affected thereby but
shall remain in full force and effect.
SECTION 9.18 APPLICABILITY TO FEDERAL ELECTION CAMPAIGN ACT OF 1971, AS
AMENDED.
The rights provided by this Article IX shall be applicable to the officers
(including without limitation the Chairman, Vice Chairman, treasurer and
assistant treasurer) appointed from time to time by the Chief Executive Officer
of the Corporation or his designee to serve in the administration and management
of any separate, segregated fund established for purposes of collecting and
distributing voluntary employee political contributions to federal election
campaigns pursuant to the Federal Election Campaign Act of 1971, as amended.
ARTICLE X
CORPORATE SEAL
The corporate seal shall be circular in form and shall have inscribed
thereon the name of the Corporation, and the date of its incorporation, and the
word "Nevada".
ARTICLE XI
INTERPRETATION
Reference in these By-Laws to any provision of the Nevada Revised Statutes
shall be deemed to include all amendments thereto and the effect of the
construction and determination of validity thereof by the Nevada Supreme Court.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NATIONAL MEDICAL ENTERPRISES, INC.
TO
THE BANK OF NEW YORK, Trustee
---------------------
Indenture
---------------------
Dated as of March 1, 1991
Debt Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of March 1, 1991
TRUST INDENTURE ACT SECTION INDENTURE SECTION
- --------------------------- -----------------
Section 310(a)(1). . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 608,610
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . 613(a),(c)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 613(b),(c)
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 703(a)(2),703(b)
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . 701,702(a)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 702(b)
(c). . . . . . . . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . 703(a)
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 703(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 703(c)
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d). . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e). . . . . . . . . . . . . . . . . . . . . . . . . . 102
(d). . . . . . . . . . . . . . . . . . . . . . . . . . 703(d)
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . 704
(b). . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . 601(a)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 602,703(a)(6)
(c). . . . . . . . . . . . . . . . . . . . . . . . . . 601(b)
(d). . . . . . . . . . . . . . . . . . . . . . . . . . 601(c)
(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . 601(a)(1),(c)(1)
(d)(2) . . . . . . . . . . . . . . . . . . . . . . . . 601(c)(2)
(d)(3) . . . . . . . . . . . . . . . . . . . . . . . . 601(c)(3)
(e). . . . . . . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . 502,512
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 508
Section 317(a)(1). . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . 108
- --------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
i
<PAGE>
TABLE OF CONTENTS
PAGE
----
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions:
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Amounts. . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Attributable Debt . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . 2
Authorized Newspaper. . . . . . . . . . . . . . . . . . . . . . . 2
Bearer Security . . . . . . . . . . . . . . . . . . . . . . . . . 3
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 3
Board Resolution. . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CEDEL S.A.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request; Company Order. . . . . . . . . . . . . . . . . . 3
Consolidated Net Tangible Assets. . . . . . . . . . . . . . . . . 3
Corporate Trust Office. . . . . . . . . . . . . . . . . . . . . . 4
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Coupon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . 4
Depositary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dollars or $. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Euro-clear. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . 4
Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Global Exchange Agent . . . . . . . . . . . . . . . . . . . . . . 4
Global Exchange Date. . . . . . . . . . . . . . . . . . . . . . . 4
Global Security . . . . . . . . . . . . . . . . . . . . . . . . . 4
Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . 5
Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . 5
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . 5
Original Issue Discount Security. . . . . . . . . . . . . . . . . 5
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ii
<PAGE>
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Place of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 6
Predecessor Security. . . . . . . . . . . . . . . . . . . . . . . 6
Principal Property. . . . . . . . . . . . . . . . . . . . . . . . 7
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . 7
Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . 7
Registered Security . . . . . . . . . . . . . . . . . . . . . . . 7
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . 7
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . 7
Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . 7
Secured Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Security or Securities. . . . . . . . . . . . . . . . . . . . . . 8
Security Register; Security Registrar . . . . . . . . . . . . . . 8
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . 8
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 8
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 8
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
United States . . . . . . . . . . . . . . . . . . . . . . . . . . 9
United States Alien . . . . . . . . . . . . . . . . . . . . . . . 9
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . 9
Vice President. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 102. Compliance Certificates and Opinions. . . . . . . . . . 9
Section 103. Form of Documents Delivered to Trustee. . . . . . . . . 10
Section 104. Acts of Holders . . . . . . . . . . . . . . . . . . . . 10
Section 105. Notices, etc. to Trustee and Company. . . . . . . . . . 12
Section 106. Notice to Holders of Securities; Waiver . . . . . . . . 12
Section 107. Language of Notices, etc. . . . . . . . . . . . . . . . 13
Section 108. Conflict with Trust Indenture Act . . . . . . . . . . . 14
Section 109. Effect of Headings and Table of Contents . . . . . . . 14
Section 110. Successors and Assigns. . . . . . . . . . . . . . . . . 14
Section 111. Separability Clause . . . . . . . . . . . . . . . . . . 14
Section 112. Benefits of Indenture . . . . . . . . . . . . . . . . . 14
Section 113. Governing Law . . . . . . . . . . . . . . . . . . . . . 14
Section 114. Legal Holidays. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally . . . . . . . . . . . . . . . . . . . . 15
Section 202. Form of Trustee's Certificate of
Authentication. . . . . . . . . . . . . . . . . . . . . 15
Section 203. Securities in Global Form . . . . . . . . . . . . . . . 15
ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series. . . . . . . . . . 16
Section 302. Denominations . . . . . . . . . . . . . . . . . . . . . 19
Section 303. Execution, Authentication, Delivery and Dating. . . . . 19
iii
<PAGE>
Section 304. Temporary Securities. . . . . . . . . . . . . . . . . . 21
Section 305. Registration, Transfer and Exchange . . . . . . . . . . 24
Section 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . 28
Section 307. Payment of Interest; Interest Rights Preserved. . . . . 29
Section 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . 31
Section 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . 31
Section 310. Computation of Interest . . . . . . . . . . . . . . . . 31
Section 311. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture . . . . . . . . 32
Section 402. Application of Trust Money. . . . . . . . . . . . . . . 33
Section 403. Satisfaction, Discharge and Defeasance
of Securities of Any Series . . . . . . . . . . . . . 33
ARTICLE FIVE
REMEDIES
Section 501. Events of Default . . . . . . . . . . . . . . . . . . . 35
Section 502. Acceleration of Maturity; Rescission and Annulment. . . 36
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . . . 37
Section 504. Trustee May File Proofs of Claim. . . . . . . . . . . . 38
Section 505. Trustee May Enforce Claims Without Possession of
Securities or Coupons . . . . . . . . . . . . . . . . . 39
Section 506. Application of Money Collected. . . . . . . . . . . . . 39
Section 507. Limitations on Suits. . . . . . . . . . . . . . . . . . 40
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest. . . . . . . . . . . . . . . . . 40
Section 509. Restoration of Rights and Remedies. . . . . . . . . . . 40
Section 510. Rights and Remedies Cumulative. . . . . . . . . . . . . 41
Section 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . 41
Section 512. Control by Holders of Securities. . . . . . . . . . . . 41
Section 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . 41
Section 514. Undertaking for Costs . . . . . . . . . . . . . . . . . 42
Section 515. Waiver of Stay or Extension Laws. . . . . . . . . . . . 42
ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities . . . . . . . . . . 43
Section 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . 44
Section 603. Certain Rights of Trustee . . . . . . . . . . . . . . . 44
Section 604. Not Responsible for Recitals or Issuance of
Securities. . . . . . . . . . . . . . . . . . . . . . 45
Section 605. May Hold Securities . . . . . . . . . . . . . . . . . . 45
Section 606. Money Held in Trust . . . . . . . . . . . . . . . . . . 46
Section 607. Compensation and Reimbursement. . . . . . . . . . . . . 46
iv
<PAGE>
Section 608. Disqualifications; Conflicting Interests. . . . . . . . 47
(a) Elimination of Conflicting
Interest or Resignation. . . . . . . . . . . . . . 47
(b) Notice of Failure to Eliminate
Conflicting Interest or Resign . . . . . . . . . . 47
(c) "Conflicting Interest" Defined . . . . . . . . . . 47
(d) Definitions of Certain Terms
Used in This Section . . . . . . . . . . . . . . . 50
(e) Calculation of Percentages
of Securities. . . . . . . . . . . . . . . . . . . 50
Section 609. Corporate Trustee Required;
Eligibility. . . . . . . . . . . . . . . . . . . . 52
Section 610. Resignation and Removal;
Appointment of Successor . . . . . . . . . . . . . 52
Section 611. Acceptance of Appointment by
Successor. . . . . . . . . . . . . . . . . . . . . 53
Section 612. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . . . . . . . . 55
Section 613. Preferential Collection of Claims
Against Company. . . . . . . . . . . . . . . . . . 55
(a) Segregation and Apportionment
of Certain Collections by Trustee;
Certain Exceptions . . . . . . . . . . . . . . . . 55
(b) Certain Creditor Relationships
Excluded From Segregation
and Apportionment. . . . . . . . . . . . . . . . . 57
(c) Definitions of Certain Terms
Used in this Section . . . . . . . . . . . . . . . 58
Section 614. Appointment of Authenticating Agent . . . . . . . . . . 59
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names
and Addresses of Holders . . . . . . . . . . . . . 60
Section 702. Preservation of Information;
Communications to Holders. . . . . . . . . . . . . 61
Section 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . 62
Section 704. Reports by Company. . . . . . . . . . . . . . . . . . . 64
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
Section 801. Consolidations and Mergers of Company
and Sales, Leases and Conveyances
Permitted Subject to Certain
Conditions . . . . . . . . . . . . . . . . . . . . 64
Section 802. Rights and Duties of Successor
Corporation. . . . . . . . . . . . . . . . . . . . 65
Section 803. Officers' Certificate and
Opinion of Counsel . . . . . . . . . . . . . . . . 65
v
<PAGE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures without
Consent of Holders . . . . . . . . . . . . . . . . 65
Section 902. Supplemental Indentures with
Consent of Holders . . . . . . . . . . . . . . . . 66
Section 903. Execution of Supplemental Indentures. . . . . . . . . . 67
Section 904. Effect of Supplemental Indentures . . . . . . . . . . . 68
Section 905. Conformity with Trust Indenture Act . . . . . . . . . . 68
Section 906. Reference in Securities to
Supplemental Indentures. . . . . . . . . . . . . . 68
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium,
if any, and Interest . . . . . . . . . . . . . . . 68
Section 1002. Maintenance of Office or Agency . . . . . . . . . . . . 69
Section 1003. Money for Securities Payments to be
Held in Trust. . . . . . . . . . . . . . . . . . . 70
Section 1004. Additional Amounts. . . . . . . . . . . . . . . . . . . 71
Section 1005. Statement as to Compliance;
Notice of Certain Defaults . . . . . . . . . . . . 72
Section 1006. Limitation on Liens . . . . . . . . . . . . . . . . . . 73
Section 1007. Limitation on Sale and Lease-Back
Transactions . . . . . . . . . . . . . . . . . . . 75
Section 1008. Waiver of Certain Covenants . . . . . . . . . . . . . . 76
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article. . . . . . . . . . . . . . . . 76
Section 1102. Election to Redeem; Notice to Trustee . . . . . . . . . 76
Section 1103. Selection by Trustee of
Securities to be Redeemed. . . . . . . . . . . . . 76
Section 1104. Notice of Redemption. . . . . . . . . . . . . . . . . . 77
Section 1105. Deposit of Redemption Price . . . . . . . . . . . . . . 78
Section 1106. Securities Payable on Redemption Date . . . . . . . . . 78
Section 1107. Securities Redeemed in Part . . . . . . . . . . . . . . 79
ARTICLE TWELVE
SINKING FUNDS
Section 1201. Applicability of Article. . . . . . . . . . . . . . . . 79
Section 1202. Satisfaction of Sinking Fund Payments
with Securities. . . . . . . . . . . . . . . . . . 80
Section 1203. Redemption of Securities for Sinking Fund . . . . . . . 80
vi
<PAGE>
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
Section 1301. Applicability of Article. . . . . . . . . . . . . . . . 81
ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF SECURITIES
Section 1401. Purposes for Which Meetings
May be Called. . . . . . . . . . . . . . . . . . . 81
Section 1402. Call, Notice and Place of Meetings. . . . . . . . . . . 81
Section 1403. Persons Entitled to Vote at Meetings. . . . . . . . . . 82
Section 1404. Quorum; Action. . . . . . . . . . . . . . . . . . . . . 82
Section 1405. Determination of Voting Rights;
Conduct and Adjournment of Meetings. . . . . . . . 83
Section 1406. Counting Votes and Recording Action of Meetings . . . . 84
ARTICLE FIFTEEN
MISCELLANEOUS PROVISIONS
Section 1501. Securities in Foreign Currencies. . . . . . . . . . . . 84
Testimonium . . . . . . . . . . . . . . . . . . . . . . 85
Signatures and Seals. . . . . . . . . . . . . . . . . . 85
Acknowledgments . . . . . . . . . . . . . . . . . . . . 86
Exhibit A Form of Certificate to Be Given by Person Entitled to
Receive Bearer Security . . . . . . . . . . . . . . . . A-1
Exhibit B Form of Certificate to Be Given by Euro-clear and
CEDEL S.A. in Connection with the Exchange of a
Portion of a Temporary Global Security. . . . . . . . . B-1
Exhibit C Form of Certificate to Be Given by Euro-clear and
CEDEL S.A. to Obtain Interest Prior to a Global
Exchange Date . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D Form of Certificate to Be Given by Beneficial
Owners to Obtain Interest Prior to a Global
Exchange Date . . . . . . . . . . . . . . . . . . . . . D-1
vii
<PAGE>
INDENTURE, dated as of March 1, 1991, between NATIONAL MEDICAL ENTERPRISES,
INC., a Nevada corporation (hereinafter called the "Company"), having its
principal office at 2700 Colorado Avenue, Santa Monica, California 90404 and THE
BANK OF NEW YORK, a New York banking corporation, as Trustee (hereinafter called
the "Trustee") having its Corporate Trust Office at 101 Barclay Street, New
York, New York 10286.
Recitals of The Company
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured and
unsubordinated debentures, notes or other evidences of senior indebtedness
(hereinafter called the "Securities"), unlimited as to principal amount, to bear
such rates of interest, to mature at such time or times, to be issued in one or
more series and to have such other provisions as shall be fixed as hereinafter
provided.
NOW, THEREFORE, in consideration of the premises and the sum of one dollar
duly paid by the Company to the Trustee, the receipt of which is hereby
acknowledged, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders (as defined in Article One below), as
follows:
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of a series thereof,
as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
1
<PAGE>
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"ACT" when used with respect to any Holder has the meaning specified in
Section 104.
"ADDITIONAL AMOUNTS" means any additional amounts which are required by a
Security or by or pursuant to a Board Resolution, under circumstances specified
therein, to be paid by the Company in respect to certain taxes imposed on
certain Holders and which are owing to such Holders.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"ATTRIBUTABLE DEBT" means at any date as of which the amount thereof is to
be determined (a) as to any capitalized lease obligations, the indebtedness
carried on the balance sheet in accordance with generally accepted accounting
principles in the United States and (b) as to any operating leases, the total
net amount of rent required to be paid under such leases during the remaining
term thereof, discounted on a monthly basis from the respective due dates
thereof to such date at the rate of 10% per annum. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of the rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of maintenance and
repairs, insurance, taxes, assessments, water rates and similar charges. In
the case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated. This term does not include
any obligation to make payments arising from the transfer of tax benefits under
the United States Economic Recovery Tax Act of 1981 to the extent such
obligation is conditioned upon receipt of payments from another Person.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"AUTHORIZED NEWSPAPER" means a newspaper, in an official language of the
country of publication or in the English language, customarily published on each
Business Day, whether or not published on Saturdays, Sundays or holidays, and of
general circulation in the place in connection with which the term is used or in
the financial community of such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in
2
<PAGE>
different newspapers in the same city meeting the foregoing requirements and in
each case on any Business Day.
"BEARER SECURITY" means any Security in the form established pursuant to
Section 201 which is payable to bearer.
"BOARD OF DIRECTORS" means either the Board of Directors of the Company or
the Executive Committee thereof.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY" with respect to any Place of Payment means each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in that Place of Payment are authorized or obligated by law to
close, except as may otherwise be provided in the form of Securities of any
particular series pursuant to the provisions of this Indenture.
"CEDEL S.A." means Centrale de Livraison de Valeurs Mobilieres S.A.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act,
then the body performing such duties on such date.
"COMPANY" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a written request
or order signed in the name of the Company by the Chairman of the Board, the
President, a Vice President or the Treasurer, and the Secretary, an Assistant
Secretary or an Assistant Treasurer, of the Company, and delivered to the
Trustee.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (a) all current liabilities as disclosed on the most recent
consolidated balance sheet of the Company (excluding any thereof which are by
their terms extendable or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is being
computed and further excluding any deferred income taxes that are included in
current liabilities) and (b) all goodwill, trade names, trademarks, patents and
other like intangible assets, all as set forth on the most recent consolidated
balance sheet of the Company and computed in accordance with generally accepted
accounting principles.
3
<PAGE>
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered.
"CORPORATION" includes corporations, associations, companies and business
trusts.
"COUPON" means any interest coupon appertaining to a Bearer Security.
"DEBT" means notes, bonds, debentures or similar evidences of indebtedness.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DEPOSITARY" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depositary by the Company pursuant to Section 301 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter "Depositary" shall mean or include
each Person who is then a Depositary hereunder, and if at any time there is more
than one such Person, "Depositary" as used with respect to the Securities of any
such series shall mean the Depositary with respect to the Securities of that
series.
"DOLLARS" or "$" or any similar reference shall mean the currency of the
United States, except as may otherwise be provided in the form of Securities of
any particular series pursuant to the provisions of this Indenture.
"EURO-CLEAR" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euro-clear System.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"FUNDED DEBT" means indebtedness ranking senior to or pari passu with the
Securities, including (a) commercial paper, short-term promissory notes or bank
borrowings classified as long-term debt in accordance with generally accepted
accounting principles and (b) the Securities.
"GLOBAL EXCHANGE AGENT" has the meaning specified in Section 304(b)(3).
"GLOBAL EXCHANGE DATE" has the meaning specified in Section 304(b)(3).
"GLOBAL SECURITY" means a Registered or Bearer Security evidencing all or
part of a series of Securities, issued to the Depositary for such series in
accordance with Section 303, and bearing the legend prescribed in Section
303(c).
"HOLDER", when used with respect to any Security, means in the case of a
Registered Security, the Person in whose name the Security is registered in the
Security Register and in the case of a Bearer Security, the bearer thereof and,
when used with respect to any coupon, means the bearer thereof.
4
<PAGE>
"INDENTURE" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof, and shall include each
Officers' Certificate delivered to the Trustee pursuant to Section 303.
"INTEREST", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity, and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 1004, includes such Additional
Amounts.
"INTEREST PAYMENT DATE" means the Stated Maturity of an instalment of
interest on the applicable Securities.
"MATURITY" when used with respect to any Security means the date on which
the principal of such Security or an instalment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption, request for redemption or
otherwise.
"MORTGAGES" means mortgages, liens, pledges or other encumbrances.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, the President, a Vice President or the Treasurer, and the Secretary, an
Assistant Secretary or an Assistant Treasurer, of the Company, and delivered to
the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may (except as
otherwise expressly provided in this Indenture) be an employee of or counsel
for the Company, or other counsel acceptable to the Trustee.
"ORIGINAL ISSUE DISCOUNT SECURITY" means a Security issued pursuant to this
Indenture which provides for declaration of an amount less than the principal
thereof to be due and payable upon acceleration pursuant to Section 502.
"OUTSTANDING" when used with respect to Securities means, as of the date of
determination, all Securities theretofore authenticated and delivered under this
Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Securities for which payment or redemption money or U.S.
Government Obligations as provided in Section 403 in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent (other
than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders
of such Securities and any coupons thereto appertaining, PROVIDED that, if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
5
<PAGE>
(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders of Securities for quorum purposes, the principal amount of
an Original Issue Discount Security that may be counted in making such
determination and that shall be deemed to be Outstanding for such purposes shall
be equal to the amount of the principal thereof that could be declared to be due
and payable pursuant to the terms of such Original Issue Discount Security at
the time the taking of such action by the Holders of such requisite principal
amount is evidenced to the Trustee as provided in Section 104(a), and, PROVIDED
FURTHER, that Securities owned beneficially by the Company or any other obligor
upon the Securities or any Affiliate of the Company or such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLACE OF PAYMENT" when used with respect to the Securities of any series,
means the place or places where the principal of (and premium, if any) and
interest on the Securities of that series are payable as specified as provided
pursuant to Section 301.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
lost, destroyed, mutilated or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the lost, destroyed, mutilated or stolen Security or
the Security to which a mutilated, destroyed, lost or stolen coupon appertains.
6
<PAGE>
"PRINCIPAL PROPERTY" means any acute care, psychiatric or rehabilitation
hospital or long-term care facility and related equipment owned or leased by,
and related to the general business of, the Company or any Restricted
Subsidiary, and located in the United States having a net book value (after
deductions of any applicable depreciation and amortization reserves) on the date
as of which the determination is being made of more than 1.0% of Consolidated
Net Tangible Assets as of such date, except a facility, and related equipment,
which, in the opinion of the Board of Directors, is not of material importance
to a line of business of the Company and its Restricted Subsidiaries (as
reflected in the Company's most recent annual report under the Securities
Exchange Act of 1934 as of the time of any determination) in which such property
or equipment is used.
"REDEMPTION DATE" when used with respect to any Security to be redeemed
means the date fixed for such redemption by or pursuant to this Indenture.
"REDEMPTION PRICE" when used with respect to any Security to be redeemed
means the price at which it is to be redeemed as determined pursuant to the
provisions of this Indenture.
"REGISTERED SECURITY" means any Security established pursuant to
Section 201 which is registered in the Security Register.
"REGULAR RECORD DATE" for the interest payable on a Registered Security on
any Interest Payment Date means the date, if any, specified as contemplated by
Section 301 as the "Regular Record Date".
"RESPONSIBLE OFFICER" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president (whether or not designated by a number or a word
or words added before or after the title "vice president"), the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"RESTRICTED SUBSIDIARY" means any Subsidiary organized and existing under
the laws of one of the States of the United States of America (or the District
of Columbia) and the greater portion of the business of which is transacted
within the United States of America (other than its territories or possessions),
which shall at the time, directly or indirectly through one or more Subsidiaries
or in combination with one or more other Subsidiaries, own or lease a Principal
Property. A Subsidiary shall be considered not to be a Restricted Subsidiary if
(a) it is acquired or organized after the date hereof, provided, however, that
it is not a successor directly or indirectly, to any Restricted Subsidiary;
(b) it is primarily engaged in the business of finance, banking, credit,
leasing, insurance, financial services or other similar operation, or any
combination thereof; (c) it is principally engaged in leasing or in financing
installment receivables or it is principally engaged in financing
7
<PAGE>
the Company's operations outside the continental United States of America;
(d) substantially all the assets of it consist of the capital stock or debt
capital of one or more of the Subsidiaries of the Company engaged in the
operations described in the preceding clauses (b) or (c) or any combination
thereof; or (e) a majority of the voting stock of it shall at the time be owned
directly or indirectly by one or more Subsidiaries not Restricted Subsidiaries;
unless and until any such Subsidiary considered not to be a Restricted
Subsidiary shall have been designated by the Company (by certified resolution of
the Board of Directors delivered to the Trustee) to be a Restricted Subsidiary.
"SECURED DEBT" shall mean Debt of the Company or a Restricted Subsidiary
(other than Debt owed by a Restricted Subsidiary to the Company, by a Restricted
Subsidiary to another Restricted Subsidiary or by the Company to a Restricted
Subsidiary), which in any such case is secured by a Mortgage on any Principal
Property of the Company or a Restricted Subsidiary.
"SECURITY" or "SECURITIES" means any Security or Securities, as the case
may be, authenticated and delivered under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings
specified in Section 305.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Registered Securities of any series means a date fixed by the Trustee pursuant
to Section 307.
"STATED MATURITY" when used with respect to any Security or any installment
of principal thereof or interest thereon means the date specified in such
Security or a coupon representing such installment of interest as the fixed date
on which the principal of such Security or such instalment of principal or
interest is due and payable.
"SUBSIDIARY" means any corporation of which at the time of determination
the Company and/or one or more Subsidiaries owns or controls directly or
indirectly more than 50% of the shares of Voting Stock. "Wholly-owned", when
used with reference to a Subsidiary, means a Subsidiary of which all of the
outstanding capital stock (except for qualifying shares) is owned by the Company
or by one or more wholly-owned Subsidiaries.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in
Section 905.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such with respect to
one or more series of Securities pursuant to the applicable provisions of this
Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee
hereunder, and if at any time there is more than one such Person, "Trustee" as
used with respect to the Securities of any series shall mean the Trustee with
respect to the Securities of that series.
8
<PAGE>
"UNITED STATES" means the United States of America (including States and
the District of Columbia), its territories and possessions and other areas
subject to its jurisdiction.
"UNITED STATES ALIEN" means any Person who, for United States Federal
income tax purposes, is a foreign corporation, a non-resident alien individual,
a non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, for United Stated Federal
income tax purposes, a foreign corporation, non-resident alien individual or a
non-resident alien fiduciary of a foreign estate or trust.
"U.S. GOVERNMENT OBLIGATIONS" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of interest on or principal of
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt; PROVIDED that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by such
depository receipt.
"VICE PRESIDENT" when used with respect to the Company shall mean any Vice
President of the Company whether or not designated by a number or a word or
words added before or after the title "Vice President."
"VOTING STOCK" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such corporation provided that, for the
purposes hereof, stock which carries only the right to vote conditionally on the
happening of an event shall not be considered voting stock whether or not such
event shall have happened.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
9
<PAGE>
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing.
If, but only if, Securities of a
10
<PAGE>
series are issuable as Bearer Securities, any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of Securities of such series may, alternatively, be
embodied in and evidenced by the record of Holders of Securities of such series
voting in favor thereof, either in person or by proxies duly appointed in
writing, at any meeting of Holders of Securities of such series duly called and
held in accordance with the provisions of Article Fourteen, or a combination of
such instruments and any such record. Except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments and any such record
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments
and so voting at any such meeting. Proof of execution of any such instrument or
of a writing appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company and any agent of
the Trustee or the Company, if made in the manner provided in this Section. The
record of any meeting of Holders of Securities shall be proved in the manner
provided in Section 1406.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner which the Trustee
deems sufficient and in accordance with such reasonable rules as the Trustee may
determine; and the Trustee may in any instance require further proof with
respect to any of the matters referred to in this Section.
(c) The ownership of Registered Securities and the principal amount and
serial numbers of Registered Securities held by any Person, and the date of
holding the same, shall be proved by the Security Register.
(d) The principal amount and serial numbers of Bearer Securities held by
any Person, and the date of holding the same, may be proved by the production of
such Bearer Securities or by a certificate executed, as depositary, by any trust
company, bank, banker or other depositary reasonably acceptable to the Company,
wherever situated, if such certificate shall be deemed by the Trustee to be
satisfactory, showing that at the date therein mentioned such Person had on
deposit with such depositary, or exhibited to it, the Bearer Securities therein
described; or such facts may be proved by the certificate or affidavit of the
Person holding such Bearer Securities, if such certificate or affidavit is
deemed by the Trustee to be satisfactory. The Trustee and the Company may
assume that such ownership of any Bearer Security continues until (1) another
certificate or affidavit bearing a later date issued in respect of the same
Bearer Security is produced, or (2) such Bearer Security is produced to the
Trustee by some other Person, or (3) such Bearer Security is surrendered in
exchange for a Registered Security, or (4) such Bearer Security is no longer
Outstanding. The principal amount and serial numbers of Bearer Securities held
by the Person so executing such instrument or writing and the date of holding
the same may also be proved in any other manner which the Trustee deems
sufficient.
11
<PAGE>
(e) If the Company shall solicit from the Holders of any Registered
Securities, any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by Board Resolution, fix in
advance a record date for the determination of Holders of Registered Securities
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
If such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other Act may be given before or after such record
date, but only the Holders of Registered Securities of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders of
Registered Securities on such record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not later
than six months after the record date.
(f) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee, Security Registrar, any
Paying Agent or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
SECTION 105. NOTICES ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to the attention of its Treasurer at the address of its principal
office specified in the first paragraph of this instrument or at any other
address previously furnished in writing to the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein or in the form of Securities
of any particular series pursuant to the provisions of this Indenture, where
this Indenture provides for notice to Holders of Securities of any event,
12
<PAGE>
(1) such notice shall be sufficiently given to Holders of Registered
Securities if in writing and mailed, first-class postage prepaid, to each
Holder of a Registered Security affected by such event, at his address as
it appears in the Security Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such
Notice; and
(2) such notice shall be sufficiently given to Holders of Bearer
Securities, if any, if published in an Authorized Newspaper in The City of
New York and, if the Securities of such series are then listed on any stock
exchange outside the United States, in an Authorized Newspaper in such city
as the Company shall advise the Trustee that such stock exchange so
requires, on a Business Day at least twice, the first such publication to
be not earlier than the earliest date and not later than the latest date
prescribed for the giving of such notice.
In any case where notice to Holders of Registered Securities is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Registered Security shall affect the
sufficiency of such notice with respect to other Holders of Registered
Securities or the sufficiency of any notice to Holders of Bearer Securities
given as provided herein. In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to give such
notice by mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
In case by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of any notice mailed to
Holders of Registered Securities as provided above.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. LANGUAGE OF NOTICES, ETC.
Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language, except that, if the Company so elects, any published notice may be in
an official language of the country of publication.
13
<PAGE>
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provisions shall
control.
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 110. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 111. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities or coupons
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 112. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities or coupons, express or
implied, shall give to any Person, other than the parties hereto, any Security
Registrar, any Paying Agent and their successors hereunder and the Holders of
Securities or coupons, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 113. GOVERNING LAW.
This Indenture and the Securities and coupons shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 114. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or the Securities or
coupons other than a provision in the Securities which specifically states that
such provision shall apply in lieu of this Section) payment of interest or any
Additional Amounts or principal (and premium, if any) need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity, and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
14
<PAGE>
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Registered Securities, if any, of each series and the Bearer
Securities, if any, of each series, related coupons, if any, and temporary
Global Securities, if any, shall be in the form established by or pursuant to a
Board Resolution or in one or more indentures supplemental hereto, shall have
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto and
may have such letters, numbers or other marks of identification and such legends
or endorsements placed thereon as may, consistently herewith, be determined by
the officers executing such Securities, as evidenced by their execution of such
Securities, and shall be satisfactory to the Trustee.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, the Securities of each series shall be issuable in
registered form without coupons. If so provided as contemplated by Section 301,
the Securities of a series also shall be issuable in bearer form, with or
without interest coupons attached.
The definitive Securities and coupons shall be printed, lithographed or
engraved or produced by any combination of these methods on a steel engraved
border or steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities or coupons.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
By: _____________________________
Authorized Signatory
SECTION 203. SECURITIES IN GLOBAL FORM.
If Securities of a series are issuable in whole or in part in global form,
as specified as contemplated by Section 301, then, notwithstanding clause (10)
of Section 301 and the provisions of Section 302, such Global Security shall
represent such of the Outstanding Securities of such series as shall be
specified therein and may provide that the aggregate amount of
15
<PAGE>
Outstanding Securities represented thereby may from time to time be changed to
reflect exchanges. Any endorsement of a Global Security to reflect the amount,
or any increase or decrease in the amount or changes in the rights of Holders of
Outstanding Securities represented thereby shall be made in such manner and upon
instructions given by such Person or Persons as shall be specified therein or in
the Company Order to be delivered to the Trustee pursuant to Section 303 or
Section 304.
The provisions of the last sentence of Section 303(h) shall apply to any
Securities represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303(h).
Global Securities may be issued in either registered or bearer form and in
either temporary or permanent form.
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto:
(1) the title of the Securities and the series in which such
Securities shall be included;
(2) any limit upon the aggregate principal amount of the Securities
of such title or the Securities of such series which may be authenticated
and delivered under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the series pursuant to Section 304, 305, 306, 906,
or 1107);
(3) whether Securities of the series are to be issuable as Registered
Securities, Bearer Securities (with or without coupons) or both, any
restrictions applicable to the offer, sale or delivery of Bearer Securities
and the terms upon which Bearer Securities of the series may be exchanged
for Registered Securities of the series and vice versa;
(4) the date as of which any Bearer Securities of the series and any
temporary Global Security representing Outstanding Securities
16
<PAGE>
of the series shall be dated if other than the date of original issuance of
the first Security of the series to be issued;
(5) the date or dates on which the principal of such Securities is
payable or the method of determination thereof;
(6) the rate or rates at which such Securities shall bear interest,
if any, or any method by which such rate or rates shall be determined, the
date or dates from which such interest shall accrue, the Interest Payment
Dates on which such interest shall be payable and the Regular Record Date
for the interest payable on Registered Securities on any Interest Payment
Date, whether and under what circumstances Additional Amounts on such
securities shall be payable in respect of specified taxes, assessments or
other governmental charges withheld or deducted and, if so, whether the
Company has the option to redeem the affected Securities rather than pay
such Additional Amounts, and the basis upon which interest shall be
calculated if other than that of a 360 day year of twelve 30 day months;
(7) the place or places, if any, in addition to or other than the
Borough of Manhattan, The City of New York, where the principal of (and
premium, if any) and interest on or Additional Amounts, if any, payable in
respect of such Securities shall be payable;
(8) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Securities may be redeemed, in
whole or in part, at the option of the Company;
(9) the obligation, if any, of the Company to redeem or purchase such
Securities pursuant to any sinking fund or analogous provisions or at the
option of a Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which such
Securities shall be redeemed or purchased, in whole or in part, pursuant to
such obligation, and any provisions for the remarketing of such Securities;
(10) the denominations in which Registered Securities of the series,
if any, shall be issuable if other than denominations of $1,000 and any
integral multiple thereof, and the denominations in which Bearer Securities
of the series, if any, shall be issuable if other than the denomination of
$5,000;
(11) if other than the principal amount thereof, the portion of the
principal amount of such Securities which shall be payable upon declaration
of acceleration of the Maturity thereof pursuant to Section 502;
(12) if other than such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public or
private debts, the coin or currency, including composite currencies, in
which payment of the principal of (and premium, if any) and interest, if
any, on, and Additional Amounts in respect of such Securities shall be
payable;
17
<PAGE>
(13) if the principal of (and premium, if any) or interest, if any,
on, and Additional Amounts in respect of, such Securities are to be
payable, at the election of the Company or a Holder thereof, in a coin or
currency, including composite currencies, other than that in which the
Securities are stated to be payable, the period or periods within which,
and the terms and conditions upon which, such election may be made;
(14) if the amount of payments of principal of (and premium, if any)
or interest, if any, on, and Additional Amounts in respect of, such
Securities may be determined with reference to an index, formula or other
method or based on a coin or currency other than that in which the
Securities are stated to be payable, the manner in which such amounts shall
be determined;
(15) if the Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and terms of
such certificates, documents or conditions; and
(16) whether the Securities of such series shall be issued in whole or
in part in the form of one or more Global Securities and, in such case, the
Depositary and Global Exchange Agent, if any, for such Global Security or
Securities; and whether such global form shall be permanent or temporary
and, if applicable, the Global Exchange Date;
(17) if Securities of such series are to be issuable initially in the
form of a temporary Global Security, the circumstances under which the
temporary Global Security can be exchanged for definitive Securities, the
Global Exchange Agent, if any, for such Global Security and whether the
definitive Securities of such series will be Registered and/or Bearer
Securities and will be in global form and whether interest in respect of
any portion of such Global Security payable in respect of an Interest
Payment Date prior to the Global Exchange Date shall be paid to any
clearing organization with respect to a portion of such Global Security
held for its account and, in such event, the terms and conditions
(including any certification requirements) upon which any such interest
payment received by a clearing organization will be credited to the Persons
entitled to interest payable on such Interest Payment Date if other than as
provided in this Article;
(18) any other terms of such Securities (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and the coupons appertaining to Bearer
Securities of such series, if any, shall be substantially identical except as to
denomination and the rate or rates of interest, if any, and Stated Maturity, the
date from which interest, if any, shall accrue and except as may otherwise be
provided in or pursuant to such Board Resolution and set forth in such Officers'
Certificate or in any such indenture supplemental hereto. All Securities of any
one series need not be issued
18
<PAGE>
at the same time, and unless otherwise provided, a series may be reopened for
issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of such series.
SECTION 302. DENOMINATIONS.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, the Registered Securities of each series, if any,
shall be issuable in registered form without coupons in denominations of $1,000
and any integral multiple thereof and the Bearer Securities of each series, if
any, shall be issuable in the denomination of $5,000, or in such other
denominations and amounts as may from time to time be fixed by or pursuant to a
Board Resolution.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) The Securities shall be executed on behalf of the Company by its
Chairman of the Board, President, Vice President serving as Chief Financial
Officer or its Treasurer under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile. Coupons
shall bear the facsimile signature of the Treasurer or any Assistant Treasurer
of the Company.
Securities and coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
(b) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series, together with
any coupons appertaining thereto, executed by the Company to the Trustee for
authentication, together with the Board Resolution and Officers' Certificate or
supplemental indenture with respect to such Securities referred to in Section
301 and a Company Order for the authentication and delivery of such Securities,
and the Trustee in accordance with the Company Order and subject to the
provisions hereof shall authenticate and make available for delivery such
Securities; PROVIDED, HOWEVER, in connection with its original issuance, a
Bearer Security may be delivered only outside the United States and if the
Company or its agent shall have received from the person entitled to delivery of
such Bearer Security a certificate substantially in the form set forth in
Exhibit A hereto. In authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
19
<PAGE>
(i) the form and terms of such Securities and coupons, if any,
have been established in conformity with the provisions of this Indenture;
(ii) that all conditions precedent to the authentication and
delivery of such Securities, together with the coupons, if any,
appertaining thereto, have been complied with and that such Securities and
coupons, when authenticated and made available for delivery by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting the enforcement of
creditors' rights and to general equity principles;
(iii) that all laws and requirements in respect of the execution
and delivery by the Company of such Securities and coupons, if any, have
been complied with; and
(iv) as to such other matters as the Trustee may reasonably
request.
(c) If the Company shall establish pursuant to Section 301 that the
Securities of a series are to be issued in whole or in part in the form of one
or more Global Securities, then the Company shall execute and the Trustee shall,
in accordance with this Section and the Company Order with respect to such
series of Securities, authenticate and make available for delivery one or more
Global Securities in temporary or permanent form that (i) shall represent and
shall be denominated in an amount equal to the aggregate principal amount of the
Outstanding Securities of such series to be represented by one or more Global
Securities, (ii) shall be registered, if in registered form, in the name of the
Depositary for such Global Security or Securities or the nominee of such
Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instruction and (iv) shall bear a legend
substantially to the following effect: "Unless and until it is exchanged in
whole or in part for Securities in definitive form, this Security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary."
(d) Each Depositary designated pursuant to Section 301 for a Global
Security in registered form must, at the time of its designation and all times
while it serves as a Depositary, be a clearing agency registered under the
Securities Exchange Act of 1934, as amended and any other applicable statute or
regulation or be a Depositary which is a common depositary for Euro-clear and
CEDEL S.A.
(e) The Trustee shall not be required to authenticate such Securities if
the issue of such Securities pursuant to this Indenture will affect the
Trustee's own rights, duties or immunities under the Securities or this
Indenture or otherwise in a manner which is not reasonably
20
<PAGE>
acceptable to the Trustee or if the Trustee being advised by counsel determines
that such action may not lawfully be taken.
(f) If all the Securities of any series are not to be issued at one time,
it shall not be necessary to deliver an Opinion of Counsel at the time of
issuance of each Security, but such Opinion of Counsel, with appropriate
modifications, may instead be delivered at or prior to the time of the first
issuance of Securities of such series.
(g) Each Registered Security shall be dated the date of its
authentication. Each Bearer Security and any temporary Bearer Security in
global form shall be dated as of the date specified as contemplated by
Section 301.
(h) No Security or coupon appertaining thereto shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose, unless
there appears on such Security a certificate of authentication substantially in
the form provided for in Section 202 or 614 executed by or on behalf of the
Trustee by the manual signature of one of its authorized signers, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder. Except as permitted by Section 306 or 307, the Trustee shall not
authenticate and make available for delivery any Bearer Security unless all
appurtenant coupons for interest then matured have been detached and cancelled.
Notwithstanding the foregoing, if any Security or portion thereof shall have
been duly authenticated and made available for delivery hereunder but never
issued and sold by the Company, and the Company shall deliver such Security to
the Trustee for cancellation as provided in Section 309 together with a written
statement (which need not comply with Section 102 and need not be accompanied by
an Opinion of Counsel) stating that such Security or portion thereof has never
been issued and sold by the Company, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and made available for
delivery hereunder and shall never be entitled to the benefits of this
Indenture.
SECTION 304. TEMPORARY SECURITIES.
(a) Pending the preparation of a permanent Global Security or definitive
Securities of any series, the Company may execute and deliver to the Trustee,
and upon Company Order the Trustee shall authenticate and make available for
delivery, in the manner provided in Section 303, temporary Securities of such
series which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued, in registered form, or,
if authorized, in bearer form with one or more coupons or without coupons, and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as evidenced by their
execution of such Securities. In the case of Bearer Securities of any series,
such temporary Securities may be in global form, representing all of the
Outstanding Bearer Securities of such series.
(b) Under otherwise provided pursuant to Section 301:
21
<PAGE>
(i) Except in the case of temporary Securities in global form,
which shall be exchanged in accordance with the provisions thereof, if
temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable
delay. After the preparation of definitive Securities, the temporary
Securities of such series shall be exchangeable for definitive Securities
of such series containing identical terms and provisions upon surrender of
the temporary Securities of such series at an office or agency of the
Company maintained for such purpose pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series (accompanied by any unmatured coupons
appertaining thereto) the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Securities of authorized denominations of
the same series containing identical terms and provisions; PROVIDED,
HOWEVER, that no definitive Bearer Security shall be delivered in exchange
for a temporary Registered Security; and PROVIDED, FURTHER, that (A) no
definitive Bearer Security shall be delivered in exchange for a temporary
Security unless the Company or its agent shall have received from the
person entitled to receive the definitive Bearer Security a certificate
substantially in the form set forth in Exhibit A hereto; (B) delivery of a
Bearer Security shall occur only outside the United States; and (C)
neither a beneficial interest in a permanent Global Security nor a
definitive Bearer Security shall be issued if the Company has reason to
know that such certificate is false. Until so exchanged, the temporary
Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of such series
except as otherwise specified as contemplated by Section 301 with respect
to the payment of interest on Securities in temporary form.
(ii) If Securities of any series are issued in temporary global
form, any such temporary Global Security shall, unless otherwise provided
pursuant to Section 301, be delivered to the Depositary for the benefit of
Euro-clear and CEDEL S.A., for credit to the respective accounts of the
beneficial owners of such Securities (or to such other accounts as they may
direct).
(iii) Without unnecessary delay but in any event not later than
the date specified in, or determined pursuant to the terms of, any such
temporary Global Security (the "Global Exchange Date"), the Company shall
deliver definitive Securities to the Trustee or the agent appointed by the
Company pursuant to Section 301 to effect the exchange of the temporary
Global Security for definitive Debt Securities (the "Global Exchange
Agent"), in an aggregate principal amount equal to the principal amount of
such temporary Global Security, executed by the Company. On or after the
Global Exchange Date, such temporary Global Security shall be surrendered
by the Depositary to the Global Exchange Agent, to be exchanged, in whole
or from time to time in part, for definitive Securities without charge and
the Trustee or the Global Exchange Agent, if authorized by the Trustee
pursuant to Section 614, shall authenticate and make available for
delivery, in exchange for each portion of such
22
<PAGE>
temporary Global Security, an equal aggregate principal amount of
definitive Securities of the temporary Global Security to be exchanged.
Upon any exchange of a part of such temporary Global Security for
definitive Securities, the portion of the principal amount and any interest
thereon so exchanged shall be endorsed by the Global Exchange Agent on a
schedule to such temporary Global Security, whereupon the principal amount
and interest payable with respect to such temporary Global Security shall
be reduced for all purposes by the amount so exchanged and endorsed. The
definitive Securities to be delivered in exchange for any such temporary
Global Security shall be in bearer form, registered form, global bearer
form or global registered form, or any combination thereof, as specified as
contemplated by Section 301, and, if any combination thereof is so
specified, as requested by the beneficial owner thereof; PROVIDED, HOWEVER,
that unless otherwise specified in such temporary Global Security, upon
such presentation by the Depositary, such temporary Global Security shall
be accompanied by a certificate dated the Global Exchange Date or a
subsequent date and signed by Euro-clear as to the portion of such
temporary Global Security held for its account then to be exchanged and a
certificate dated the Global Exchange Date or a subsequent date and signed
by CEDEL S.A. as to the portion of such temporary Global Security held for
its account then to be exchanged, each in the form set forth in Exhibit B
to this Indenture; and PROVIDED, FURTHER, that definitive Bearer Securities
(including a definitive global Bearer Security) shall be delivered in
exchange for a portion of a temporary Global Security only in compliance
with the requirements of Section 303.
(iv) The interest of a beneficial owner of Securities of a series
in a temporary Global Security shall be exchanged for definitive Securities
of the same series and of like tenor and terms following the Global
Exchange Date when the account holder instructs Euro-clear or CEDEL S.A.,
as the case may be, to request such exchange on his behalf and delivers to
Euro-clear or CEDEL S.A., as the case may be, a certificate in the form set
forth in Exhibit A to this Indenture dated no earlier than 15 days prior to
the Global Exchange Date, copies of which certificate shall be available
from the offices of Euro-clear and CEDEL S.A., the Global Exchange Agent,
any Authenticating Agent appointed for such series of Securities and each
Paying Agent. Unless otherwise specified in such temporary Global
Security, any such exchange shall be made free of charge to the beneficial
owners of such temporary Global Security, except that a Person receiving
definitive Securities must bear the cost of insurance, postage,
transportation and the like in the event that such Person does not take
delivery of such definitive Securities in person at the offices of Euro-
clear and CEDEL S.A. Definitive Securities in bearer form to be delivered in
exchange for any portion of a temporary Global Security shall be delivered only
outside the United States.
(v) Until exchanged in full as hereinabove provided, the
temporary Securities of any series shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities of the same
series and of like tenor and terms authenticated and delivered hereunder,
except that, unless otherwise specified as
23
<PAGE>
contemplated by Section 301, interest payable on a temporary Global
Security on an Interest Payment Date for Debt Securities of such series
occurring prior to the applicable Global Exchange Date shall be payable to
Euro-clear and CEDEL S.A. on such Interest Payment Date upon delivery by
Euro-clear and CEDEL S.A. to the Global Exchange Agent of a certificate or
certificates in the form set forth in Exhibit C to this Indenture, for
credit without further interest on or after such Interest Payment Date to
the respective accounts of the Persons who are the beneficial owners of
such temporary Global Security on such Interest Payment Date and who have
each delivered to Euro-clear or CEDEL S.A., as the case may be, a
certificate in the form set forth in Exhibit D to this Indenture. Any
interest so received by Euro-clear and CEDEL S.A. and not paid as herein
provided prior to the Global Exchange Date shall be returned to the Global
Exchange Agent which, upon expiration of two years after such Interest
Payment Date shall repay such interest to the Company in accordance with
Section 1003.
SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.
With respect to the Registered Securities of each series, if any, the
Company shall cause to be kept at an office or agency of the Company maintained
pursuant to Section 1002, a register (herein sometimes referred to as the
"Security Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Registered
Securities of each series and of transfers of the Registered Securities of each
series. Such office or agency shall be the "Security Registrar" for the
Registered Securities, if any, of each series of Securities. In the event that
the Trustee shall not be the Security Registrar, it shall have the right to
examine the Security Register at all reasonable times.
Upon surrender for registration of transfer of any Registered Security of
any series at any office or agency of the Company maintained for that series
pursuant to Section 1002, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the designated
transferee or transferees, one or more new Registered Securities of the same
series, of any authorized denominations, of a like aggregate principal amount
bearing a number not contemporaneously outstanding and containing identical
terms and provisions.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series containing
identical terms and provisions, in any authorized denominations, and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
any such office or agency. Whenever any Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Registered Securities which
the Holder making the exchange is entitled to receive.
If expressly provided with respect to Securities of a series, at the option
of the Holder, except as otherwise specified as contemplated by Section 301 with
respect to a Global Security issued in bearer form, Bearer Securities of any
series may be exchanged for Registered Securities of the same series (if the
Securities of such series are issuable as Registered
24
<PAGE>
Securities) containing identical terms and provisions, of any authorized
denominations and aggregate principal amount, upon surrender of the Bearer
Securities to be exchanged at any such office or agency, with all unmatured
coupons and all matured coupons in default thereto appertaining. If the Holder
of a Bearer Security is unable to produce any such unmatured coupon or coupons
or matured coupon or coupons in default, such exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
and the Trustee in an amount equal to the face amount of such missing coupon or
coupons, or the surrender of such missing coupon or coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to any Paying Agent any
such missing coupon in respect of which such a payment shall have been made,
such Holder shall be entitled to receive the amount of such payment; PROVIDED,
HOWEVER, that, except as otherwise provided in Section 1002, interest
represented by coupons shall be payable only upon presentation and surrender of
those coupons at an office or agency located outside the United States.
Notwithstanding the foregoing, in case a Bearer Security of any series is
surrendered at any such office or agency in exchange of a Registered Security of
the same series and like tenor after the close of business at such office or
agency on (i) any Regular Record Date and before the opening of business at such
office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related date for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date or
proposed date of payment, as the case may be (or, if such coupon is so
surrendered with such Bearer Security, such coupon shall be returned to the
Person so surrendering the Bearer Security), and interest or Defaulted Interest,
as the case may be, will not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security, but will be payable only
to the Holder of such coupon when due in accordance with the provisions of this
Indenture.
Notwithstanding any other provision of this Section, unless and until it is
exchanged in whole or in part for Securities in definitive form, a Global
Security representing all or a portion of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such Nominee to a
successor Depositary for such series or a nominee of such successor Depositary.
Unless otherwise specified in an Officers' Certificate delivered pursuant
to Section 301, at the option of the Holder, Registered Securities of any series
(except a Global Security representing all or a portion of the Securities of a
series) may be exchanged for other Registered Securities of the same series of
any authorized denomination or denominations, of a like aggregate principal
amount, bearing a number not contemporaneously outstanding and containing
identical terms and provisions, upon surrender of the Registered Securities to
be exchanged at such office or agency.
25
<PAGE>
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, the
Securities which the Holder making the exchange is entitled to receive.
If at any time the Depositary for the Securities of a series notifies the
Company that it is unwilling or unable to continue as Depositary for the Debt
Securities of such series of if at any time such Depositary shall no longer be
eligible under Section 303(d), the Company shall appoint a successor Depositary
with respect to the Securities of such series. If a successor Depositary for
the Securities of such series is not appointed by the Company within 90 days
after the Company receives such notice or becomes aware of such ineligibility,
the Company's election pursuant to Section 301(16) shall no longer be effective
with respect to the Securities of such series and the Company will execute, and
the Trustee, upon receipt of a Company Order for the authentication and delivery
of certificated Securities of such series, will authenticate and make available
for delivery Securities of such series in certificated form in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities representing such series in exchange for such Global Security or
Securities.
The Company may at any time and in its sole discretion determine that the
Securities of any series issued in the form of one or more Global Securities
shall no longer be represented by such Global Security or Securities. In such
event the Company will execute, and the Trustee, upon receipt of a Company Order
for the authentication and delivery of certificated Securities of such series,
will authenticate and make available for delivery, Securities of such series in
certificated form and in an aggregate principal amount equal to the principal
amount of the Global Security or Securities representing such series in exchange
for such Global Security or Securities.
If specified by the Company pursuant to Section 301 with respect to a
series of Securities, the Depositary for such series of Securities may surrender
a Global Security for such series of Securities in exchange in whole or in part
for Securities of such series in definitive form on such terms as are acceptable
to the Company and such Depositary. Thereupon, the Company shall execute, and
the Trustee shall authenticate and make available for delivery, without service
charge,
(i) to each Person specified by such Depositary a new Security
or Securities of the same series, of any authorized denomination as
requested by such Person in aggregate principal amount equal to and in
exchange for such Person's beneficial interest in the Global Security; and
(ii) to such Depositary a new Global Security of like tenor and
terms in a denomination equal to the difference, if any, between the
principal amount of the surrendered Global Security and the aggregate
principal amount of Securities delivered to Holders thereof.
In any exchange provided for in any of the preceding three paragraphs, the
Company will execute and the Trustee will authenticate and
26
<PAGE>
make available for delivery Securities (a) in definitive registered form in
authorized denominations, if the Securities of such series are issuable as
Registered Securities, (b) in definitive bearer form in authorized
denominations, with coupons attached, if the Securities of such series are
issuable as Bearer Securities or (c) as either Registered or Bearer Securities,
if the Securities of such series are issuable in either form; PROVIDED, HOWEVER,
that no definitive Bearer Security shall be delivered in exchange for a
temporary Global Security unless the Company or its agent shall have received
from the person entitled to receive the definitive Bearer Security a certificate
substantially in the form set forth in Exhibit A hereto; and PROVIDED, FURTHER,
that delivery of a Bearer Security shall occur only outside the United States
and no definitive Bearer Security will be issued if the Company has reason to
know that such certificate is false.
Upon the exchange of a Global Security for Securities in certificated form,
such Global Security shall be cancelled by the Trustee. Registered Securities
issued in exchange for a Global Security pursuant to this Section shall be
registered in such names and in such authorized denominations as the Depositary
for such Global Security, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Registered Securities issued in exchange for a Global Security
pursuant to this Section to the persons, and in such authorized denominations,
as the Depositary for such Global Security, pursuant to the instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee;
PROVIDED, HOWEVER, that no definitive Bearer Security shall be delivered in
exchange for a temporary Global Security unless the Company or its agent shall
have received from the person entitled to receive the definitive Bearer Security
a certificate substantially in the form set forth in Exhibit A hereto; and
PROVIDED, FURTHER, that delivery of a Bearer Security shall occur only outside
the United States and no definitive Bearer Security will be issued if the
Company has reason to know that such certificate is false.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer, or for exchange or redemption shall (if so required by the Company or
the Security Registrar for such series of Security presented) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and such Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange, or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Securities of any series during a period beginning at
27
<PAGE>
the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities of the series selected for redemption under Section
1103 and ending at the close of business on the day of such mailing, or (ii) to
register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except, in the case of any Security to be
redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange
any Bearer Security so selected for redemption except that such a Bearer
Security may be exchanged for a Registered Security of that series, provided
that such Registered Security shall be immediately surrendered for redemption
with written instruction for payment consistent with the provisions of this
Indenture.
Notwithstanding anything herein to the contrary, the exchange of Bearer
Securities into Registered Securities shall be subject to applicable laws and
regulations in effect at the time of exchange; neither the Company, the Trustee
nor the Security Registrar shall exchange any Bearer Securities into Registered
Securities if it has received an Opinion of Counsel that as a result of such
exchanges the Company would suffer adverse consequences under the United States
federal income tax laws and regulations then in effect and the Company has
delivered to the Trustee a Company Order directing the Trustee not to make such
exchanges thereafter unless and until the Trustee receives a subsequent Company
Order to the contrary.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security or a Security with a mutilated coupon
appertaining to it is surrendered to the Trustee, the Company shall execute and
the Trustee shall authenticate and make available for delivery in exchange
therefor a new Security of the same series containing identical terms and of
like principal amount and bearing a number not contemporaneously outstanding,
with coupons corresponding to the coupons, if any, appertaining to the
surrendered Security.
If there be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or coupon,
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security or coupon has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and make available for delivery, in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains.
In case any such mutilated, destroyed, lost or stolen Security or coupon
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security or coupon; provided,
however, that payment of principal of (and premium, if any) and any interest on
Bearer Securities shall, except as otherwise
28
<PAGE>
provided in Section 1002, be payable only at an office or agency located outside
the United States and, unless otherwise specified as contemplated by
Section 301, any interest on Bearer Securities shall be payable only upon
presentation and surrender of the coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series, with its coupons, if any, issued pursuant
to this Section in lieu of any destroyed, lost or stolen Security, or in
exchange for a Security to which a destroyed, lost or stolen coupon appertains,
shall constitute an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security and its coupons, if any,
or the destroyed, lost or stolen coupon shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of that series and their
coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Registered Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall, if so provided in
such Security, be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest. In case a Bearer Security of any series is
surrendered in exchange for a Registered Security of such series after the close
of business (at an office or agency in a Place of Payment for such series) on
any Regular Record Date and before the opening of business (at such office or
agency) on the next succeeding Interest Payment Date, such Bearer Security shall
be surrendered without the coupon relating to such Interest Payment Date and
interest will not be payable on such Interest Payment Date in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in accordance with the
provisions of this Indenture.
Any interest on any Registered Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date for
such Registered Security (herein called "Defaulted Interest") shall forthwith
cease to be payable to the Holder on the relevant Regular Record Date by virtue
of having been such Holder; and such Defaulted Interest may be paid by the
Company, at its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities affected (or their
respective Predecessor Securities) are registered
29
<PAGE>
at the close of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each such Registered Security and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of such Registered Securities at his address as it appears
in the Security Registrar not less than 10 days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at the
expense of the Company, cause a similar notice to be published at least
once in a newspaper, customarily published in the English language on each
Business Day and of general circulation in the Borough of Manhattan, The
City of New York, but such publication shall not be a condition precedent
to the establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names such Registered Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2). In case a Bearer Security of any series is
surrendered at the office or agency in a Place of Payment for such series
in exchange for a Registered Security of such series after the close of
business at such office or agency on any Special Record Date and before the
opening of business at such office or agency on the related proposed date
for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such proposed date of payment
and Defaulted Interest will not be payable on such proposed date of payment
in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such payment shall be deemed practicable by the Trustee.
30
<PAGE>
At the option of the Company, interest on Registered Securities of any
series that bear interest may be paid by mailing a check to the address of the
Person entitled thereto as such address shall appear in the Security Register
or, for Holders of Securities with a face amount in excess of $1,000,000, by
wire transfer to an account designated by such Person in writing not later than
15 days prior to the related date of payment.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Registered Security for the purpose of receiving payment of
principal of (and premium, if any), and (subject to Sections 305 and 307)
interest on and Additional Amounts with respect to, such Registered Security and
for all other purposes whatsoever, whether or not such Registered Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the bearer of any Bearer Security and the bearer of any coupon as the
absolute owner of such Security or coupon for the purpose of receiving payment
thereof or on account thereof and for all other purposes whatsoever, whether or
not such Security or coupon be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 309. CANCELLATION.
All Securities and coupons surrendered for payment, redemption,
registration of transfer or exchange or for credit against any sinking fund
payment shall, if surrendered to any Person other than the Trustee, be delivered
to the Trustee, and any such Securities and coupons and Securities and coupons
surrendered directly to the Trustee for any such purpose shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities
31
<PAGE>
and coupons held by the Trustee may be destroyed by it unless by a Company Order
the Company directs their return to it.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for Securities
of any series, interest on the Securities of each series shall be computed on
the basis of a 360 day year of twelve 30 day months.
SECTION 311. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; PROVIDED that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
Upon the direction of the Company by a Company Order this Indenture shall
cease to be of further effect (except as to any surviving rights of registration
of transfer or exchange of Securities herein expressly provided for and any
right to receive Additional Amounts, as provided in Section 1004), and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered and
all coupons appertaining thereto (other than (i) coupons appertaining
to Bearer Securities surrendered for exchange for Registered
Securities and maturing after such exchange, whose surrender is not
required or has been waived as provided in Section 305,
(ii) Securities and coupons which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306,
(iii) coupons appertaining to Securities called for redemption and
maturing after the relevant Redemption Date, whose surrender has been
waived as provided in Section 1107, and (iv) Securities and coupons
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
32
<PAGE>
(B) all such Securities and, in the case of (i) or (ii) below,
any such coupons appertaining thereto not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) if redeemable at the option of the Company, are to
be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities and coupons not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest, and any Additional Amounts with respect thereto,
to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of all series as to which it is Trustee and if the other conditions
thereto are met. In the event there are two or more Trustees hereunder, then
the effectiveness of any such instrument shall be conditioned upon receipt of
such instruments from all Trustees hereunder.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities, the coupons
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying
33
<PAGE>
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and any interest and Additional Amounts for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
SECTION 403. SATISFACTION, DISCHARGE AND DEFEASANCE OF SECURITIES OF ANY
SERIES.
The Company shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Securities of any series and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of such indebtedness, when
(1) either
(A) with respect to all Outstanding Securities of such series,
(i) the Company has deposited or caused to be
deposited with the Trustee, as trust funds in trust for such
purpose, an amount sufficient to pay and discharge the entire
indebtedness on all Outstanding Securities of such series for
principal (and premium, if any), any Additional Amounts, and
interest to the Stated Maturity or any Redemption Date as
contemplated by the penultimate paragraph of this Section 403, as
the case may be; or
(ii) with respect to any such series of Securities
which are denominated in United States dollars, the Company has
deposited or caused to be deposited with the Trustee, as
obligations in trust for such purpose, such amount of U.S.
Government Obligations as will, together with the income to
accrue thereon without consideration of any reinvestment thereof,
be sufficient to pay and discharge the entire indebtedness on all
Outstanding Securities of such series for principal (and premium,
if any), any Additional Amounts, and interest to the Stated
Maturity or any Redemption Date as contemplated by the
penultimate paragraph of this Section 403; or
(B) the Company has properly fulfilled such other means of
satisfaction and discharge as is specified, as contemplated by Section
401, to be applicable to the Securities of such series; and
(2) the Company has paid or caused to be paid all other sums payable
hereunder with respect to the Outstanding Securities of such series; and
(3) the Company has delivered to the Trustee a certificate signed by
a nationally recognized firm of independent public accountants (who may be
the independent public accountants regularly retained by the Company or
who may be other independent public
34
<PAGE>
accountants) certifying as to the sufficiency of the amounts deposited
pursuant to subsections (A)(i) or (ii) of this Section for payment of
the principal (and premium, if any) and interest on the dates such
payments are due, an Officers' Certificate and an Opinion of Counsel,
each such Certificate and Opinion stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of the
entire indebtedness on all Outstanding Securities of any such series
have been complied with; and
(4) the Company has delivered to the Trustee
(A) an opinion of independent counsel that the Holders of the
Securities of such series will have no federal income tax consequences
as a result of such deposit and termination; and
(B) if the Securities of such series are then listed on any
securities exchange, an Opinion of Counsel that the Securities of such
series will not be delisted as a result of the exercise of this
option.
Any deposits with the Trustee referred to in Section 403(1)(A) above shall
be irrevocable and shall be made under the terms of an escrow trust agreement in
form and substance satisfactory to the Trustee. If any Outstanding Securities
of such series are to be redeemed prior to their Stated Maturity, whether
pursuant to any optional redemption provisions or in accordance with any
mandatory sinking fund requirement, the Company shall make such arrangements as
are satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
Upon the satisfaction of the conditions set forth in this Section 403 with
respect to all the Outstanding Securities of any series, the terms and
conditions of such series, including the terms and conditions with respect
thereto set forth in this Indenture, other than the provisions of Sections 305,
306 and 1002 and other than the right of Holders of Securities of such series to
receive, from the trust fund described in this Section, payment of the principal
(and premium, if any) of, the interest on and any Additional Amounts with
respect to such Securities when such payments are due, and the rights, powers,
duties and immunities of the Trustee hereunder, shall no longer be binding upon,
or applicable to, the Company.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of any
series, 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 pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
35
<PAGE>
(1) default in the payment of any interest upon or any Additional
Amounts payable in respect of any Security of that series when such
interest or Additional Amounts becomes due and payable, and continuance of
such default for a period of 30 days; or
(2) default in the payment of the principal of (and premium, if any,
on) any Security of that series when it becomes due and payable at
Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with or which has been expressly included
in this Indenture solely for the benefit of series of Securities other than
that series), and continuance of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 10% in principal amount of the Outstanding Securities of that
series a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation
of its affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(6) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial
part of its property, or shall make any general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they become due
or shall take any corporate action in furtherance of any of the foregoing;
or
(7) any other Event of Default provided with respect to Securities of
that series.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal of all the
36
<PAGE>
Securities of that series, or such lesser amount as may be provided for in the
Securities of that series, to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by the Holders), and upon
any such declaration such principal or such lesser amount shall become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on and any Additional
Amounts payable in respect of all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates borne by or
provided for in such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest and Additional Amounts
at the rate or rates borne by or provided for in such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which has become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any installment of interest on
or any Additional Amounts payable in respect of any Security when such
interest or Additional Amounts shall have become due and payable and such
default continues for a period of 30 days, or
37
<PAGE>
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security at its Maturity or in the deposit of a sinking
fund payment, if any, when the same shall have become payable,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities and coupons, the whole amount then due and payable on
such Securities and coupons for principal (and premium, if any) and interest and
Additional Amounts, if any, with interest upon the overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest or any Additional
Amounts, at the rate or rates borne by or provided for in such Securities, and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
related coupons by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount, or such
lesser amount as may be provided for in the Securities of that series, of
principal (and premium, if any) and interest and any Additional Amounts
owing and unpaid in respect of the Securities and to file such other papers
or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and
38
<PAGE>
advances of the Trustee, its agents or counsel) and of the Holders allowed
in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder of
Securities and coupons to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders of Securities and coupons, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and any other amounts due the Trustee under
Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or coupon in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES OR
COUPONS.
All rights of action and claims under this Indenture or any of the
Securities or coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery or judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities and
coupons in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (and premium,
if any), interest or any Additional Amounts, upon presentation of the Securities
or coupons, or both, as the case may be, and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities and coupons for principal (and premium, if any) and interest and
any Additional Amounts payable in respect of which or for the benefit of
which such money has been collected, ratably, without preference or
priority of any kind, according to the aggregate amounts due and payable on
such Securities and coupons for
39
<PAGE>
principal (and premium, if any), interest and Additional Amounts,
respectively;
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATIONS ON SUITS.
No Holder of any Security of any series or any related coupons shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other such
Holders or Holders of any other series, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Security or coupon shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Sections 305 and 307) interest on any Additional Amounts in respect of such
Security or payment of such coupon on the respective Stated Maturity or
Maturities expressed in such Security or coupon (or, in the case of redemption,
on the Redemption Date) and to institute suit for
40
<PAGE>
the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder of a Security or coupon has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and the Holders of Securities and coupons shall,
subject to any determination in such proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders of Securities or coupons is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security or
coupon to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders of Securities or coupons may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders of Securities or coupons, as the case may be.
SECTION 512. CONTROL BY HOLDERS OF SECURITIES.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Securities of
such series, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
41
<PAGE>
(3) such direction is not unduly prejudicial to the rights of other
Holders of Securities of such series.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series and any related coupons waive any past default
hereunder with respect to such series and its consequences, except a default
(1) in the payment of the principal of (and premium, if any) or
interest on or Additional Amounts payable in respect of any Security of
such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security or
coupon by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit, other than the Trustee, of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
including the Trustee, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Company, the Trustee or by
any Holder, or group of Holders, holding in the aggregate more than 10% in
principal amount of the Outstanding Securities of any series, or to any suit
instituted by any Holder of any Security or coupon for the enforcement of the
payment of the principal of (and premium, if any) or interest on or any
Additional Amounts in respect of any Security or the payment of any coupon on or
after the respective Stated Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date) or interest on any overdue
principal of any Security.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or
42
<PAGE>
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties, and only such
duties, as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, EXCEPT that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities of any series, relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Securities of such series; and
43
<PAGE>
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series, the Trustee shall transmit by mail to all
Holders of Securities of such series entitled to receive reports pursuant to
Section 703(c), notice of such default hereunder known to the Trustee, unless
such default shall have been cured or waived; PROVIDED, HOWEVER, that, except in
the case of a default in the payment of the principal of (and premium, if any)
or interest on, or any Additional Amounts with respect to, any Security of such
series or in the payment of any sinking fund installment with respect to
Securities of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the interests of the
Holders of Securities and coupons of such series; and PROVIDED, FURTHER, that in
the case of any default of the character specified in Section 501(4) with
respect to Securities of such series, no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default with respect to Securities of
such series.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, or other paper or document reasonably believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security to the Trustee for authentication and delivery
pursuant to Section 303 which shall be sufficiently evidenced as provided
therein) and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
44
<PAGE>
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities of any series or any related coupons
pursuant to this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any coupons shall be taken as the
statements of the Company, and the Trustee or any Authenticating Agent assumes
no responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture or of the Securities or
coupons. The Trustee or any Authenticating Agent shall not be accountable for
the use or application by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
45
<PAGE>
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and coupons and, subject
to Sections 608 and 613, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as
shall be agreed to by the Company and the Trustee for all services rendered
by it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursements or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee and its agents for, and to hold them
harmless against, any and all reasonable loss, damage, claim, liability or
expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on their part, arising
out of or in connection with the acceptance or administration of the trust
or trusts hereunder, including the costs and expenses of defending
themselves against any claim or liability in connection with the exercise
or performance of any of their powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section the Trustee shall have a lien prior to the Securities of any series
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (or premium, if any) or
interest on Securities.
The provisions of this Section shall survive the termination of this
Indenture.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(5) or Section 501(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
46
<PAGE>
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
SECTION 608. DISQUALIFICATIONS; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, with respect to the Securities of any series, it shall,
within 90 days after ascertaining that it has such conflicting interest, either
eliminate such conflicting interest or resign with respect to the Securities of
that series in the manner and with the effect hereinafter specified in this
Article.
(b) In the event that the Trustee shall fail to comply with the provisions
of Subsection (a) of this Section with respect to the Securities of any series,
the Trustee shall, within 10 days after the expiration of such 90-day period,
transmit, in the manner and to the extent provided in Section 703(c) to all
Holders of Securities of that series notice of such failure.
(c) For the purposes of this Section, the Trustee shall be deemed to have
a conflicting interest with respect to the Securities of any series, if
(1) the Trustee is trustee under this Indenture with respect to the
Outstanding Securities of any series other than that series or is trustee
under another indenture under which any other securities, or certificates
of interest or participation in any other securities, of the Company are
outstanding, unless such other indenture is a collateral trust indenture
under which the only collateral consists of Securities issued under this
Indenture, PROVIDED THAT there shall be excluded from the operation of this
paragraph (A) this Indenture with respect to the Securities of any series
other than that series, (B) the Indenture dated as of April 1, 1985,
between the Company and the Trustee relating to the Company's 12 1/8% Notes
due April 1, 1995, and (C) any indenture or indentures under which other
securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if
(i) this Indenture and such other indenture or indentures
are wholly unsecured and such other indenture or indentures are
hereafter qualified under the Trust Indenture Act, unless the
Commission shall have found and declared by order pursuant to Section
305(b) or Section 307(c) of the Trust Indenture Act that differences
exist between the provisions of this Indenture with respect to
Securities of that series and one or more other series or the
provisions of such other indenture or indentures which are so likely
to involve a material conflict of interest as to make it necessary in
the public interest or for the protection of investors to disqualify
the Trustee from acting as such under this Indenture with respect to
the Securities of that series and such other series or under such
other indenture or indentures, or
47
<PAGE>
(ii) the Company shall have sustained the burden of proving,
on application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture with respect to the
Securities of that series and such other series or such other
indenture or indentures is not so likely to involve a material
conflict of interest as to make it necessary in the public interest or
for the protection of investors to disqualify the Trustee from acting
as such under this Indenture with respect to the Securities of that
series and such other series under such other indenture or indentures;
(2) the Trustee or any of its directors or executive officers is an
obligor upon the Securities or an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with
the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of the
Company, or of an underwriter (other than the Trustee itself) for the
Company who is currently engaged in the business of underwriting, except
that (i) one individual may be a director or an executive officer, or both,
of the Trustee and a director or an executive officer, or both, of the
Company but may not be at the same time an executive officer of both the
Trustee and the Company; (ii) if and so long as the number of directors of
the Trustee in office is more than nine, one additional individual may be a
director or an executive officer, or both, of the Trustee and a director of
the Company; and (iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary, or in any other similar capacity, or, subject to the provisions
of paragraph (1) of this Subsection, to act as trustee, whether under an
indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner, or
executive officer thereof, or 20% or more of such voting securities is
beneficially owned, collectively, by any two or more of such persons; or
10% or more of the voting securities of the Trustee is beneficially owned
either by an underwriter for the Company or by any director, partner or
executive officer thereof, or is beneficially owned, collectively, by any
two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), (i) 5% or more of the voting securities, or 10% or
more of any other class of security, of the Company not including the
Securities issued under this Indenture and securities issued under any
other indenture under which the Trustee is also trustee, or (ii) 10% or
more of any class of security of an underwriter for the Company.
48
<PAGE>
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 5% or more of the voting securities of any person who,
to the knowledge of the Trustee, owns 10% or more of the voting securities
of, or controls directly or indirectly or is under direct or indirect
common control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 10% or more of any class of security of any person
who, to the knowledge of the Trustee, owns 50% or more of the voting
securities of the Company;
(9) the Trustee owns, on May 15 in any calendar year, in the capacity
of executor, administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an aggregate of
25% or more of the voting securities, or of any class of security, of any
person, the beneficial ownership of a specific percentage of which would
have constituted a conflicting interest under paragraph (6), (7) or (8) of
this Subsection. As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator, or testamentary trustee
of an estate which included them, the provisions of the preceding sentence
shall not apply, for a period of two years from the date of such
acquisition, to the extent that such securities included in such estate do
not exceed 25% of such voting securities or 25% of any such class of
security. Promptly after May 15 in each calendar year, the Trustee shall
make a check of its holdings of such securities in any of the
above-mentioned capacities as of such May 15. If the Company fails to make
payment in full of the principal of (or premium, if any) or interest on any
of the Securities when and as the same becomes due and payable, and such
failure continues for 30 days thereafter, the Trustee shall make a prompt
check of its holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such 30-day period, and
after such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee, with sole or joint
control over such securities vested in it, shall, but only so long as such
failure shall continue, be considered as though beneficially owned by the
Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection;
or
(10) except under the circumstances described in paragraphs (1), (3),
(4), (5) or (6) of Section 613(b) hereof, the Trustee shall be or shall
become a creditor of the Company.
The specification of percentages in paragraphs (5) to (9), inclusive, of
this Subsection shall not be construed as indicating that the ownership of such
percentages of the securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (3) or
(7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include
49
<PAGE>
only such securities as are generally known as corporate securities, but shall
not include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms, or any certificate of interest or participation in
any such note or evidence of indebtedness; (ii) an obligation shall be deemed to
be "in default" when a default in payment of principal shall have continued for
30 days or more and shall not have been cured; and (iii) the Trustee shall not
be deemed to be the owner or holder of (A) any security which it holds as
collateral security, as trustee or otherwise, for an obligation which is not in
default as defined in clause (ii) above, or (B) any security which it holds as
collateral security under this Indenture, irrespective of any default hereunder,
or (C) any security which it holds as agent for collection, or as custodian,
escrow agent, or depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter", when used with reference to the Company,
means every person who, within three years prior to the time as of which
the determination is made, has purchased from the Company with a view to,
or has offered or sold for the Company in connection with, the distribution
of any security of the Company outstanding at such time, or has
participated or has had a direct or indirect participation in any such
undertaking, or has participated or has had a participation in the direct
or indirect underwriting of any such undertaking, but such term shall not
include a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or any
individual performing similar functions with respect to any organization,
whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization, or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include only a
trust where the interest or interests of the beneficiary or beneficiaries
are evidenced by a security.
(4) The term "voting security" means any security presently entitling
the owner or holder thereof to vote in the direction or management of the
affairs of a person, or any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees or agent or agents
for the owner or holder of such security are presently entitled to vote in
the direction or management of the affairs of a person.
(5) The term "Company" means any obligor upon the Securities.
(6) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary, and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether
50
<PAGE>
incorporated or unincorporated, but shall not include the chairman of the
board of directors.
(e) The percentages of voting securities and other securities specified in
this Section shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee,
the Company or any other person referred to in this Section (each of whom
is referred to as a "person" in this paragraph) means such amount of the
outstanding voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the aggregate votes
which the holders of all the outstanding voting securities of such person
are entitled to cast in the direction or management of the affairs of such
person.
(2) A specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class
outstanding.
(3) The term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares, and the number of units if relating
to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to
an other class of securities of the issuer, if the obligation
evidenced by such other class of securities is not in default as to
principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by the issuer
thereof;
PROVIDED, HOWEVER, that any voting securities of an issuer shall be deemed
outstanding if any person other than the issuer is entitled to exercise the
voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; PROVIDED, HOWEVER, that, in
the case of secured evidences of indebtedness, all of which are issued
under a single indenture, differences in the interest rates or maturity
dates of various series thereof shall not be deemed sufficient to
constitute such series different classes; and
51
<PAGE>
PROVIDED, FURTHER, that, in the case of unsecured evidences of
indebtedness, differences in the interest rates or maturity dates thereof
shall not be deemed sufficient to constitute the securities of different
classes, whether or not they are issued under a single indenture.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State or the District of Columbia, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $5,000,000 and subject to supervision or examination by Federal or State
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to such
series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608(a) after
written request therefor by the Company or by any Holder of a Security who
has been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder of a Security, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of
52
<PAGE>
its property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation.
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 514, any
Holder of a Security who has been a bona fide Holder of a Security of any series
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee with respect to all Securities of such series and the appointment of a
successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders of Securities and accepted appointment in the manner
required by Section 611, any Holder of a Security who has been a bona fide
Holder of a Security of such series for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Registered Securities, if any, of such series as their names and
addresses appear in the Security Register and, if Securities of such series are
issued as Bearer Securities, by publishing notice of such event once in an
Authorized Newspaper in each Place of Payment located outside the United States.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring
53
<PAGE>
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates,
(2) if the retiring Trustee is not retiring with respect to all Securities,
shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust, that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee and that no Trustee shall be responsible for any notice
given to, or received by, or any act or failure to act on the part of any other
Trustee hereunder, and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein, such retiring Trustee shall with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates have no further responsibility for the exercise
of rights and powers or for the performance of the duties and obligations vested
in the Trustee under this Indenture other than as hereinafter expressly set
forth, and each such successor Trustee without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee, to the extent contemplated by
such supplemental indenture, the property and money held by such retiring
Trustee hereunder with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and
54
<PAGE>
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
(a) Subject to Subsection (b) of this Section, if the Trustee shall be or
shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within three months prior to a default, as defined in Subsection (c) of
this Section, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in special account
for the benefit of the Trustee individually, the Holders of the Securities and
coupons and the holders of other indenture securities (as defined in Subsection
(c) of this Section):
(1) an amount equal to any and all reduction in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such three months' period and valid as
against the Company and its other creditors, except any such reduction
resulting from the receipt or disposition of any property described in
paragraph (2) of this Subsection, or from the exercise of any right of
set-off which the Trustee could have exercised if a petition in bankruptcy
had been filed by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as
such creditor, either as security therefore, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three
months' period, or an amount equal to the proceeds of any such property, if
disposed of, SUBJECT, HOWEVER, to the rights, if any, of the Company and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
55
<PAGE>
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of any such claim by the
Trustee to a third Person, and (iii) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Code or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such three months' period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security for
any such claim, if such claim was created after the beginning of such three
months' period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default, as defined in
Subsection (c) of this Section, would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C), against the release of any property held as security for such claim as
provided in paragraph (B) or (C), as the case may be, to the extent of the
fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such three months' period for property held as security at the
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned between the
Trustee, the Holders of Securities and the holders of other indenture securities
in such manner that the Trustee, the Holders of Securities and the holders of
other indenture securities realize, as a result of payments from such special
account and payments of dividends on claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to the
Federal Bankruptcy Code or applicable State law, the same percentage of their
respective claims, figured before crediting to the claim of the Trustee anything
on account of the receipt by it from the Company of the funds and property in
such special account and before crediting to the respective claims of the
Trustee and the Holders of Securities and the holders of other indenture
securities dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law, but after crediting thereon receipts on
account of the indebtedness represented by their respective
56
<PAGE>
claims from all sources other than from such dividends and from funds and
property so held in such special account. As used in this paragraph, with
respect to such claim, the term "dividends" shall include any distribution with
respect to such claim, in bankruptcy or receivership or proceedings for
reorganization pursuant to the Federal Bankruptcy Code or applicable State law,
whether such distribution is made in cash, securities, or other property, but
shall not include any such distribution with respect to the secured portion, if
any, of such claim. The court in which such bankruptcy, receivership or
proceedings for reorganization is pending shall have jurisdiction (i) to
apportion between the Trustee and the Holders of Securities and the holders of
other indenture securities, in accordance with the provisions of this paragraph,
the funds and property held in such special account and proceeds thereof, or
(ii) in lieu of such apportionment, in whole or in part, to give to the
provisions of this paragraph due consideration in determining the fairness of
the distribution to be made to the Trustee and the Holders of Securities and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such
three months' period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three months' period, it
shall be subject to the provisions of this Subsection if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim, which
would have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such three months'
period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of this
Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advances and of the circumstances surrounding
the making thereof is given to the Holders of Securities at the time and in
the manner provided in this Indenture.
57
<PAGE>
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction, as defined in subsection (c) of this
Section;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve Act,
as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper as defined in Subsection (c) of
this Section.
(c) For the purpose of this Section only:
(1) the term "default" means any failure to make payment in full of
the principal of or interest on any of the Securities or upon the other
indenture securities when and as such principal or interest becomes due and
payable;
(2) the term "other indenture securities" means securities upon which
the Company is an obligor outstanding under any other indenture (i) under
which indenture and as to which securities the Trustee is also trustee,
(ii) which contains provisions substantially similar to the provisions of
this Section, and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account;
(3) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand;
(4) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacture, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing, negotiating
or incurring the draft, bill of exchange, acceptance or obligation; and
(5) the term "Company" means any obligor upon the Securities.
58
<PAGE>
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee, with the written consent of the Company, may appoint an
Authenticating Agent or Agents with respect to one or more series of Securities
which shall be authorized to act on behalf of the Trustee to authenticate
Securities of such series issued upon original issue or exchange, registration
of transfer or partial redemption thereof or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $5,000,000 and subject to
supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall (i) mail written notice
of such appointment by first-class mail, postage prepaid, to all Holders of
Registered Securities, if any, of the series with respect to which such
Authenticating Agent will serve, as their names and addresses appear in the
Security Register, and (ii) if Securities of the series are issued as Bearer
Securities, publish notice of such appointment at least once in an Authorized
Newspaper in the place where
59
<PAGE>
such successor Authenticating Agent has its principal office if such office is
located outside the United States. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
The provisions of Sections 308, 604 and 605 shall be applicable to each
Authenticating Agent.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternate
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
____________________________
As Trustee
By _______________________
As Authenticating Agent
By ________________________
Authorized Signatory
If all of the Securities of any series may not be originally issued at one
time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested in writing (which writing need not comply
with Section 102) by the Company, shall appoint in accordance with this Section
614 an Authenticating Agent having an office in Place of Payment designated by
the Company with respect to such series of Securities.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
60
<PAGE>
(a) semi-annually, not later than fifteen days after the Regular
Record Date for interest for each series of Securities a list, in such form
as the Trustee may reasonably require, of the names and addresses of the
Holders of Registered Securities of such series as of such Regular Record
Date, or if there is no Regular Record Date for interest for such series of
Securities, semi-annually, upon such dates as are set forth in the Board
Resolution or indenture supplemental hereto authorizing such series, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished,
PROVIDED, HOWEVER, that, so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Securities (i) contained in
the most recent list furnished to the Trustee for each series as provided in
Section 701, (ii) received by the Trustee for each series in the capacity of
Security Registrar if the Trustee is then acting in such capacity and (iii)
filed with it within the two preceding years pursuant to Section 703(c)(2). The
Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished, and destroy not earlier than two years after
filing, any information filed with it pursuant to Section 703(c)(2).
(b) If three or more Holders of Securities of any series (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Security of such
series for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders of Securities of such series with respect to
their rights under this Indenture or under the Securities and is accompanied by
a copy of the form or proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five Business Days after the receipt
of such application, at its election, either
(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of
Holders of Securities whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section 702(a), and
as to the approximate cost of mailing to such Holders the form of proxy or
other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such
61
<PAGE>
applicants, mail to each Holder of Securities whose name and address appears in
the information preserved at the time by the Trustee in accordance with Section
702(a), a copy of the form of proxy or other communication which is specified in
such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If the
Commission, after the opportunity for a hearing upon the objections specified in
the written statement so filed, shall enter an order refusing to sustain any of
such objections or if, after the entry of an order sustaining one or more of
such objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Holders of Securities with reasonable promptness after the entry of such order
and the renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Every Holder of Securities or coupons, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any Paying Agent nor any Security Registrar shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders of Securities in accordance with Section 702(b),
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under Section 702(b).
SECTION 703. REPORTS BY TRUSTEE.
(a) Within 60 days after December 31 of each year commencing with the year
1991, the Trustee shall transmit by mail to all Holders of Securities, as their
names and addresses appear in the Security Register, a brief report dated as of
such December 31 with respect to any of the following events which may have
occurred within the previous twelve months (but if no such event has occurred
within such period no report need be transmitted):
(1) any changes to its eligibility under Section 609 and its
qualifications under Section 608;
(2) the creation of any material changes to a relationship specified
in paragraphs (1) through (10) of Section 608(c) hereof;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or charge,
prior to that of the Securities, on any property or funds held or collected
by it as Trustee, except that the Trustee shall not be required (but may
elect) to report such advances
62
<PAGE>
if such advances so remaining unpaid aggregate not more than 1/2 of 1% of
the principal amount of the Securities Outstanding on the date of such
report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Securities) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Section 613(b)(2), (3), (4)
or (6);
(5) the property and funds, if any, physically in the possession of
the Trustee as such on the date of such report;
(6) any additional issue of securities which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Securities, except action in respect of a default,
notice of which has been or is to be withheld by the Trustee in accordance
with Section 602.
(b) The Trustee shall transmit by mail to all Holders of Securities, as
provided in Subsection (c) of this Section, a brief report with respect to the
character and amount of any advances (and if the Trustee elects so to state, the
circumstances surrounding the making thereof) made by the Trustee (as such)
since the date of the last report transmitted pursuant to Subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
execution of this instrument) for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Securities, on property or funds
collected by it as Trustee, and which it has not previously reported pursuant to
this Subsection, except that the Trustee shall not be required (but may elect)
to report such advances if such advances remaining unpaid at any time aggregate
10% or less of the principal amount of the Securities Outstanding at such time,
such report to the transmitted within 90 days after such time.
(c) Reports pursuant to this Section shall be transmitted by mail:
(1) to all Holders of Registered Securities, as the names and address
of such Holders appear in the Security Register;
(2) to such Holders of Bearer Securities as have, within the two
years preceding such transmission, filed their names and addresses with the
Trustee for that purpose; and
(3) except in the case of reports pursuant to Subsection (b) of this
Section, to each Holder of a Security whose name and address is preserved
at the time by the Trustee, as provided in Section 702(a).
63
<PAGE>
(d) A copy of each such report shall, at the time of such transmission to
Holders of Securities, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will promptly notify the Trustee when any Securities are listed on any
stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall:
(1) file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations;
(3) transmit within 30 days after the filing thereof with the
Trustee, in the manner and to the extent provided in Section 703(c) with
respect to reports pursuant to Section 703(a), such summaries of any
information, documents and reports required to be filed by the Company
pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission; and
(4) furnish to the Trustee the written statement required by Section
1005.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. CONSOLIDATIONS AND MERGERS OF COMPANY AND SALES, LEASES AND
CONVEYANCES PERMITTED SUBJECT TO CERTAIN CONDITIONS.
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other
64
<PAGE>
corporation, PROVIDED that in any such case, (i) either the Company shall be the
continuing corporation, or the successor corporation shall be a corporation
organized and existing under the laws of the United States of America or a State
thereof and such successor corporation shall expressly assume the due and
punctual payment of the principal of (and premium, if any), any interest on, and
any Additional Amounts payable pursuant to Section 1004 with respect to, all the
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed by the Company by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by such corporation, and (ii) the Company
or such successor corporation, as the case may be, shall not, immediately after
such merger or consolidation, or such sale, lease or conveyance, be in default
in the performance of any such covenant or condition.
SECTION 802. RIGHTS AND DUTIES OF SUCCESSOR CORPORATION.
In case of any such consolidation, merger, sale, lease or conveyance and
upon any such assumption by the successor corporation, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if had been named herein as the party of the first part, and the
predecessor corporation, except in the event of a lease, shall be relieved of
any further obligation under this Indenture and the Securities and coupons.
Such successor corporation thereupon may cause to be signed, and may issue
either in its own name or in the name of the Company, any or all of the
Securities and coupons issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee; and, upon the order of such
successor corporation, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall make available for delivery any Securities and coupons
which previously shall have been signed and delivered by the officers of the
Company to the Trustee for authentication, and any Securities or coupons which
such successor corporation thereafter shall cause to be signed and delivered to
the Trustee for that purpose. All the Securities and coupons so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Securities and coupons theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Securities and coupons had been
issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance, such
changes in phraseology and form (but not in substance) may be made in the
Securities and coupons thereafter to be issued as may be appropriate.
SECTION 803. OFFICERS' CERTIFICATE AND OPINION OF COUNSEL.
The Trustee, subject to the provisions of Sections 601 and 603, may receive
an Officers' Certificate and an Opinion of Counsel as conclusive evidence that
any such consolidation, merger, sale, lease or conveyance, and any such
assumption, complies with the provisions of this Article.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
65
<PAGE>
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders of Securities or coupons, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the Company
herein and in the Securities contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal (or
premium, if any) on Registered Securities or of principal (or premium, if
any) or any interest on Bearer Securities, to permit Registered Securities
to be exchanged for Bearer Securities or to permit the issuance of
Securities in uncertificated form, PROVIDED any such action shall not
adversely affect the interests of the Holders of Securities of any series
or any related coupons in any material respect; or
(4) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 611(b); or
(6) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture and which shall not adversely affect the
interests of the Holders of Securities of any series or any related coupons
in any material respect; or
(7) to add to, delete from or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issue,
authentication and delivery of Securities, as herein set forth; or
(8) to secure the Securities pursuant to Section 1005.
66
<PAGE>
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; PROVIDED, HOWEVER,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any Additional Amounts payable in respect
thereof, or any premium payable upon the redemption thereof, or change the
obligation of the Company to pay Additional Amounts pursuant to
Section 1004 (except as contemplated by Section 801(i) and permitted by
Section 901(1)), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502, or change any
Place of Payment where, or the coin or currency in which, any Security or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or reduce the requirements of Section 1404 for quorum or voting,
or
(3) modify any of the provisions of this Section, or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed supplemental
67
<PAGE>
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
and of any coupons appertaining thereto shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The Company covenants and agrees for the benefit of the Holders of each
series of Securities that it will duly and punctually pay the principal of (and
premium, if any), interest on and any Additional Amounts payable in respect of
the Securities of that series in accordance with the terms of such series of
Securities, any coupons appertaining thereto and this Indenture. Any interest
due on and any Additional Amounts payable in respect of Bearer Securities on or
before Maturity, other than Additional
68
<PAGE>
Amounts, if any, payable as provided in Section 1004 in respect of principal of
(or premium, if any, on) such a Security, shall be payable only upon
presentation and surrender of the several coupons for such interest installments
as are evidenced thereby as they severally mature.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series (but not Bearer
Securities, except as otherwise provided below, unless such Place of Payment is
located outside the United States) may be presented or surrendered for payment,
where Securities of that series may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Company in respect of
the Securities of that series and this Indenture may be served. If Securities
of a series are issuable as Bearer Securities, the Company will maintain,
subject to any laws or regulations applicable thereto, an office or agency in a
Place of Payment for such series which is located outside the United States
where Securities of such series and the related coupons may be presented and
surrendered for payment (including payment of any Additional Amounts payable on
Securities of such series pursuant to Section 1004); PROVIDED, HOWEVER, that if
the Securities of such series are listed on The Stock Exchange of the United
Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any
other stock exchange located outside the United States and such stock exchange
shall so require, the Company will maintain a Paying Agent in London, Luxembourg
or any other required city located outside the United States, as the case may
be, so long as the Securities of such series are listed on such exchange. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, except that Bearer Securities of that series and the related coupons
may be presented and surrendered for payment (including payment of any
Additional Amounts payable on Bearer Securities of that series pursuant to
Section 1004) at the place specified for the purpose pursuant to Section 301,
and the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
Except as otherwise provided in the form of Bearer Security of any
particular series pursuant to the provisions of this Indenture, no payment of
principal, premium or interest on Bearer Securities shall be made at any office
or agency of the Company in the United States or by check mailed to any address
in the United States or by transfer to an account maintained with a bank located
in the United States; PROVIDED, HOWEVER, payment of principal of and any premium
and interest in U.S. dollars (including Additional Amounts payable in respect
thereof) on any Bearer Security may be made at the Corporate Trust Office of the
Trustee in the Borough of Manhattan, The City of New York if (but only if)
payment of the full amount of such principal, premium, interest or Additional
Amounts at all offices outside the United States maintained for the purpose by
the Company in accordance with this Indenture is illegal or effectively
precluded by exchange controls or other similar restrictions.
69
<PAGE>
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency. Unless otherwise set forth in a Board Resolution or indenture
supplemental hereto with respect to a series of Securities, the Company hereby
designates as the Place of Payment for each series of Securities the Borough of
Manhattan, The City of New York, and initially appoints the Trustee at its
Corporate Trust Office as the Company's office or agency for each of such
purposes in such city.
The Company agrees that there shall at all times be a Calculation Agent in
respect of the Securities for the purposes set forth in the Securities, and such
Calculation Agent shall be a financial institution or investment bank and shall
not control, be controlled by, or be under common control with, the Company. In
the event that any Calculation Agent is unwilling or unable to act as such
Calculation Agent or shall fail to perform, or is otherwise no longer serving as
Calculation Agent, the Company shall promptly appoint a Calculation Agent
(qualified as aforesaid) to act in its place. The Company initially appoints
The Bank of New York as Calculation Agent for such purpose.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any), or interest on, any of the Securities of
that series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to each due date of the principal of (and
premium, if any), or interest on, any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums
70
<PAGE>
shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any
payment of principal (and premium, if any) or interest on the Securities of
that series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or of any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Except as otherwise provided in the form of Securities of any particular
series pursuant to the provisions of this Indenture, any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of (and premium, if any) or interest on any Security of
any series and remaining unclaimed for three years after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security or any coupon appertaining
thereto shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in an Authorized Newspaper in
each Place of Payment or to be mailed to Holders of Registered Securities, or
both, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication
or mailing, any unclaimed balance of such money then remaining will be repaid to
the Company.
SECTION 1004. ADDITIONAL AMOUNTS.
If the Securities of a series provide for the payment of Additional
Amounts, the Company will pay to the Holder of any Security of any series or any
coupon appertaining thereto Additional Amounts as provided therein. Whenever in
this Indenture there is mentioned, in any context, the payment of the principal
of (or premium, if any) or interest on, or in respect of, any Security of any
series or any related coupon or the net proceeds received on the sale or
exchange of any Security of any series, such mention shall be deemed to include
mention of the payment of Additional Amounts provided for in this Section to the
extent that, in such context, Additional Amounts are, were or would be payable
in respect thereof pursuant to the provisions of this Section and express
mention of the
71
<PAGE>
payment of Additional Amounts (if applicable) in any provisions hereof shall not
be construed as excluding Additional Amounts in those provisions hereof where
such express mention is not made.
If the Securities of a series provide for the payment of Additional
Amounts, at least 10 days prior to the first Interest Payment Date with respect
to that series of Securities (or if the Securities of that series will not bear
interest prior to Maturity, the first day on which a payment of principal (and
premium, if any) is made), and at least 10 days prior to each date of payment of
principal (and premium, if any) or interest if there has been any change with
respect to the matters set forth in the below-mentioned Officers' Certificate,
the Company will furnish the Trustee and the Company's principal Paying Agent or
Paying Agents, if other than the Trustee, with an Officers' Certificate
instructing the Trustee and such Paying Agent or Paying Agents whether such
payment of principal (and premium, if any) or interest on the Securities of that
series shall be made to Holders of Securities of that series or the related
coupons who are United States Aliens without withholding for or on account of
any tax, assessment or other governmental charge described in the Securities of
that series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld
on such payments to such Holders of Securities or coupons and the Company will
pay to the Trustee or such Paying Agent the Additional Amounts required by this
Section. The Company covenants to indemnify the Trustee and any Paying Agent
for, and to hold them harmless against, any loss, liability or expense
reasonably incurred without negligence or bad faith on their part arising out of
or in connection with actions taken or omitted by any of them in reliance on any
Officers' Certificate furnished pursuant to this Section.
SECTION 1005. STATEMENT AS TO COMPLIANCE; NOTICE OF CERTAIN DEFAULTS.
(a) The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year, a written statement, which need not comply with Section
102, signed by the principal executive officer, principal financial officer or
principal accounting officer stating that
(1) a review of the activities of the Company during such year and of
performance under this Indenture has been made under his supervision, and
(2) to the best of his knowledge, based on such review, (a) the
Company has fulfilled all of its obligations under this Indenture
throughout such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to him and the
nature and status thereof, and (b) no event has occurred and is continuing
which is, or after notice or lapse of time or both would become, an Event
of Default, or, if such an event has occurred and is continuing, specifying
each such event known to him and the nature and status thereof.
(b) The Company will deliver to the Trustee within five days after the
occurrence thereof, written notice of any event which after notice or lapse of
time or both would become an Event of Default pursuant to Clause (4) of Section
501.
72
<PAGE>
SECTION 1006. LIMITATION ON LIENS.
The Company covenants and agrees that neither it nor any Restricted
Subsidiary will issue, assume or guarantee any Secured Debt, without effectively
providing that the Securities then outstanding and thereafter created (together
with, if the Company so determines, any other indebtedness or obligation then
existing and any other indebtedness or obligation thereafter created ranking
equally with the Securities) shall be secured equally and ratably with (or prior
to) such Secured Debt as long as such Secured Debt shall be so secured, except
that the foregoing provisions shall not apply to:
(a) Mortgages to secure all or any part of the purchase price or the cost
of construction of property or equipment acquired by the Company or a Restricted
Subsidiary, provided such Secured Debt and related Mortgage are incurred within
one year after acquisition, or completion of construction and full operation,
whichever is later;
(b) Mortgages on property owned by the Company or a Restricted Subsidiary
required to secure debts incurred to construct additions, substantial repairs or
alterations or substantial improvements to such properties, provided the amount
of such Secured Debt does not exceed the expense incurred to construct such
additions, substantial repairs or alterations or substantial improvements and
provided further that such Secured Debt and related Mortgages are incurred
within one year after the completion of construction and full operation;
(c) Mortgages existing on property at the time of acquisition of such
property by the Company or a Restricted Subsidiary, or on the property of a
corporation at the time of the acquisition of such corporation by the Company or
a Restricted Subsidiary (including acquisitions through merger or
consolidation);
(d) Mechanics', materialmen's, carriers', landlords' or other like
Mortgages imposed by law, and pledges or deposits made in the ordinary course of
business to obtain the release of any such liens or the release of property in
the possession of a common carrier; good faith deposits to secure performance in
connection with tenders, leases of real property or bids or contracts (other
than contracts for the borrowing of money); pledges or deposits to secure public
or statutory obligations; deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds; and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges;
(e) Mortgages for taxes or assessments not at the time due, or Mortgages
for taxes or assessments already due but the validity of which is being
contested in good faith and by appropriate proceedings and against which
adequate reserves have been set aside on the books of the Company or a
Restricted Subsidiary in accordance with generally accepted accounting
principles;
(f) Mortgages to secure Debt on which the interest payments to bondholders
are exempt from Federal income tax under Section 103 of the Internal Revenue
Code of 1986, as amended;
73
<PAGE>
(g) In the case of a Restricted Subsidiary, Mortgages in favor or the
Company or another Restricted Subsidiary;
(h) Mortgages existing on the date of this Indenture;
(i) Attachment, judgment or other similar Mortgages arising in connection
with court proceedings; provided that the execution or other enforcement of such
Mortgages are effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
(j) Mortgages in favor of a government or governmental entity;
(k) Mortgages incurred in connection with the borrowing of funds if within
one year after entering into such Mortgages, such funds are used to repay
Secured Debt in the same principal amount secured by a Principal Property with a
fair market value at least equal to the fair market value of the Principal
Property which secures the new Mortgages, in each case based on the
determination of the Company's Board of Directors;
(l) Mortgages or deposits in connection with workmen's compensation,
unemployment insurance or social security legislation;
(m) Mortgages or deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, public or statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature;
(n) Leases or similar Mortgages entered into by the Company or any
Restricted Subsidiary as lessor in the ordinary course of business;
(o) Landlord's Mortgages imposed by law;
(p) Mortgages consisting of zoning restrictions, easements, restrictions
on the use of real property of the Company or any Restricted Subsidiary and
minor irregularities in title to such real property, none of which encumbrances
materially impairs the use of any property by the Company, or any of its
Restricted Subsidiaries or the operation of their respective businesses;
(q) Mortgages or deposits securing (or in lieu of) surety, stay appeal or
customs bonds, and securing payment of taxes, assessments, customs duties or
other similar charges;
(r) Mortgages arising in connection with the transfer of tax benefits in
accordance with Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended as it existed immediately prior to the enactment of the Tax Reform Act
of 1986 (or any similar provision of law from time to time in effect); provided
that such Mortgages (i) are incurred within one year after the acquisition of
the property or equipment subject to said Mortgages, (ii) do not extend to any
other property or equipment and (iii) are solely for the purpose of said
transfer of tax benefits or otherwise permitted by this Section 1006; or
74
<PAGE>
(s) Any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part, of any Mortgage referred to in
the foregoing clauses (a) to (r) inclusive or of any Secured Debt secured
thereby provided that the principal amount of Secured Debt secured thereby shall
not exceed the principal amount of Secured Debt so secured at the time of such
extension, renewal or replacement, and that such extension, renewal or
replacement Mortgage shall be limited to all or part of substantially the same
property which secured the Mortgage extended, renewed or replaced (plus
improvements on such property).
Notwithstanding the foregoing provisions of this Section 1006, the Company
or any Restricted Subsidiary may issue, assume or guarantee Secured Debt which
together with the aggregate outstanding principal amount of all other Debt of
the Company and its Subsidiaries which would otherwise be subject to the
foregoing provisions (not including Debt permitted to be secured under clauses
(a) to (s) inclusive above) and with the aggregate Attributable Debt in respect
of Sale and Lease-Back Transactions does not at any one time exceed 10% of
Consolidated Net Tangible Assets. For purposes of calculating such 10%, Secured
Debt permitted under clauses (a) to (s) above and Sale and Lease-Back
Transactions as to which the Company has complied with Section 1007 shall not be
included as Secured Debt or Attributable Debt in such calculation.
SECTION 1007. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS.
The Company covenants and agrees that neither it nor any Restricted
Subsidiary will enter into any arrangement with any Person (other than the
Company or a Restricted Subsidiary), or to which such Person is a party,
providing for the leasing to the Company or a Restricted Subsidiary for a period
of more than three years of any Principal Property which has been or is to be
sold or transferred by the Company or such Restricted Subsidiary to such Person
or to any other Person (other than the Company or a Restricted Subsidiary), to
which funds have been or are to be advanced by such Person on the security of
the leased property (in this Article Ten called "Sale and Lease-Back
Transactions") unless either:
(a) the Company or such Restricted Subsidiary would be entitled, pursuant
to any provision of Section 1006, to incur Secured Debt in a principal amount
equal to or exceeding the Attributable Debt or such Sale and Lease-Back
Transaction, secured by a Mortgage on the property to be leased, without
equally and ratably securing the Securities; or
(b) the Company (and in any such case the Company covenants and agrees
that it will do so) within 120 days after the effective date of such Sale and
Lease-Back Transaction (whether made by the Company or a Restricted Subsidiary)
applies an amount equal to the Value of such Sale and Lease-Back Transaction,
less the principal amount of notes delivered, to the repayment of Funded Debt of
the Company or a Restricted Subsidiary and/or to the acquisition or construction
of Principal Property.
For purposes of this Section 1007, the term "Value" shall mean, with
respect to a Sale and Lease-Back Transaction, as of any particular time, the
amount equal to the greater of (i) the net proceeds of the sale or transfer of
the property leased pursuant to such Sale and Lease-Back Transaction or (ii) the
fair value in the opinion of the chief financial
75
<PAGE>
officer of the Company of such property at the time of entering into such Sale
and Lease-Back Transaction, in either case divided first by the number of full
years of the term of the lease and then multiplied by the number of full years
of such term remaining at the time of determination, without regard to any
renewal or extension options contained in the lease.
SECTION 1008. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1004 to 1007, inclusive, with
respect to the Securities of any series if before the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.
Redemption of Securities of any series at the option of the Company as
permitted or required by the terms of such Securities shall be made in
accordance with the terms of such Securities and (except as otherwise specified
as contemplated by Section 301 for Securities of any series) this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced by
a Company Order. In case of any redemption at the election of the Company of
less than all of the Securities of any series with the same issue date, interest
rate and Stated Maturity, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities of such series to be redeemed.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
Except as otherwise specified as contemplated by Section 301 for Securities
of any series, if less than all the Securities of any series with the same issue
date, interest rate and Stated Maturity are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions of the principal amount of Registered Securities of such series;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount
76
<PAGE>
of a Registered Security of such series not redeemed to less than the minimum
denomination for a Security of that series established pursuant to Section 302.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal of such Securities which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 or more than 60 days prior to the Redemption Date, unless a
shorter period is specified in the Securities to be redeemed, to the Holders of
Securities to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Registered Securities designated for
redemption as a whole or in part, or any defect in the notice to any such
Holder, shall not affect the validity of the proceedings for the redemption of
any other Securities or portion thereof.
Any notice that is mailed to the Holder of any Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Securities to be redeemed, including,
if applicable, the CUSIP Number thereof,
(4) in case any Registered Security is to be redeemed in part only,
the notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the Holder of such
Security will receive, without charge, a new Registered Security or
Registered Securities of authorized denominations for the principal amount
thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed, and, if applicable,
that interest thereon shall cease to accrue on and after said date,
(6) the place or places where such Securities, together in the case
of Bearer Securities with all coupons appertaining thereto, if
77
<PAGE>
any, maturing after the Redemption Date, are to be surrendered for payment
of the Redemption Price, and
(7) that the redemption is for a sinking fund, if such is the case.
A notice of redemption published as contemplated by Section 106 need not
identify particular Registered Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on and any Additional
Amounts with respect thereto, all the Securities or portions thereof which are
to be redeemed on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the coupons for such
interest appertaining to any Bearer Securities so to be redeemed, except to the
extent provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with accrued interest (and
any Additional Amounts) to the Redemption Date; PROVIDED, HOWEVER, that
installments of interest on Bearer Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable only upon presentation and
surrender of coupons for such interest (at an office or agency located outside
the United States except as otherwise provided in Section 1002), and PROVIDED,
FURTHER, that installments of interest on Registered Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Bearer Security surrendered for redemption shall not be accompanied
by all appurtenant coupons maturing after the Redemption Date, such Security may
be paid after deducting from the Redemption Price an amount equal to the face
amount of all such missing coupons, or the surrender of such missing coupon or
coupons may be waived by the Company and the Trustee if there be furnished to
them such security or indemnity as they may require to save each of them and
any Paying Agent harmless. If thereafter the Holder of such Security shall
surrender to the Trustee
78
<PAGE>
or any Paying Agent any such missing coupon in respect of which a deduction
shall have been made from the Redemption Price, such Holder shall be entitled to
receive the amount so deducted; PROVIDED, HOWEVER, that interest (and any
Additional Amounts) represented by coupons shall be payable only upon
presentation and surrender of those coupons at an office or agency located
outside of the United States except as otherwise provided in Section 1002.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
SECTION 1107. SECURITIES REDEEMED IN PART.
Any Registered Security which is to be redeemed only in part shall be
surrendered at any office or agency of the Company maintained for that purpose
pursuant to Section 1002 (with, if the Company of the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing) and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Holder of such Security
without service charge, a new Registered Security or Securities of the same
series, containing identical terms and provisions, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered, except that if a Global Security is so surrendered, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to the Depositary for such Global Security, without service charge, a new Global
Security in a denomination equal to and in exchange for the unredeemed portion
of the principal of the Global Security so surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series, except as otherwise permitted or
required by any form of Security of such series issued pursuant to this
Indenture.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of such series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
79
<PAGE>
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series to be made pursuant to the
terms of such Securities as provided for by the terms of such series (1) deliver
Outstanding Securities of such series (other than any of such Securities
previously called for redemption or any of such Securities in respect of which
cash shall have been released to the Company), together in the case of any
Bearer Securities of such series with all unmatured coupons appertaining
thereto, and (2) apply as a credit Securities of such series which have been
redeemed either at the election of the Company pursuant to the terms of such
series of Securities or through the application of permitted optional sinking
fund payments pursuant to the terms of such Securities, PROVIDED that such
series of Securities have not been previously so credited. Such Securities
shall be received and credited for such purpose by the Trustee at the Redemption
Price specified in such Securities for redemption through operation of the
sinking fund and the amount of such sinking fund payment shall be reduced
accordingly. If as a result of the delivery or credit of Securities of any
series in lieu of cash payments pursuant to this Section 1202, the principal
amount of Securities of such series to be redeemed in order to exhaust the
aforesaid cash payment shall be less than $100,000, the Trustee need not call
Securities of such series for redemption, except upon Company Request, and such
cash payment shall be held by the Trustee or a Paying Agent and applied to the
next succeeding sinking fund payment, PROVIDED, HOWEVER, that the Trustee or
such Paying Agent shall at the request of the Company from time to time pay over
and deliver to the Company any cash payment so being held by the Trustee or such
Paying Agent upon delivery by the Company to the Trustee of Securities of that
series purchased by the Company having an unpaid principal amount equal to the
cash payment requested to be released to the Company.
All Securities of a series providing for a sinking fund in accordance with
this Article, shall be of a different series than (i) Securities of a series
that does not require a sinking fund; and (ii) Securities of a series that
requires a sinking fund with different sinking fund provisions.
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will delivery to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that series pursuant to Section 1202, and the optional amount, if
any, to be added in cash to the next ensuing mandatory sinking fund payment, and
will also deliver to the Trustee any Securities to be so credited and not
theretofore delivered. If such Officers' Certificate shall specify an optional
amount to be added in cash to the next ensuing mandatory sinking fund payment,
the Company shall thereupon be obligated to pay the amount therein specified.
Not less than 30 days before each such sinking fund payment date the Trustee
shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 1103 and cause notice of the redemption
thereof to be
80
<PAGE>
given in the name of and at the expense of the Company in the manner provided in
Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1106 and 1107.
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. APPLICABILITY OF ARTICLE.
Securities of any series which are repayable at the option of the Holders
thereof before their Stated Maturity shall be repaid in accordance with the
terms of the Securities of such series. The repayment of any principal amount
of Securities pursuant to such option of the Holder to require repayment of
Securities before their Stated Maturity, for purposes of Section 309, shall not
operate as a payment, redemption or satisfaction of the indebtedness represented
by such Securities unless and until the Company, at its option, shall deliver or
surrender the same to the Trustee with a directive that such Securities be
cancelled. Notwithstanding anything to the contrary contained in this Article
Thirteen, in connection with any repayment of Securities, the Company may
arrange for the purchase of any Securities by an agreement with one or more
investment bankers or other purchasers to purchase such Securities by paying to
the Holders of such Securities on or before the close of business on the
repayment date an amount not less than the repayment price payable by the
Company on repayment of such Securities, and the obligation of the Company to
pay the repayment price of such Securities shall be satisfied and discharged to
the extent such payment is so paid by such purchasers.
ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1401. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
If Securities of a series are issuable as Bearer Securities, a meeting of
Holders of Securities of such series may be called at any time and from time to
time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series.
SECTION 1402. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of Securities of
any series for any purpose specified in Section 1401, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or in
London as the Trustee shall determine. Notice of every meeting of Holders of
Securities of any series, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section
81
<PAGE>
106, not less than 21 nor more than 180 days prior to the date fixed for the
meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at least 10% in principal amount of the Outstanding Securities of
any series shall have requested the Trustee to call a meeting of the Holders of
Securities of such series for any purpose specified in Section 1401, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have made the first publication of the
notice of such meeting within 21 days after receipt of such request or shall not
thereafter proceed to cause the meeting to be held as provided herein, then the
Company or the Holders of Securities of such series in the amount above
specified, as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York, or in London for such meeting and
may call such meeting for such purposes by giving notice thereof as provided in
subsection (a) of this Section.
SECTION 1403. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing as proxy for
a Holder or Holders of one or more Outstanding Securities of such series by
such Holder or Holders. The only Persons who shall be entitled to be present or
to speak at any meeting of Holders of Securities of any series shall be the
Persons entitled to vote at such meeting and their counsel, any representatives
of the Trustee and its counsel and any representatives of the Company and its
counsel.
SECTION 1404. QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities of a series shall constitute a quorum for a meeting of
Holders of Securities of such series; PROVIDED, HOWEVER, that if any action is
to be taken at such meeting with respect to a consent or waiver which this
Indenture expressly provides may be given by the Holders of not less than 66
2/3% in principal amount of the Outstanding Securities of a series, the Persons
entitled to vote 66 2/3% in principal amount of the Outstanding Securities of
such series shall constitute a quorum. In the absence of a quorum within 30
minutes of the time appointed for any such meeting, the meeting shall, if
convened at the request of Holders of Securities of such series, be dissolved.
In any other case the meeting may be adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting. Notice of the reconvening of any adjourned meeting shall be
given as provided in Section 1402(a), except that such notice need be given only
once not less than five days prior to the date on which the meeting is scheduled
to be reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the
Outstanding Securities of such series which shall constitute a quorum.
82
<PAGE>
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Securities of that series;
PROVIDED, HOWEVER, that, except as limited by the proviso to Section 902, any
resolution with respect to any consent or waiver which this Indenture expressly
provides may be given by the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities of a series may be adopted at a meeting or
an adjourned meeting duly convened and at which a quorum is present as aforesaid
only by the affirmative vote of the Holders of 66 2/3% in principal amount of
the Outstanding Securities of that series; and PROVIDED, FURTHER, that, except
as limited by the proviso to Section 902, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action which this Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage, which is less than a majority, in
principal amount of the Outstanding Securities of a series may be adopted at a
meeting or an adjourned meeting duly reconvened and at which a quorum is present
as aforesaid by the affirmative vote of the Holders of such specified percentage
in principal amount of the Outstanding Securities of that series.
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the related coupons,
whether or not present or represented at the meeting.
SECTION 1405. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS.
(a) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of such series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 104 and the
appointment of any proxy shall be proved in the manner specified in Section 104
or by having the signature of the person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 104 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 1402(b), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled
83
<PAGE>
to vote a majority in principal amount of the Outstanding Securities of such
series represented at the meeting.
(c) At any meeting each Holder of a Security of such series or proxy shall
be entitled to one vote for each $1,000 principal amount of Securities of such
series held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast
or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding. The
chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.
(d) Any meeting of Holders of Securities of any series duly called
pursuant to Section 1402 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
SECTION 1406. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in triplicate of all votes cast at the meeting. A record, at least in
triplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE FIFTEEN
MISCELLANEOUS PROVISIONS
SECTION 1501. SECURITIES IN FOREIGN CURRENCIES.
Whenever this Indenture provides for (i) any action by, or the
determination of any rights of, Holders of Securities of any series in which not
all of such Securities are denominated in the same currency, or (ii) any
distribution to Holders of Securities, in the absence of any provision to the
contrary in the form of Security of any particular series, any amount in respect
of any Security denominated in a currency other than
84
<PAGE>
United States dollars shall be treated for any such action or distribution as
that amount of United States dollars that could be obtained for such amount on
such reasonable basis of exchange and as of the record date with respect to
Registered Securities of such series (if any) for such action, determination of
rights or distribution (or, if there shall be no applicable record date, such
other date reasonably proximate to the date of such action, determination of
rights or distribution) as the Company may specify in a written notice to the
Trustee or, in the absence of such written notice, as the Trustee may determine.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture, dated as
of October 15, 1987, to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
NATIONAL MEDICAL ENTERPRISES, INC.
[Corporate Seal]
By /s/ Maris Andersons
----------------------------
Senior Vice President
and Treasurer
Attest:
/s/ Scott M. Brown
- ---------------------------
Secretary
THE BANK OF NEW YORK
[Corporate Seal]
By /s/ Assistant Vice President
----------------------------
Assistant Vice President
Attest:
/s/ Secretary
- ----------------------------
85
<PAGE>
STATE OF CALIFORNIA )
) SS:
COUNTY OF LOS ANGELES )
On the 19th day of March, 1991, before me personally came Maris Andersons,
to me known, who, being by me duly sworn, did depose and say that he is Senior
Vice President and Treasurer of NATIONAL MEDICAL ENTERPRISES, INC., one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
________________________________
Notary Public
[Notarial Seal]
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On the 15th day of March, 1991, before me personally came
Walter N. Gitlin, to me known, who, being by me duly sworn, did depose and
say that he is an Assistant Vice President of THE BANK OF NEW YORK, one of the
corporations described in and which executed the foregoing instrument; that he
knows that seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
_________________________________
Notary Public
[Notarial Seal]
86
<PAGE>
Exhibit A
FORM OF CERTIFICATE TO BE GIVEN BY
PERSON ENTITLED TO RECEIVE BEARER SECURITY
This is to certify that the above-captioned Security is not being acquired
by or on behalf of a United States person, or for offer to resell or for resale
to a United States person, or, if a beneficial interest in the Security is being
acquired by a United States person, that such person is a financial institution
or is acquiring through a financial institution and that the Security is held by
a financial institution that has agreed in writing to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder. If this certificate is being
provided by a clearing organization, it is based on statements provided to it by
its member organizations. As used herein, "United States" means the United
States of America (including the States thereof and the District of Columbia),
its territories and possessions and other areas subject to its jurisdiction, and
"United States person" means any citizen or resident of the United States, any
corporation, partnership or other entry created or organized in or under the
laws of the United States or any political subdivision thereof and any estate or
trust the income of which is subject to United States federal income taxation
regardless of it source. If the undersigned is a dealer, the undersigned agrees
to obtain a similar certificate from each person entitled to delivery of any of
the above-captioned Securities in bearer form purchased from it; provided,
however, that, if the undersigned has actual knowledge that the information
contained in such a certificate is false, the undersigned will not deliver a
Security in temporary or definitive bearer form and any warrants attached
thereto, to the person who signed such certificate notwithstanding the delivery
of such certificate to the undersigned.
We undertake to advise you by telex if the above statement as to beneficial
ownership is not correct on the date of delivery of the above-captioned
Securities in bearer form as to all such Securities.
We understand that this certificate is required in connection with certain
tax legislation in the United States. If administrative or legal proceedings
are commenced or threatened in connection with which this certificate is or
would be relevant, we irrevocable authorize you to produce this certificate or a
copy thereof to any interested party in such proceedings.
Dated: ________________ , 19__.
87
<PAGE>
Exhibit B
FORM OF CERTIFICATE TO BE GIVEN BY EURO-CLEAR AND CEDEL S.A.
IN CONNECTION WITH THE EXCHANGE OF A PORTION OF
A TEMPORARY GLOBAL SECURITY
NATIONAL MEDICAL ENTERPRISES, INC.
[Insert title or sufficient description of
Securities to be Delivered]
We refer to that portion, ___________ , of the Global Security representing
the above-captioned issue which is herewith submitted to be exchanged for
definitive Securities (the "Submitted Portion"). This is to certify, pursuant
to the indenture dated as of ___________________, 1990 (the "Indenture) between
National Medical Enterprises, Inc. and __________________, as each of the
persons appearing in our records as being entitled to a beneficial interest in
the Submitted Portion a Certificate of Beneficial Ownership by a Non-United
States Person or by a Qualifying Foreign Branch of a United States Financial
Institution (and in some cases, a Certificate of Status as a Qualifying Foreign
Branch of a United States Financial Institution) * substantially in the form of
Exhibit A to the Indenture.
We hereby request that you deliver to the office of ____________________ in
___________________________ definitive Bearer Securities in the denominations on
the attached Schedule A.
We further certify that as of the date hereof we have not received any
notification from any of the persons giving such certificates to the effect that
the statements made by them with respect to any part of the Submitted Portion
are no longer true and cannot be relied on as of the date hereof.
Dated: __________________, 19__
[To be dated no earlier than the
Global Exchange Date]
[Morgan Guaranty Trust Company
of New York, Brussels Office,
as Operator of the Euro-clear
system]
[CEDEL S.A.]
By _________________________________
___________________________
* Delete if inapplicable
88
<PAGE>
Exhibit C
[FORM OF CERTIFICATE TO BE GIVEN BY EURO-CLEAR
AND CEDEL S.A. TO OBTAIN INTEREST
PRIOR TO A GLOBAL EXCHANGE DATE]
NATIONAL MEDICAL ENTERPRISES, INC
[Insert title or sufficient description of
Securities to be Delivered]
We confirm that the interest payable on the above-captioned Securities on
the Interest Payment Date [insert date] will be paid only to those persons
appearing in our records as being entitled to interest payable on the such date
from whom we have received a written certification, dated not earlier than such
Interest Payment date, substantially in the form attached hereto. We undertake
to retain certificates received from our member organizations in connection
herewith for four years from the end of the calendar year in which such
certificates are received.
We undertake that any interest received by us and not paid as provided
above on or prior to _____________________ (the "Global Exchange Date") shall be
returned to the [Trustee] [Global Exchange Agent] for the above Debt Securities
promptly after the Global Exchange Date.
Dated: __________________, 19__
[To be dated on or after the relevant
Interest Payment Date]
[Morgan Guaranty Trust Company
of New York, Brussels Office,
as Operator of the Euro-clear
system]
[CEDEL S.A.]
By __________________________________
89
<PAGE>
Exhibit D
[FORM OF CERTIFICATE TO BE GIVEN BY BENEFICIAL
OWNERS TO OBTAIN INTEREST PRIOR
TO A GLOBAL EXCHANGE DATE]
NATIONAL MEDICAL ENTERPRISES, INC.
[Insert title or sufficient description of Securities]
This is to certify that as of the Interest Payment Date on [Interest Date]
[and except as provided in the third paragraph hereof,]* none of the above-
captioned Securities held by you for your account was beneficially owned by a
United States Person or a person who has purchased its interest in such Debt
Securities held by you for our account were beneficially owned by a United
States Person or a person who has purchased its interest in such Debt Securities
for resale to any United States Person, such United States Person is a
Qualifying Foreign Branch of a United States Financial Institution.
As used herein, "United States Person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision there of
and any estate or trust that is subject to United States federal income taxation
regardless of the source of its income and "United States" means the United
States of America (including the States thereof and the District of Columbia),
its territories and possessions and other areas subject to its jurisdiction. A
"Qualified Foreign Branch of a United States Financial Institution" means a
branch located outside the United States of a United States securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business that agrees to comply
with the requirements of Section 165(j)(3)(A), (B) or (C) or the United States
Internal Revenue Code of 1986, as amended, and the regulations thereunder and
that is not purchasing for offer to resell or for resale inside the United
States.
[This certificate excepts and does not relate to ___________ principal
amount of the above-captioned Securities appearing in your books as being held
for our account as to which we are not yet able to certify and as to which we
understand interest cannot be credited unless and until we are able to so to
certify.]*
______________________________
*Delete if inapplicable.
90
<PAGE>
We understand that this certificate is required in connection with the
United States tax laws. We irrevocably authorize you to produce this
certificate or a copy hereof to any interested party in any administrative or
legal proceedings with respect to matters covered by this certificate.
Dated: __________________ , 19___
[To be dated on or after the
relevant Interest Payment Date]
[Name of Person Entitled to
Receive Bearer Security]
By _______________________________
(Authorized Signatory)
Name: ____________________________
Title: ___________________________
___________________________
*Delete if inapplicable.
91
<PAGE>
[EXECUTION COPY]
_______________________________________________________________________________
_______________________________________________________________________________
TENET HEALTHCARE CORPORATION
____________________________
$500,000,000
8 5/8% SENIOR NOTES due 2003
____________________________
______________________
INDENTURE
Dated as of October 16, 1995
______________________
____________________________
THE BANK OF NEW YORK
____________________________
as Trustee
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.............................................. 1
Section 1.02. Other Definitions........................................ 16
Section 1.03. Incorporation by Reference of TIA........................ 16
Section 1.04. Rules of Construction.................................... 17
ARTICLE 2
THE SECURITIES; OFFER TO PURCHASE PROCEDURES
Section 2.01. Form and Dating.......................................... 17
Section 2.02. Execution and Authentication............................. 18
Section 2.03. Registrar and Paying Agent............................... 18
Section 2.04. Paying Agent to Hold Money in Trust...................... 19
Section 2.05. Holder Lists............................................. 19
Section 2.06. Transfer and Exchange.................................... 20
Section 2.07. Replacement Securities................................... 20
Section 2.08. Outstanding Securities................................... 21
Section 2.09. Treasury Securities...................................... 21
Section 2.10. Temporary Securities..................................... 21
Section 2.11. Cancellation............................................. 22
Section 2.12. Defaulted Interest....................................... 22
Section 2.13. Record Date.............................................. 22
Section 2.14. CUSIP Number............................................. 23
Section 2.15. Offer to Purchase By Application of Excess Proceeds...... 23
ARTICLE 3
COVENANTS
Section 3.01. Payment of Securities.................................... 26
Section 3.02. Maintenance of Office or Agency.......................... 26
Section 3.03. Commission Reports....................................... 27
Section 3.04. Compliance Certificate................................... 28
Section 3.05. Taxes.................................................... 29
Section 3.06. Stay, Extension and Usury Laws........................... 29
Section 3.07. Limitations on Restricted Payments....................... 30
<PAGE>
Section 3.08. Limitations on Dividend and Other Payment Restrictions
Affecting Subsidiaries................................... 33
Section 3.09. Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock.......................................... 34
Section 3.10. Asset Sales.............................................. 36
Section 3.11. Limitations on Transactions with Affiliates.............. 38
Section 3.12. Limitations on Liens..................................... 39
Section 3.13. Change of Control........................................ 39
Section 3.14. Corporate Existence...................................... 41
Section 3.15. Line of Business......................................... 42
Section 3.16. Limitations on Issuances of Guarantees of Indebtedness by
Subsidiaries............................................. 42
Section 3.17. No Amendment To Subordination Provisions Of Senior
Subordinated Notes Indenture............................. 42
ARTICLE 4
SUCCESSORS
Section 4.01. Limitations On Mergers, Consolidations or Sales of
Assets................................................... 43
Section 4.02. Successor Corporation Substituted........................ 44
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.01. Events of Default........................................ 44
Section 5.02. Acceleration............................................. 47
Section 5.03. Other Remedies........................................... 48
Section 5.04. Waiver of Past Defaults.................................. 48
Section 5.05. Control by Majority...................................... 48
Section 5.06. Limitation on Suits...................................... 49
Section 5.07. Rights of Holders to Receive Payment..................... 49
Section 5.08. Collection Suit by Trustee............................... 50
Section 5.09. Trustee May File Proofs of Claim......................... 50
Section 5.10. Priorities............................................... 51
Section 5.11. Undertaking for Costs.................................... 51
ARTICLE 6
TRUSTEE
Section 6.01. Duties of Trustee........................................ 51
Section 6.02. Rights of Trustee........................................ 53
Section 6.03. Individual Rights of Trustee............................. 54
Section 6.04. Trustee's Disclaimer..................................... 54
Section 6.05. Notice of Defaults....................................... 54
ii
<PAGE>
Page
Section 6.06. Reports by Trustee to Holders............................ 54
Section 6.07. Compensation and Indemnity............................... 55
Section 6.08. Replacement of Trustee................................... 56
Section 6.09. Successor Trustee or Agent by Merger, etc................ 57
Section 6.10. Eligibility; Disqualification............................ 57
Section 6.11. Preferential Collection of Claims Against Company........ 57
ARTICLE 7
DISCHARGE OF INDENTURE
Section 7.01. Defeasance and Discharge of this Indenture and the
Securities............................................... 58
Section 7.02. Legal Defeasance and Discharge........................... 58
Section 7.03. Covenant Defeasance...................................... 58
Section 7.04. Conditions to Legal or Covenant Defeasance............... 59
Section 7.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.................... 61
Section 7.06. Repayment to Company..................................... 62
Section 7.07. Reinstatement............................................ 62
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
Section 8.01. Without Consent of Holders............................... 63
Section 8.02. With Consent of Holders.................................. 63
Section 8.03. Compliance with TIA...................................... 65
Section 8.04. Revocation and Effect of Consents........................ 65
Section 8.05. Notation on or Exchange of Securities.................... 65
Section 8.06. Trustee to Sign Amendments, etc.......................... 66
ARTICLE 9
MISCELLANEOUS
Section 9.01. TIA Controls............................................. 66
Section 9.02. Notices.................................................. 66
Section 9.03. Communication by Holders with Other Holders.............. 68
Section 9.04. Certificate and Opinion as to Conditions Precedent....... 68
Section 9.05. Statements Required in Certificate or Opinion............ 68
Section 9.06. Rules by Trustee and Agents.............................. 69
Section 9.07. Legal Holidays........................................... 69
Section 9.08. No Personal Liability of Directors, Officers, Employees and
Shareholders............................................. 69
Section 9.09. Duplicate Originals...................................... 69
iii
<PAGE>
Section 9.10. Governing Law............................................ 69
Section 9.11. No Adverse Interpretation of Other Agreements............ 70
Section 9.12. Successors............................................... 70
Section 9.13. Severability............................................. 70
Section 9.14. Counterpart Originals.................................... 70
Section 9.15. Table of Contents, Headings, etc......................... 70
EXHIBITS
Exhibit A FORM OF SECURITY............................................... A
Exhibit B FORM OF SUPPLEMENTAL INDENTURE................................. B
iv
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
- -------------- -----------------
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08; 6.10
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.03
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.03
313 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06; 9.02
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06
314 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.03; 9.02
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.05
(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(iii)(b)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05; 9.02
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(i)
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(iii)
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . 5.05
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . . . . 5.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13; 8.04
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
N.A. means not applicable.
____________________________
*THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE.
1
<PAGE>
INDENTURE dated as of October 16, 1995 between Tenet Healthcare Corporation, a
Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee (the
"TRUSTEE").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 8 5/8%
Senior Notes due 2003 (the "SECURITIES"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (PROVIDED that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole shall be governed by Section 3.13 and/or Article 4 hereof and not by
Section 3.10 hereof), and (ii) the issuance or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or
1
<PAGE>
a series of related transactions (a) that have a fair market value in excess of
$25.0 million or (b) for net proceeds in excess of $25.0 million.
Notwithstanding the foregoing: (a) a transfer of assets by the Company to a
Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an
issuance of Equity Interests by a Subsidiary to the Company or to another
Subsidiary, (c) a Restricted Payment that is permitted by Section 3.07 hereof
and (d) a Hospital Swap shall not be deemed to be an Asset Sale.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any authorized committee thereof.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE" means, at the time any determination thereof is to be
made, any lease of property, real or personal, in respect of which the present
value of the minimum rental commitment would be capitalized on a balance sheet
of the lessee in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a Capital Lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any Person or group (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than
to a Person or group who, prior to such transaction, held a majority of the
voting power of the voting stock of the Company, (ii) the acquisition by any
Person or group, as defined above, of a direct or indirect interest in more than
50% of the voting power of the voting stock of the Company, by way of merger,
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a
Change of Control and a Rating Decline.
2
<PAGE>
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means Tenet Healthcare Corporation, as obligor under the
Securities, unless and until a successor replaces Tenet Healthcare Corporation,
in accordance with Article 4 hereof and thereafter includes such successor.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period PLUS (i) an
amount equal to any extraordinary loss of such Person PLUS any net loss realized
in connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), PLUS (ii) provision for taxes based on
income or profits of such Person and its Subsidiaries for such period, to the
extent such provision for taxes was included in computing such Consolidated Net
Income, PLUS (iii) the Fixed Charges of such Person and its Subsidiaries for
such period, to the extent that such Fixed Charges were deducted in computing
such Consolidated Net Income, PLUS (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation and
amortization were deducted in computing such Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
3
<PAGE>
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date PLUS (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock), LESS
all write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made in accordance
with GAAP as a result of the acquisition of such business) subsequent to the
date hereof in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, and excluding the cumulative effect of a
change in accounting principles, all as determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date hereof or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 9.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
February 28, 1995, by and among the Company and Morgan Guaranty Trust Company of
New York and the other banks that are party thereto, providing for $1.8 billion
in aggregate principal amount of Senior Term Debt and up to $500.0 million in
aggregate principal amount of Senior Revolving Debt, including any related
notes, collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended as of August 31, 1995, and as amended,
modified, extended, renewed, refunded, replaced or refinanced, in whole or in
part, from time to time.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or
4
<PAGE>
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to December 1, 2003.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement in existence on
the date hereof, until such amounts are repaid, including all reimbursement
obligations with respect to letters of credit outstanding as of the date hereof
(other than letters of credit issued pursuant to the Credit Agreement)).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period; and PROVIDED FURTHER that for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the four-
quarter reference period, and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges
5
<PAGE>
incurred in respect of letters of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized during
such period, and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Subsidiaries or secured by a
Lien on assets of such Person or one of its Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Subsidiary) on any series of preferred stock of such Person, TIMES (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts or currency swap agreements and (iii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency values.
"HOLDER" means a Person in whose name a Security is registered.
"HOSPITAL" means a hospital, outpatient clinic, long-term care
facility or other facility that is used or useful in the provision of healthcare
services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a
Subsidiary of the Company for one or more Hospitals and/or one or more Related
6
<PAGE>
Businesses or for the Capital Stock of any Person owning one or more Hospitals
and/or one or more Related Businesses.
"INDEBTEDNESS" means with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time.
"INTERNATIONAL SUBSIDIARIES" means International-NME, Inc., NME
(Australia) Pty. Limited, and each of such Person's respective Subsidiaries.
"INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the
event that the Company shall select any other Rating Agency, the equivalent of
such ratings by such Rating Agency shall be used.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; PROVIDED that an acquisition of assets, Equity
Interests or other securities by the Company for consideration consisting of
common equity securities of the Company shall not be deemed to be an Investment.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security
7
<PAGE>
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with
respect to any such lien, pledge, charge or security interest).
"METROCREST LETTER OF CREDIT FACILITY" means that certain letter of
credit facility, dated as of February 28, 1995, by and among the Company and
Morgan Guaranty Trust Company of New York and the other banks that are party
thereto, in an aggregate principal amount of $91.35 million.
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
permitted Non-Cash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions) and any other
expenses incurred or to be incurred by the Company or a Subsidiary as a direct
result of the sale of such assets (including, without limitation, severance,
relocation, lease termination and other similar expenses), taxes actually paid
or payable as a result thereof, amounts required to be applied to the repayment
of Indebtedness (other than Senior Term Debt or Senior Revolving Debt) secured
by a Lien on the asset or assets that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"NON-CASH CONSIDERATION" means any non-cash consideration received by
the Company or a Subsidiary of the Company in connection with an Asset Sale and
any non-cash consideration received by the Company or any of its Subsidiaries
upon disposition thereof.
"NON-RECOURSE DEBT" means Indebtedness of an International Subsidiary
(i) as to which neither the Company nor any of its Subsidiaries (other than the
8
<PAGE>
International Subsidiaries) (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness of
the Company or any of its Subsidiaries), or (b) is directly or indirectly liable
(as a guarantor or otherwise) and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an International Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Subsidiaries (other than the International Subsidiaries) to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity (except any such provisions set forth in
Existing Indebtedness until the same is repaid or refinanced).
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary
and any Vice President of the Company or any Subsidiary, as the case may be.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers,
one of whom must be the principal executive officer, principal financial officer
or principal accounting officer of the Company.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company, any Subsidiary or the Trustee.
"PAYMENT DEFAULT" means any failure to pay any scheduled installment
of interest or principal on any Indebtedness within the grace period provided
for such payment in the documentation governing such Indebtedness.
"PERFORMANCE INVESTMENT PLAN" means the 1989 Performance Investment
Plan adopted by the Company's Board of Directors on March 10, 1989.
"PERMITTED COLLATERAL" means, collectively, (i) all Capital Stock and
other Equity Interests of the Company's present and future direct Subsidiaries,
(ii) all intercompany Indebtedness owed to the Company and (iii) all Capital
Stock and other Equity Interests in Westminster Health Care Holdings PLC owned
by the Company or its Subsidiaries.
"PERMITTED LIENS" means (i) Liens on Permitted Collateral securing
Senior Term Debt of the Company under the Credit Agreement in an aggregate
principal
9
<PAGE>
amount at any time outstanding not to exceed an amount equal to $1.8 billion
less the aggregate amount of all repayments, optional or mandatory, of the
principal of any Senior Term Debt (other than repayments that are immediately
reborrowed) that have been made since March 1, 1995; (ii) Liens on Permitted
Collateral securing Senior Revolving Debt and letters of credit of the Company
incurred pursuant to the Credit Agreement in an aggregate principal amount at
any time outstanding (with letters of credit being deemed to have a principal
amount equal to the maximum potential reimbursement obligation of the Company
with respect thereto) not to exceed an amount equal to $500.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce commitments with respect to such Indebtedness pursuant to Section 3.10
hereof since March 1, 1995; (iii) Liens in favor of the Company; (iv) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company or becomes a
Subsidiary of the Company; PROVIDED that such Liens were in existence prior to
the contemplation of such merger, consolidation or acquisition and do not extend
to any assets other than those of the Person merged into or consolidated with
the Company or that becomes a Subsidiary of the Company; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition; (vi) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vii)
Liens existing on the date hereof, including, without limitation, Liens on
Permitted Collateral securing reimbursement obligations under the Metrocrest
Letter of Credit Facility; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) other Liens
on assets of the Company or any Subsidiary of the Company securing Indebtedness
that is permitted by the terms hereof to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed 10% of the
Stockholders' Equity of the Company; and (x) Liens to secure Permitted
Refinancing Indebtedness incurred to refinance Indebtedness that was secured by
a Lien permitted hereunder and that was incurred in accordance with the
provisions hereof; PROVIDED that such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary other than assets or
property securing the Indebtedness so refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED
that, except in the case of Indebtedness of the Company issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund,
10
<PAGE>
Indebtedness of a Subsidiary of the Company: (i) the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of any premiums paid and reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Securities, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Securities on terms at least as favorable to the Holders of Securities
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated organization
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by
the Company or any of its Subsidiaries to any physician, pharmacist or other
allied healthcare professional in connection with the unwinding, liquidation or
other termination of any joint venture or similar arrangement between any such
Person and the Company or any of its Subsidiaries.
"PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee
incurred in the ordinary course of business by the Company or a Subsidiary of
the Company in connection with any advance, loan or payment to, or on behalf of
or for the benefit of any physician, pharmacist or other allied healthcare
professional for the purpose of recruiting, redirecting or retaining the
physician, pharmacist or other allied healthcare professional to provide service
to patients in the service area of any Hospital or Related Business owned or
operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER,
compensation for services provided by physicians, pharmacists or other allied
healthcare professionals to any Hospital or Related Business owned or operated
by the Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the
Company other than Disqualified Stock of the Company.
11
<PAGE>
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, shall be substituted for S&P or Moody's or both, as the
case may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining
whether the rating of the Securities has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into account
(E.G., with respect to S&P, a decline in a rating from BB+ to BB, as well as
from BB- to B+, shall constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of
(i) a Change of Control and (ii) the first public notice of the occurrence of a
Change of Control or of the intention by the Company to effect a Change of
Control.
"RATING DECLINE" means the occurrence on or within 90 days after the
date of the first public notice of the occurrence of a Change of Control or of
the intention by the Company to effect a Change of Control (which period shall
be extended so long as the rating of the Securities is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Securities are rated by either Moody's or S&P on the Rating Date
as Investment Grade, a decrease in the rating of the Securities by both Rating
Agencies to a rating that is below Investment Grade, or (b) in the event the
Securities are rated below Investment Grade by both Rating Agencies on the
Rating Date, a decrease in the rating of the Securities by either Rating Agency
by one or more gradations (including gradations within Rating Categories as well
as between Rating Categories).
"REFINANCING" has the meaning ascribed to it in the prospectus dated
February 21, 1995 relating to the Company's 9 5/8% Senior Notes due 2002 and the
Senior Subordinated Notes.
"RELATED BUSINESS" means a healthcare business affiliated or
associated with a Hospital or any business related or ancillary to the provision
of healthcare services or the operation of a Hospital.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions
12
<PAGE>
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"RESTRICTED INVESTMENT" means an Investment in any of the
International Subsidiaries.
"SECURITIES" means the securities described above, issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR NOTES INDENTURE" means the Indenture dated as of March 1, 1995
between the Company and The Bank of New York, as trustee, as amended or
supplemented from time to time, under which the Company's 9 5/8% Senior Notes
due 2002 were issued
"SENIOR REVOLVING DEBT" means revolving credit loans outstanding from
time to time under the Credit Agreement.
"SENIOR SUBORDINATED NOTES" means the 10 1/8% Senior Subordinated Notes
due 2005 of the Company in an aggregate principal amount of $900.0 million,
issued pursuant to the Senior Subordinated Note Indenture.
"SENIOR SUBORDINATED NOTES INDENTURE" means the Indenture dated as of
March 1, 1995 between the Company and The Bank of New York, as trustee, as
amended or supplemented from time to time, under which the Senior Subordinated
Notes were issued.
"SENIOR TERM DEBT" means term loans outstanding from time to time
under the Credit Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"S&P" means Standard & Poor's Corporation and its successors.
"SPECIFIED ASSETS" means the Company's and its Subsidiaries' interest
in The Hillhaven Corporation and Westminster Healthcare Holdings PLC owned as of
the date hereof and the Capital Stock and assets of the International
Subsidiaries.
13
<PAGE>
"STOCKHOLDERS' EQUITY" means, with respect to any Person as of any
date, the stockholders' equity of such Person determined in accordance with GAAP
as of the date of the most recent available internal financial statements of
such Person, and calculated on a pro forma basis to give effect to any
acquisition or disposition by such Person consummated or to be consummated since
the date of such financial statements and on or prior to the date of such
calculation.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof); PROVIDED that no
International Subsidiary shall be deemed to be a "Subsidiary" for any purpose
hereunder for so long as such International Subsidiary: (a) has no Indebtedness
other than Existing Indebtedness and Non-Recourse Debt; (b) is not a party to
any agreement, contract, arrangement or understanding with the Company or any of
its other Subsidiaries (other than International Subsidiaries) except any such
agreement, contract, arrangement or understanding that (i) was in effect on the
date hereof, or (ii) meets the requirements of Section 3.11 hereof; (c) is a
Person with respect to which neither the Company nor any of its Subsidiaries
(other than International Subsidiaries) has any direct or indirect obligation
(x) to subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified level of operating results except, in each case, any such obligation
in existence on the date hereof or created pursuant to the terms of any
Investment permitted by Section 3.07 hereof; and (d) has not Guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Subsidiaries (other than International Subsidiaries).
If, at any time, any International Subsidiary would fail to meet the foregoing
requirements, it shall thereafter be deemed to be a Subsidiary for all purposes
of this Indenture and any Indebtedness of such International Subsidiary shall be
deemed to be incurred by a Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under Section
3.09 hereof, the Company shall be in default of such covenant).
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA, except as provided in Section 8.03 hereof.
14
<PAGE>
"TRANSFER RESTRICTION" means, with respect to the Company's
Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to
(i)(a) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries, or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
---- -------
"Affiliate Transaction". . . . . . . . . . . . . . 3.11
"Bankruptcy Law" . . . . . . . . . . . . . . . . . 5.01
"Change of Control Offer". . . . . . . . . . . . . 3.13
"Change of Control Payment". . . . . . . . . . . . 3.13
"Change of Control Payment Date" . . . . . . . . . 3.13
"Commencement Date". . . . . . . . . . . . . . . . 2.15
"Covenant Defeasance". . . . . . . . . . . . . . . 7.03
"Custodian". . . . . . . . . . . . . . . . . . . . 5.01
"Event of Default" . . . . . . . . . . . . . . . . 5.01
"Excess Proceeds". . . . . . . . . . . . . . . . . 3.10
"incur". . . . . . . . . . . . . . . . . . . . . . 3.09
15
<PAGE>
"Legal Defeasance" . . . . . . . . . . . . . . . . 7.02
"Legal Holiday". . . . . . . . . . . . . . . . . . 9.07
"Notice of Default". . . . . . . . . . . . . . . . 5.01
"Offer Amount" . . . . . . . . . . . . . . . . . . 2.15
"Offer Period" . . . . . . . . . . . . . . . . . . 2.15
"Paying Agent" . . . . . . . . . . . . . . . . . . 2.03
"Purchase Date". . . . . . . . . . . . . . . . . . 2.15
"Purchase Price" . . . . . . . . . . . . . . . . . 3.10
"Registrar". . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments". . . . . . . . . . . . . . . 3.07
"Senior Asset Sale Offer". . . . . . . . . . . . . 3.10
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Securities;
"INDENTURE SECURITY HOLDER" means a Holder;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Securities means the Company and any successor
obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by the Commission rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
16
<PAGE>
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES; OFFER TO PURCHASE PROCEDURES
SECTION 2.01. FORM AND DATING.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Securities may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is subject
or usage. Each Security shall be dated the date of its authentication. The
Securities shall be issuable only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities for the Company by
manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate
17
<PAGE>
principal amount of Securities outstanding at any time shall not exceed the
amount set forth herein except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Securities
may be presented for registration of transfer or for exchange (including any co-
registrar, the "REGISTRAR") and (ii) an office or agency where Securities may be
presented for payment (the "PAYING AGENT"). The Registrar shall keep a register
of the Securities and of their transfer and exchange. The Company may appoint
one or more co-registrars and one or more additional paying agents. The term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent, Registrar or co-registrar without prior notice to any Holder. The
Company shall notify the Trustee and the Trustee shall notify the Holders of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-
registrar. The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the provisions
of the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such, and shall be entitled to appropriate compensation in accordance with
Section 6.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to the due date of principal of, premium, if any, and
interest on any Securities, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and
interest becoming due. The Company shall require each Paying Agent other than
the
18
<PAGE>
Trustee to agree in writing that the Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Company in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company) shall have no
further liability for the money delivered to the Trustee. If the Company acts
as Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount of the Securities held by each thereof, and the
Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transactions are met; PROVIDED,
HOWEVER, that any Security presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed by
the Holder thereof or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Securities at the Registrar's request, subject to such rules
as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to register
the transfer or exchange of a Security between the record date and the next
succeeding interest payment date.
19
<PAGE>
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10 or 8.05 hereof, which shall be paid by the Company).
Prior to due presentment for registration of transfer of any Security,
the Trustee, any Agent and the Company may deem and treat the Person in whose
name any Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of, premium, if any, and interest on
such Security and for all other purposes whatsoever, whether or not such
Security is overdue, and neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
SECTION 2.07. REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Trustee or the
Company, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss which any of them may
suffer if a Security is replaced. Each of the Company and the Trustee may
charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
20
<PAGE>
If the principal amount of any Security is considered paid under
Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities then outstanding have concurred in any demand, direction, waiver or
consent, Securities owned by the Company or any Affiliate of the Company shall
be considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such demand, direction,
waiver or consent, only Securities that a Responsible Officer actually knows to
be so owned shall be so considered. Notwithstanding the foregoing, Securities
that are to be acquired by the Company or an Affiliate of the Company pursuant
to an exchange offer, tender offer or other agreement shall not be deemed to be
owned by the Company or an Affiliate of the Company until legal title to such
Securities passes to the Company or such Affiliate, as the case may be.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee, upon receipt of the written order of the Company signed
by two Officers of the Company, shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company and the Trustee consider appropriate
for temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee, upon receipt of the written order of the Company signed by two
Officers of the Company, shall authenticate definitive Securities in exchange
for temporary Securities. Until such exchange, temporary Securities shall be
entitled to the same rights, benefits and privileges as definitive Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall return
such cancelled Securities to the Company. The Company may not issue new
Securities to replace
21
<PAGE>
Securities that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
related payment date, in each case at the rate provided in the Securities and in
Section 3.01 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each such special record date and payment date. At least 15
days before the special record date, the Company (or the Trustee, in the name of
and at the expense of the Company) shall mail to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP" number, and if
it does so, the Trustee shall use the CUSIP number in notices to Holders;
PROVIDED that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the
Trustee of any change in the CUSIP number.
SECTION 2.15. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that the Company shall commence a Senior Asset Sale Offer
pursuant to Section 3.10 hereof, it shall follow the procedures specified below.
No later than the date on which the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such
Senior Asset Sale Offer and provide the Trustee with an Officers' Certificate
22
<PAGE>
setting forth, in addition to the information to be included therein pursuant to
Section 3.10 hereof, the calculations used in determining the amount of Net
Proceeds to be applied to the purchase of Securities. The Company shall
commence or cause to be commenced the Senior Asset Sale Offer on a date no later
than 10 Business Days after such notice (the "COMMENCEMENT DATE").
The Senior Asset Sale Offer shall remain open for at least 20 Business
Days after the Commencement Date relating to such Senior Asset Sale Offer and
shall remain open for no more than such 20 Business Days, except to the extent
required by applicable law (as so extended, the "OFFER PERIOD"). No later than
one Business Day after the termination of the Offer Period (the "PURCHASE
DATE"), the Company shall purchase the principal amount (the "OFFER AMOUNT") of
Securities required to be purchased in such Senior Asset Sale Offer pursuant to
Section 3.10 hereof or, if less than the Offer Amount has been tendered, all
Securities tendered in response to the Senior Asset Sale Offer, in each case for
an amount in cash equal to the Purchase Price.
If the Purchase Date is on or after an interest payment record date
and on or before the related interest payment date, any accrued interest shall
be paid to the Person in whose name a Security is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Securities pursuant to the Senior Asset Sale Offer.
On the Commencement Date of any Senior Asset Sale Offer, the Company
shall send, or at the Company's request the Trustee shall send, by first class
mail, a notice to each of the Holders at their last registered address, with a
copy to the Trustee and the Paying Agent, offering to repurchase the Securities
held by such Holder pursuant to the procedure specified in such notice. Such
notice, which shall govern the terms of the Senior Asset Sale Offer, shall
contain all instructions and materials necessary to enable the Holders to tender
Securities pursuant to the Senior Asset Sale Offer and shall state:
(1) that the Senior Asset Sale Offer is being made pursuant to
this Section 2.15 and Section 3.10 hereof and the length of
time the Senior Asset Sale Offer shall remain open;
(2) the Offer Amount, the Purchase Price and the Purchase Date;
(3) that any Security not tendered or accepted for payment shall
continue to accrue interest;
23
<PAGE>
(4) that, unless the Company defaults in the payment of the
Purchase Price, any Security accepted for payment pursuant
to the Senior Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(5) that Holders electing to have a Security purchased pursuant
to any Senior Asset Sale Offer shall be required to
surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security
completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the
notice prior to the close of business on the Business Day
next preceding the Purchase Date;
(6) that Holders shall be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be,
receives, not later than the close of business on the
Business Day next preceding the termination of the Offer
Period, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security
purchased;
(7) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Trustee
shall select the Securities to be purchased on a PRO RATA
basis (with such adjustments as may be deemed appropriate by
the Trustee so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased);
(8) that Holders whose Securities were purchased only in part
shall be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such Asset
Sale and any other information that would be
24
<PAGE>
material to a decision as to whether to tender a Security
pursuant to the Senior Asset Sale Offer.
On the Purchase Date, the Company shall, to the extent lawful, (i)
accept for payment, on a PRO RATA basis to the extent necessary, an aggregate
principal amount equal to the Offer Amount of Securities tendered pursuant to
the Senior Asset Sale Offer, or if less than the Offer Amount has been tendered,
all Securities or portion thereof so tendered, (ii) deposit with the Paying
Agent an amount equal to the Purchase Price in respect of all Securities or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Securities so accepted together with an Officers' Certificate
stating the aggregate principal amount of Securities or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to each Holder
of Securities so tendered payment in an amount equal to the Purchase Price for
such Securities and the Trustee shall promptly authenticate and mail (or cause
to be transferred by book entry) a new Security to such Holder equal in
principal amount to any unpurchased portion of the Securities surrendered, if
any; PROVIDED that each such new Security shall be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly announce the
results of the Senior Asset Sale Offer on or as soon as practicable after the
Purchase Date.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities as a result of the Senior Asset Sale Offer.
ARTICLE 3
COVENANTS
SECTION 3.01. PAYMENT OF SECURITIES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Securities on the dates and in the manner provided
in this Indenture and the Securities. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on
the due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. Such Paying Agent shall return to the Company, no later than
five days following the date of payment, any money (including accrued interest)
that exceeds such amount of principal, premium, if any, and interest to be paid
on the Securities.
25
<PAGE>
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the interest rate then applicable to the Securities
to the extent lawful. In addition, it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates The Bank of New York, 101 Barclay
Street, 21 West, New York, New York 10286 as one such office or agency of the
Company in accordance with Section 2.03 hereof.
SECTION 3.03.COMMISSION REPORTS.
(i) So long as any of the Securities remain outstanding, the Company
shall provide to the Trustee within 15 days after the filing thereof with the
Commission copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
26
<PAGE>
All obligors on the Securities shall comply with the provisions of TIA Section
314(a). Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Commission, the
Company shall file with the Commission and provide to the Trustee (a) within 90
days after the end of each fiscal year, annual reports on Form 10-K (or any
successor or comparable form) containing the information required to be
contained therein (or required in such successor or comparable form), including
a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and a report thereon by the Company's certified public accountants;
(b) within 45 days after the end of each of the first three fiscal quarters of
each fiscal year, reports on Form 10-Q (or any successor or comparable form)
containing the information required to be contained therein (or required in any
successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly from time to
time after the occurrence of an event required to be therein reported, such
other reports on Form 8-K (or any successor or comparable form) containing the
information required to be contained therein (or required in any successor or
comparable form); PROVIDED, HOWEVER, that the Company shall not be in default of
the provisions of this Section 3.03(i) for any failure to file reports with the
Commission solely by the refusal of the Commission to accept the same for
filing. Each of the financial statements contained in such reports shall be
prepared in accordance with GAAP.
(ii) The Trustee, at the Company's expense, shall promptly mail copies
of all such annual reports, information, documents and other reports provided to
the Trustee pursuant to Section 3.03(i) hereof to the Holders at their addresses
appearing in the register of Securities maintained by the Registrar.
(iii) Whether or not required by the rules and regulations of the
Commission, the Company shall file a copy of all such information and reports
with the Commission for public availability and make such information available
to securities analysts and prospective investors upon request.
(iv) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Trustee may
be required to deliver to the Holders under this Section 3.03.
(v) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
27
<PAGE>
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 3.04. COMPLIANCE CERTIFICATE.
(i) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge each entity
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action each is taking or
proposes to take with respect thereto), all without regard to periods of grace
or notice requirements, and that to the best of his or her knowledge no event
has occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Securities is prohibited or if such
event has occurred, a description of the event and what action each is taking or
proposes to take with respect thereto.
(ii) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 3.03 above shall be accompanied by a
written statement of the Company's certified independent public accountants (who
shall be a firm of established national reputation) that in making the
examination necessary for certification of such financial statements nothing has
come to their attention which would lead them to believe that the Company or any
Subsidiary of the Company has violated any provisions of Article 3 or of
Article 4 of this Indenture or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(iii) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of (a) any Default or Event of Default or (b) any event of default under any
other mortgage, indenture or instrument referred to in Section 5.01(v) hereof,
an Officers' Certificate specifying such Default, Event of Default or event of
default and what action the Company is taking or proposes to take with respect
thereto.
28
<PAGE>
SECTION 3.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except (i) as contested in good faith by appropriate proceedings and with
respect to which appropriate reserves have been taken in accordance with GAAP or
(ii) where the failure to effect such payment is not adverse in any material
respect to the Holders.
SECTION 3.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than (w) Physician Joint Venture Distributions, (x) dividends
or distributions payable in Qualified Equity Interests of the Company, (y)
dividends or distributions payable to the Company or any Subsidiary of the
Company and (z) dividends or distributions by any Subsidiary of the Company
payable to all holders of a class of Equity Interests of such Subsidiary on a
PRO RATA basis); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company; (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Securities, except at the original
final maturity date thereof or pursuant to the Refinancing; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"),
unless, at the time of and after giving effect to such Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the fair
market value (as conclusively evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee within
60 days prior to the date of such Restricted Payment) of the asset(s) proposed
to be
29
<PAGE>
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the most recently ended
four full fiscal quarter period for which internal financial
statements are available immediately preceding the date of such
Restricted Payment, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 3.09
hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (v) of the next succeeding
paragraph) made by the Company and its Subsidiaries after March
1, 1995, is less than the sum of (1) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing
after March 1, 1995 to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit), PLUS (2) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale (other
than to a Subsidiary of the Company) since March 1, 1995 of
Qualified Equity Interests of the Company or of debt securities
of the Company or any of its Subsidiaries that have been
converted into or exchanged for such Qualified Equity Interests
of the Company, PLUS (3) $20.0 million.
If no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, the foregoing provisions shall not
prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions hereof;
30
<PAGE>
(ii) the payment of cash dividends on any series of Disqualified Stock
issued after the date hereof in an aggregate amount not to exceed
the cash received by the Company since the date hereof upon
issuance of such Disqualified Stock;
(iii) the repurchase of the Performance Investment Plan investment
options from the holders thereof;
(iv) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Subsidiary in exchange
for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of
Qualified Equity Interests of the Company; PROVIDED that the
amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(2) of the preceding paragraph;
(v) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or in exchange for or out of
the net cash proceeds from the substantially concurrent sale
(other than to a Subsidiary of the Company) of Qualified Equity
Interests of the Company; PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded
from clause (c)(2) of the preceding paragraph;
(vi) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of
the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; PROVIDED that
the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $5.0
million in any twelve-month period; and
(vii) the making and consummation of (A) an offer to purchase or
redeem the Senior Subordinated Notes in accordance with the
provisions of the Senior Subordinated Notes Indenture with
any Excess Proceeds that remain after
31
<PAGE>
consummation of a Senior Asset Sale Offer, within 120 days
of the consummation of such Senior Asset Sale Offer, or (B)
a Change of Control Offer with respect to the Senior
Subordinated Notes in accordance with the provisions of the
Senior Subordinated Notes Indenture.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed.
SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual Transfer Restriction, except for such Transfer
Restrictions existing under or by reason of:
(a) Existing Indebtedness as in effect on the date hereof,
(b) this Indenture,
(c) applicable law,
(d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation
of such acquisition or in violation of Section 3.09 hereof),
which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, PROVIDED
that the Consolidated Cash Flow of such Person shall not be taken
into account in determining whether such acquisition was
permitted by the terms hereof except to the extent that such
Consolidated Cash Flow would be permitted to be dividends to the
Company without the prior consent or approval of any third party,
(e) customary non-assignment provisions in leases entered into in the
ordinary course of business,
32
<PAGE>
(f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the ability of any
of the Company's Subsidiaries to transfer the property so
acquired to the Company or any of its Subsidiaries,
(g) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced, or
(h) the Credit Agreement and related documentation as the same is in
effect on the date hereof and as amended or replaced from time to
time, PROVIDED that no such amendment or replacement is more
restrictive as to Transfer Restrictions than the Credit Agreement
and related documentation as in effect on the date hereof.
SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "INCUR") after the date hereof any Indebtedness (including
Acquired Debt), and the Company shall not issue any Disqualified Stock and shall
not permit any of its Subsidiaries to issue any shares of preferred stock;
PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired
Debt) and the Company may issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least (x) 2.25 to 1 if such incurrence or
issuance occurs on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence
or issuance occurs at any time thereafter, in each case determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period. Indebtedness consisting of reimbursement obligations in respect of a
letter of credit shall be deemed to be incurred when the letter of credit is
first issued. The Company shall not permit any of the International
Subsidiaries to incur any Indebtedness other than Non-Recourse Debt.
33
<PAGE>
The foregoing provisions shall not apply to:
(a) the incurrence by the Company of Senior Term Debt pursuant to the
Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed an amount equal to $1.8 billion less
the aggregate amount of all repayments, optional or mandatory, of
the principal of any Senior Term Debt (other than repayments that
are immediately reborrowed) that have been made since March 1,
1995;
(b) the incurrence by the Company of Senior Revolving Debt and
letters of credit pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding (with letters
of credit being deemed to have a principal amount equal to the
maximum potential reimbursement obligation of the Company with
respect thereto) not to exceed an amount equal to $500.0 million
less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to Section 3.10 hereof or of the
Senior Notes Indenture after March 1, 1995;
(c) the incurrence by the Company of Indebtedness represented by the
Securities;
(d) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(e) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
defease, or refund, Indebtedness that was permitted by this
Indenture to be incurred (including, without limitation, Existing
Indebtedness);
(f) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate or
currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms hereof to be
outstanding or any receivable or liability the payment of which
is determined by reference to a foreign currency; PROVIDED that
the notional principal amount of any such
34
<PAGE>
Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates;
(g) the incurrence by the Company or any of its Subsidiaries of
Physician Support Obligations;
(h) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of
its Subsidiaries;
(i) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by performance bonds, standby letters of
credit or appeal bonds, in each case to the extent incurred in
the ordinary course of business of the Company or such
Subsidiary;
(j) the incurrence by any Subsidiary of the Company of Indebtedness,
the aggregate principal amount of which, together with all other
Indebtedness of the Company's Subsidiaries at the time
outstanding (excluding the Existing Indebtedness until repaid or
refinanced and excluding Physician Support Obligations), does not
exceed the greater of (1) 10% of the Company's Stockholders'
Equity as of the date of incurrence or (2) $10.0 million;
PROVIDED that, in the case of clause (1) only, the Fixed Charge
Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are
available immediately preceding the date on which such
Indebtedness is incurred would have been at least (x) 2.25 to 1
if such incurrence occurs on or before March 31, 1996, or (y) 2.5
to 1 if such incurrence occurs at any time thereafter, in each
case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if such
Indebtedness had been incurred at the beginning of such four-
quarter period; and
(k) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in
an aggregate principal amount at any time outstanding not to
exceed $250.0 million.
SECTION 3.10. ASSET SALES.
35
<PAGE>
The Company shall not, and shall not permit any of its Subsidiaries to
consummate an Asset Sale, unless (i) the Company (or the Subsidiary as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (as conclusively determined by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee) of
the assets or Equity Interests issued or sold or otherwise disposed of and (ii)
except in the case of a sale of Specified Assets, at least 80% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash; PROVIDED, HOWEVER, that for purposes of this provision, (x) the amount
of (A) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet or in the notes thereto), of the Company or any Subsidiary
(other than, in the case of an Asset Sale by the Company, liabilities that are
by their terms subordinated to the Securities) that are assumed by the
transferee of any such assets and (B) any securities or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into cash (or as to
which the Company or such Subsidiary has received at or prior to the
consummation of the Asset Sale a commitment (which may be subject to customary
conditions) from a nationally recognized investment, merchant or commercial bank
to convert into cash within 90 days of the consummation of such Asset Sale and
which are thereafter actually converted into cash within such 90-day period)
shall be deemed to be cash (but shall not be deemed to be Net Proceeds for
purposes of the following provisions until reduced to cash); and (y) the fair
market value of any Non-Cash Consideration received by the Company or a
Subsidiary in any Asset Sale shall be deemed to be cash (but shall not be deemed
to be Net Proceeds for purposes of the following provisions until reduced to
cash) to the extent that the aggregate fair market value (as conclusively
determined by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at
the time received and without giving effect to any subsequent changes in value)
held by the Company immediately after consummation of such Asset Sale does not
exceed 10% of the Company's Stockholders' Equity as of the date of such
consummation.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds (i) to purchase one or more
Hospitals or Related Businesses and/or a controlling interest in the Capital
Stock of a Person owning one or more Hospitals and/or one or more Related
Businesses, (ii) to make a capital expenditure or to acquire other tangible
assets, in each case, that are used or useful in any business in which the
Company is permitted to be engaged pursuant to Section 3.15 hereof, (iii) to
permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary or
(iv) to permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto), except that up to an aggregate of $200.0
36
<PAGE>
million of Net Proceeds from Asset Sales may be applied after the date hereof to
reduce Senior Revolving Debt without a corresponding reduction in commitments
with respect thereto. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Senior Revolving Debt or otherwise invest
such Net Proceeds in any manner that is not prohibited by the terms hereof. Any
Net Proceeds from Asset Sales that are not so invested or applied shall be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders
of Securities and holders of any other Indebtedness of the Company ranking on a
parity with the Securities from time to time outstanding with similar provisions
requiring the Company to make an offer to purchase or to redeem such
Indebtedness with the proceeds from any asset sales, PRO RATA in proportion to
the respective principal amounts of the Securities and such other Indebtedness
then outstanding (a "SENIOR ASSET SALE OFFER") to purchase the maximum principal
amount of Securities and such other Indebtedness that may be purchased out of
the Excess Proceeds, at an offer price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase (the "PURCHASE PRICE"), in accordance with the procedures set forth in
Section 2.15 hereof. To the extent that the aggregate amount of Securities and
such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes, including an offer to purchase Senior Subordinated
Notes pursuant to Section 4.10 of the Senior Subordinated Notes Indenture. If
the aggregate principal amount of Securities and such other Indebtedness
surrendered by holders pursuant to a Senior Asset Sale Offer exceeds the amount
of Excess Proceeds, the Securities and such other Indebtedness shall be
purchased on a PRO RATA basis. Upon completion of a Senior Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
SECTION 3.11. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or Guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION")
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that could have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction was
37
<PAGE>
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $15.0 million, an opinion as to the fairness of such
Affiliate Transaction to the Company or such Subsidiary from a financial point
of view issued by an investment banking firm of national standing; PROVIDED that
(x) transactions or payments pursuant to any employment arrangements or employee
or director benefit plans entered into by the Company or any of its Subsidiaries
in the ordinary course of business and consistent with the past practice of the
Company or such Subsidiary, (y) transactions between or among the Company and/or
its Subsidiaries and (z) transactions permitted under Section 3.07 hereof, in
each case, shall not be deemed to be Affiliate Transactions.
SECTION 3.12. LIMITATIONS ON LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume or suffer to exist any Lien
(except Permitted Liens) on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom unless all payments due hereunder and under the Securities are secured
on an equal and ratable basis with the Obligations so secured until such time as
such Obligations are no longer secured by a Lien.
SECTION 3.13. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control Triggering Event, each
Holder of Securities shall have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Securities pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not
more than 90 days after the occurrence of such Change of Control Triggering
Event (the "CHANGE OF CONTROL PAYMENT DATE").
Within 30 days following any Change of Control Triggering Event, the
Company shall mail, or at the Company's request the Trustee shall mail, a notice
of a Change of Control to each Holder (at its last registered address with a
copy to the Trustee and the Paying Agent) offering to repurchase the Securities
held by such Holder pursuant to the procedure specified in such notice. The
Change of Control Offer shall remain open from the time of mailing until the
close of business on the Business Day next preceding the Change of Control
Payment Date. The notice, which shall govern the terms of the Change of Control
Offer,
38
<PAGE>
shall contain all instructions and materials necessary to enable
the Holders to tender Securities pursuant to the Change of
Control Offer and shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 3.13 and that all Securities tendered will be accepted
for payment;
(2) the Change of Control Payment and the Change of Control Payment
Date, which date shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed;
(3) that any Security not tendered will continue to accrue interest
in accordance with the terms of this Indenture;
(4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Securities accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest after
the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
any Change of Control Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the
Company, a depositary, if appointed by the Company, or a Paying
Agent at the address specified in the notice prior to the close
of business on the Business Day next preceding the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be,
receives, not later than the close of business on the Business
Day next preceding the Change of Control Payment Date, a
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder delivered
for purchase, and a statement that such Holder is withdrawing his
election to have such Security purchased;
(7) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which
unpurchased portion must be equal to $1,000 in principal amount
or an integral multiple thereof; and
39
<PAGE>
(8) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect
to PRO FORMA historical financial information after giving effect
to such Change of Control, information regarding the Person or
Persons acquiring control and such Person's or Persons' business
plans going forward) and any other information that would be
material to a decision as to whether to tender a Security
pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered and not withdrawn pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Securities or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Securities or portions thereof being purchased by the Company. The Paying Agent
shall promptly mail to each Holder of Securities so tendered the Change of
Control Payment for such Securities, and the Trustee shall promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new
Security equal in principal amount to any unpurchased portion of the Securities
surrendered, if any; PROVIDED that each such new Security shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities as a result of a Change of Control.
SECTION 3.14. CORPORATE EXISTENCE.
Subject to Section 3.13 and Article 4 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence, and the corporate, partnership or other
existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of each
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that
40
<PAGE>
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries, taken as a whole, and that the loss thereof
is not adverse in any material respect to the Holders.
SECTION 3.15. LINE OF BUSINESS
The Company shall not, and shall not permit any of its Subsidiaries
to, engage to any material extent in any business other than the ownership,
operation and management of Hospitals and Related Businesses.
SECTION 3.16. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY
SUBSIDIARIES
The Company shall not permit any Subsidiary, directly or indirectly,
to Guarantee or secure the payment of any other Indebtedness of the Company or
any of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary
or Physician Support Obligations) unless such Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture, in substantially the
form attached hereto as Exhibit B, providing for the Guarantee of the payment of
the Securities by such Subsidiary, which Guarantee shall be senior to or PARI
PASSU with such Subsidiary's Guarantee of or pledge to secure such other
Indebtedness. Any such Guarantee by a Subsidiary of the Securities shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon the sale or other disposition, by way of merger or
otherwise, to any Person not an Affiliate of the Company, of all of the
Company's stock in, or all or substantially all the assets of, such Subsidiary,
which sale or other disposition is made in compliance with, and the Net Proceeds
therefrom are applied in accordance with, the applicable provisions hereof. The
foregoing provisions shall not be applicable to any one or more Guarantees of up
to $10.0 million in aggregate principal amount of Indebtedness of the Company at
any time outstanding.
SECTION 3.17. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED
NOTES INDENTURE.
The Company shall not amend, modify or alter the Senior Subordinated
Notes Indenture in any way that would (i) increase the principal amount of,
advance the final maturity date of or shorten the Weighted Average Life to
Maturity of any Senior Subordinated Notes such that the final maturity date of
the Senior Subordinated Notes is earlier than the 91st day following the final
maturity date of the Securities or (ii) amend the provisions of Article 10 of
the Senior Subordinated Notes Indenture (which relates to subordination) or any
of the defined terms used therein in a manner that would be adverse to the
Holders of the Securities.
41
<PAGE>
ARTICLE 4
SUCCESSORS
SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless:
(i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity
or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all
the Obligations of the Company under this Indenture and the
Securities pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists; and
(iv) the Company or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) shall have Consolidated Net
Worth immediately after the transaction equal to or greater than
the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) shall, at the time of such transaction
and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 3.09 hereof.
42
<PAGE>
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel, covering clauses (i) through (iv) above, stating that the
proposed transaction and such supplemental indenture comply with this Indenture.
The Trustee shall be entitled to conclusively rely upon such Officers'
Certificate and Opinion of Counsel.
SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 4.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, assignment, transfer, lease, conveyance or
other disposition, the provisions of this Indenture referring to the "Company"
shall refer instead to the successor corporation), and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person has been named as the Company, herein.
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT.
Each of the following constitutes an "EVENT OF DEFAULT":
(i) default for 30 days in the payment when due of interest on
the Securities;
(ii) default in payment when due of the principal of or premium,
if any, on the Securities at maturity or otherwise;
(iii) failure by the Company to comply with the provisions of
Sections 3.07, 3.09, 3.10, or 3.13 hereof;
(iv) failure by the Company to comply with any other covenant or
agreement in the Indenture or the
43
<PAGE>
Securities for the period and after the notice specified
below;
(v) any default that occurs under any mortgage, indenture or
instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Significant
Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Significant Subsidiaries), whether
such Indebtedness or Guarantee exists on the date hereof or
is created after the date hereof, which default (a)
constitutes a Payment Default or (b) results in the
acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or that has been so accelerated, aggregates $25.0
million or more;
(vi) failure by the Company or any of its Significant
Subsidiaries to pay a final judgment or final judgments
aggregating in excess of $25.0 million entered by a court or
courts of competent jurisdiction against the Company or any
of its Significant Subsidiaries if such final judgment or
judgments remain unpaid or undischarged for a period (during
which execution shall not be effectively stayed) of 60 days
after their entry;
(vii) the Company or any Significant Subsidiary thereof
pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it
in an involuntary case in which it is the debtor,
44
<PAGE>
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) admits in writing its inability generally to pay its
debts as the same become due; and
(viii)a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against the Company or any Significant
Subsidiary thereof in an involuntary case in which it
is the debtor,
(b) appoints a Custodian of the Company or any Significant
Subsidiary thereof or for all or substantially all of
the property of the Company or any Significant
Subsidiary thereof, or
(c) orders the liquidation of the Company or any
Significant Subsidiary thereof,
and the order or decree remains unstayed and in effect for 60
days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "CUSTODIAN" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (iv) is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the then outstanding Securities notify the Company and the
Trustee in writing, of the Default and the Company does not cure the Default
within 60 days after receipt of such notice. The written notice must specify
the Default, demand that it be remedied and state that the notice is a "NOTICE
OF DEFAULT."
45
<PAGE>
SECTION 5.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (vii) or (viii) of Section 5.01 hereof) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the then outstanding Securities by written notice to the
Company and the Trustee, may declare the unpaid principal of, premium, if any,
and any accrued and unpaid interest on all the Securities to be due and payable
immediately. Upon such declaration the principal, premium, if any, and interest
shall be due and payable immediately. If an Event of Default specified in
clause (vii) or (viii) of Section 5.01 hereof occurs with respect to the Company
or any Significant Subsidiary thereof such an amount shall IPSO FACTO become and
be immediately due and payable without further action or notice on the part of
the Trustee or any Holder.
If an Event of Default occurs under this Indenture prior to the
maturity of the Securities by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of such Securities prior to the date of maturity, then
a premium with respect thereto (expressed as a percentage of the amount that
would otherwise be due but for the provisions of this sentence) shall become and
be immediately due and payable to the extent permitted by law upon the
acceleration of such Securities if such Event of Default occurs during the
twelve-month period beginning on December 1 of the years set forth below:
Year Percentage
---- ----------
1995 . . . . . . . . . . . . . . . 108.625 %
1996 . . . . . . . . . . . . . . . 107.547 %
1997 . . . . . . . . . . . . . . . 106.469 %
1998 . . . . . . . . . . . . . . . 105.391 %
1999 . . . . . . . . . . . . . . . 104.313 %
2000 . . . . . . . . . . . . . . . 103.234 %
2001 . . . . . . . . . . . . . . . 102.156 %
2002 . . . . . . . . . . . . . . . 101.078 %
If an Event of Default occurs during the period beginning on October 16, 1995
and ending on November 30, 1995, then the applicable premium shall be 108.625%.
Any determination regarding the primary purpose of any such action or
inaction, as the case may be, shall be made by and set forth in a resolution of
the Board of Directors (including the concurrence of a majority of the
independent
46
<PAGE>
directors of the Company then serving) delivered to the Trustee after
consideration of the business reasons for such action or inaction, other than
the avoidance of payment of such premium or prohibition on redemption. In the
absence of fraud, each such determination shall be final and binding upon the
Holders of Securities. Subject to Section 6.01 hereof, the Trustee shall be
entitled to rely on the determination set forth in any such resolutions
delivered to the Trustee.
SECTION 5.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 5.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by written notice to the Trustee may on
behalf of the Holders of all of the Securities waive any existing Default or
Event of Default and its consequences under this Indenture except a continuing
Default or Event of Default in the payment of the principal of, premium, if any,
or interest on any Security. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
SECTION 5.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action which it deems proper
which is not inconsistent with any such direction.
47
<PAGE>
SECTION 5.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Securities only if:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee
a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal, premium, if any, and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
SECTION 5.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 5.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor for the whole amount of principal, premium, if any, and interest
remaining unpaid on the Securities and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
amounts due the
48
<PAGE>
Trustee under Section 6.07 hereof, including the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 6.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 5.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 6.07, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
49
<PAGE>
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 5.10 upon five Business Days prior notice to
the Company.
SECTION 5.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 5.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 6
TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE.
(i) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(ii) Except during the continuance of an Event of Default known to the
Trustee:
(a) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the Trustee
need perform only those duties that are specifically set forth in
this Indenture or the TIA and no others, and no
50
<PAGE>
implied covenants or obligations shall be read into this
Indenture against the Trustee, and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such
certificates or opinions which by any provisions hereof are
required to be furnished to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(iii) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) this paragraph does not limit the effect of paragraph (ii)
of this Section;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.05 hereof.
(iv) Whether or not therein expressly so provided every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(i), (ii), and (iii) of this Section.
(v) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives security and
indemnity satisfactory to it against any loss, liability or expense.
(vi) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Absent written instruction from the Company, the Trustee shall not be required
to
51
<PAGE>
invest any such money. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
(vii) The Trustee shall not be deemed to have knowledge of any
matter unless such matter is actually known to a Responsible Officer.
SECTION 6.02. RIGHTS OF TRUSTEE.
(i) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(ii) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(iii) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(iv) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture. A permissive right granted to the
Trustee hereunder shall not be deemed an obligation to act.
(v) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 6.10 and 6.11 hereof.
52
<PAGE>
SECTION 6.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, nor shall it
be accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, nor shall it be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, nor shall it be
responsible for any statement or recital herein or any statement in the
Securities or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders a notice of the Default
or Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment on any Security, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders.
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each December 31 beginning with the December 31
following the date hereof, the Trustee shall mail to the Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders shall
be mailed to the Company and filed with the Commission and each stock exchange
on which the Securities are listed. The Company shall promptly notify the
Trustee when the Securities are listed on any stock exchange.
SECTION 6.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee shall agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
53
<PAGE>
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses incurred by it arising out of or in
connection with the acceptance of its duties and the administration of the
trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 6.07 shall survive
the satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.01(vii) or (viii) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 6.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then outstanding Securities may remove the
54
<PAGE>
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee after written request by any Holder who has been a
Holder for at least six months fails to comply with Section 6.10 hereof, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums owing
to the Trustee hereunder have been paid and subject to the Lien provided for in
Section 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 6.08, the Company's obligations under Section 6.07 hereof shall
continue for the benefit of the retiring Trustee.
55
<PAGE>
SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or Agent.
SECTION 6.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 7
DISCHARGE OF INDENTURE
SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, with respect to
the Securities, elect to have either Section 7.02 or 7.03 hereof be applied to
all outstanding Securities upon compliance with the conditions set forth below
in this Article 7.
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the
56
<PAGE>
date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 7.05 hereof and the other
Sections of this Indenture referred to in clauses (i) and (ii) of this Section
7.02, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 7.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Securities when such payments are due,
(ii) the Company's obligations with respect to such Securities under
Sections 2.04, 2.06, 2.07, 2.10 and 3.02 hereof, (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, including, without
limitation, the Trustee's rights under Section 6.07 hereof, and the Company's
obligations in connection therewith and (iv) this Article 7. Subject to
compliance with this Article 7, the Company may exercise its option under this
Section 7.02 notwithstanding the prior exercise of its option under Section 7.03
hereof with respect to the Securities.
SECTION 7.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03, the Company shall be released from its
obligations under the covenants contained in Sections 2.15, 3.07, 3.08, 3.09,
3.10, 3.11, 3.12, 3.13, 3.15, 3.16 and 3.17 and Article 4 hereof with respect to
the outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Securities shall not be deemed outstanding for accounting purposes). For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 5.01(iii)
hereof, but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby. In
57
<PAGE>
addition, upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03, Sections 5.01(iv) through 5.01(vi) hereof shall
not constitute Events of Default.
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 7.02 or Section 7.03 hereof to the outstanding Securities:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.10 who shall agree to comply with the provisions of this
Article 7 applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a)
cash in U.S. Dollars in an amount, or (b) non-callable Government
Securities that through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than
one day before the due date of any payment, cash in U.S. Dollars in an
amount, or (c) a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge the principal
of, premium, if any, and interest on such outstanding Securities on the
stated maturity date of such principal or installment of principal,
premium, if any, or interest.
(ii) In the case of an election under Section 7.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
hereof, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the outstanding Securities will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred.
(iii) In the case of an election under Section 7.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States confirming that the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as
a
58
<PAGE>
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred.
(iv) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to
be applied to such deposit) or, insofar as Section 5.01(vii) or 5.01(viii)
hereof is concerned, at any time in the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period).
(v) Such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound (other than a breach, violation or default resulting
from the borrowing of funds to be applied to such deposit).
(vi) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally.
(vii) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 7.02 or 7.03 hereof was not made by the Company with
the intent of preferring the Holders of the Securities over the other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others.
(viii) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating
that all conditions precedent provided for relating to either the Legal
Defeasance under Section 7.02 hereof or the Covenant Defeasance under
Section 7.03 hereof (as the case may be) have been complied with as
contemplated by this Section 7.04.
59
<PAGE>
SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 7.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 7.05, the
"Trustee") pursuant to Section 7.04 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as Paying
Agent) as the Trustee may determine, to the Holders of such Securities of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 7.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Article 7 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any money or non-callable Government Securities held by it as provided
in Section 7.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under
Section 7.04(i) hereof), are in excess of the amount thereof which would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 7.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its written request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the NEW YORK TIMES and THE
WALL STREET JOURNAL (national edition), notice
60
<PAGE>
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 7.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Dollars or
non-callable Government Securities in accordance with Section 7.02 or 7.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 7.02 or 7.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 7.02 or
7.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes
any payment of principal of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Security to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 8.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without the consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(iii) to provide for any supplemental indenture required pursuant
to Section 3.16 hereof;
(iv) to provide for the assumption of the Company's obligations
to the Holders of the Securities in the case of a merger,
consolidation or sale of assets pursuant to Article 4
hereof;
61
<PAGE>
(v) to make any change that would provide any additional rights
or benefits to the Holders of the Securities or that does
not adversely affect the legal rights hereunder of any such
Holder; or
(vi) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under
the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Trustee of the documents described in Section 8.06
hereof, the Trustee shall join with the Company in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture which affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 8.02. WITH CONSENT OF HOLDERS.
Except as provided in the next succeeding paragraphs, this Indenture
or the Securities may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Securities), and any existing default or compliance with any provision
of this Indenture or the Securities may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Securities
(including consents obtained in connection with a tender offer or exchange offer
for such Securities).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence satisfactory to the Trustee of
the consent of the Holders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 8.06 hereof, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such supplemental indenture.
62
<PAGE>
It shall not be necessary for the consent of the Holders under this
Section 8.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
Subject to Sections 5.04 and 5.07 hereof, the Holders of a majority in aggregate
principal amount of the Securities then outstanding may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Securities. Without the consent of each Holder affected, however, an amendment
or waiver may not (with respect to any Security held by a non-consenting
Holder):
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Security;
(iii) reduce the rate of or change the time for payment of interest on
any Security;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Securities (except a
rescission of acceleration of the Securities by the Holders of at
least a majority in aggregate principal amount thereof and a
waiver of the payment default that resulted from such
acceleration);
(v) make any Security payable in money other than that stated in the
Securities;
(vi) make any change in Section 5.04 or 5.07 hereof; or
(vii) make any change in this sentence of this Section 8.02.
SECTION 8.03. COMPLIANCE WITH TIA.
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
63
<PAGE>
SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to its
Security if the Trustee receives written notice of revocation before the date
the waiver or amendment becomes effective. An amendment or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders must consent to such amendment or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Holders furnished to the Trustee prior to such solicitation
pursuant to Section 2.05 hereof or (ii) such other date as the Company shall
designate.
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment or waiver.
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 8 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive
and, subject to Section 6.01, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or Supplemental Indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it shall be valid and
binding upon the Company in accordance with its terms. The Company may not sign
an amendment or supplemental indenture until the Board of Directors approves it.
64
<PAGE>
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 9.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Telecopier No.: (310) 998-6700
Attention: Treasurer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopier No.: (213) 687-5600
Attention: Brian J. McCarthy
If to the Trustee:
The Bank of New York
101 Barclay Street, 21 West
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
65
<PAGE>
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Unless otherwise set forth above, any notice or communication to a
Holder shall be mailed by first class mail, certified or registered, return
receipt requested, or by overnight air courier guaranteeing next day delivery to
its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 9.05 hereof) stating that, in the opinion of the signers,
all conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been satisfied; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 9.05 hereof) stating that, in the opinion of such counsel,
all such conditions precedent and covenants have been satisfied.
66
<PAGE>
SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been satisfied; PROVIDED, HOWEVER, that with
respect to matters of fact, an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 9.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 9.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by
67
<PAGE>
reason of, such obligations or their creation. Each Holder of the Securities by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Securities. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
SECTION 9.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 9.10. GOVERNING LAW.
The internal law of the State of New York, shall govern and be used to
construe this Indenture and the Securities, without regard to the conflict of
laws provisions thereof.
SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 9.12. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 9.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
it being intended that all of the provisions hereof shall be enforceable to the
full extent permitted by law.
SECTION 9.14. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
68
<PAGE>
SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
69
<PAGE>
SIGNATURES
Dated as of October 16, 1995 TENET HEALTHCARE CORPORATION
By:/s/ Maris Andersons
-----------------------------------
Name: Maris Andersons
Title: Senior Vice President
Attest:
/s/ Alan Lundgren (SEAL)
- ------------------------------
Alan Lundgren
Assistant Secretary
Dated as of October 16, 1995 THE BANK OF NEW YORK, as
Trustee
By: /s/ Vivian Georges
----------------------------------------
Name: Vivian Georges
Title: Assistant Vice President
Attest:
/s/ Secretary (SEAL)
- ---------------------------------
70
<PAGE>
EXHIBIT A
(Face of Security)
8 5/8 Senior Note
due December 1, 2003
CUSIP:
No. $____________
TENET HEALTHCARE CORPORATION
promises to pay to
_________________________________________________________________________
or its registered assigns, the principal sum of
___________________________________
Dollars on December 1, 2003.
Interest Payment Dates: June 1 and December 1, commencing December 1, 1995
Record Dates: May 15 and November 15 (whether or not a Business Day).
TENET HEALTHCARE CORPORATION
By: _________________________
A-1
<PAGE>
Dated: __________, ____
(SEAL)
Trustee's Certificate of Authentication:
This is one of the Securities referred
to in the within-mentioned Indenture:
The Bank of New York, as Trustee
By: ___________________________
Authorized Signatory
A-2
<PAGE>
(Back of Security)
8 5/8% SENIOR NOTE
due December 1, 2003
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below.
The Company shall pay interest in cash on the principal amount of this
Security at the rate per annum of 8 5/8%. The Company shall pay interest
semiannually in arrears on June 1 and December 1 of each year, commencing
December 1, 1995 to Holders of record on the immediately preceding May 15 and
November 15, respectively, or if any such date of payment is not a Business Day
on the next succeeding Business Day (each an "INTEREST PAYMENT DATE").
Interest shall be computed on the basis of a 360-day year comprised of
twelve 30-day months. Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Securities. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 1% per annum in excess of the
interest rate then applicable to the Securities; it shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods) at the same rate to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such Securities are cancelled after such record
date and on or before such Interest Payment Date. The Holder hereof must
surrender this Security to a Paying Agent to collect principal payments. The
Company shall pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
Principal, premium, if any, and interest shall be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holder's registered address. Notwithstanding the foregoing,
all payments with respect to Securities the Holders of which have given wire
transfer instructions, on or before the relevant record date, to the Paying
Agent shall be made by wire transfer of immediately available funds to the
accounts specified by such Holders.
A-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar or co-registrar without prior notice to any Holder. The Company and
any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Securities under an Indenture,
dated as of October 16, 1995 (the "INDENTURE"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect
on the date of the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and such act for a statement of such
terms. The terms of the Indenture shall govern any inconsistencies between the
Indenture and the Securities. The Securities are unsecured general obligations
of the Company. The Securities are limited to $300,000,000 in aggregate
principal amount.
5. MANDATORY REDEMPTION. Subject to the Company's obligation to make
an offer to repurchase Securities under certain circumstances pursuant to
Sections 3.10 and 3.13 of the Indenture (as described in paragraph 6 below), the
Company shall have no mandatory redemption or sinking fund obligations with
respect to the Securities.
6. REPURCHASE AT OPTION OF HOLDER. (i) If there is a Change of
Control Triggering Event, the Company shall offer to repurchase on the Change of
Control Payment Date all outstanding Securities at 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon to the Change
of Control Payment Date. Holders that are subject to an offer to purchase shall
receive a Change of Control Offer from the Company prior to any related Change
of Control Payment Date and may elect to have such Securities purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
(ii) If the Company or a Subsidiary consummates an Asset Sale, within
365 days after the receipt of any Net Proceeds from such Asset Sale, the Company
may apply such Net Proceeds (a) to purchase one or more Hospitals or Related
Businesses and/or a controlling interest in the Capital Stock of a Person owning
one or more Hospitals and/or one or more Related Businesses, (b) to make a
capital expenditure or to acquire other tangible assets, in each case, that are
used or useful in any business in which the Company is permitted to be engaged
pursuant to Section 3.15 of the Indenture, (c) to permanently reduce Senior Term
Debt or Existing Indebtedness of a Subsidiary or (d) to permanently reduce
Senior Revolving Debt (and to correspondingly reduce commitments with respect
thereto), except that up to an aggregate of $200.0 million of Net Proceeds from
Asset Sales may be applied after the date of the Indenture to reduce Senior
A-4
<PAGE>
Revolving Debt without a corresponding reduction in commitments with respect
thereto. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce Senior Revolving Debt or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from any Asset Sale that are not so invested or applied shall be deemed
to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds
exceeds $25.0 million, the Company shall make an offer to all Holders of
Securities and holders of any other Indebtedness of the Company ranking on a
parity with the Securities from time to time outstanding with similar provisions
requiring the Company to make an offer to purchase or to redeem such
Indebtedness with the proceeds from any asset sales, PRO RATA in proportion to
the respective principal amounts of the Securities and such other Indebtedness
then outstanding (a "SENIOR ASSET SALE OFFER") to purchase the maximum principal
amount of Securities and such other Indebtedness that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of purchase in accordance with the terms of the Indenture. To the
extent that the aggregate amount of Securities and such other Indebtedness
tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes, including an offer to purchase the Company's 10 1/8% Senior
Subordinated Notes due 2005 (the "Senior Subordinated Notes") pursuant to the
provisions of the Senior Subordinated Notes indenture. If the aggregate
principal amount of Securities and such other Indebtedness surrendered by
holders pursuant to a Senior Asset Sale Offer exceeds the amount of Excess
Proceeds, the Securities and such other Indebtedness shall be purchased on a PRO
RATA basis. Holders that are the subject of an offer to purchase shall receive
a Senior Asset Sale Offer from the Company prior to any related purchase date
and may elect to have such Securities purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons, and in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Securities between a record date and the corresponding
Interest Payment Date.
8. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Agent and
the Company may deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal
A-5
<PAGE>
of, premium, if any, and interest on this Security and for all other purposes
whatsoever, whether or not this Security is overdue, and neither the Trustee,
any Agent nor the Company shall be affected by notice to the contrary. The
registered Holder of a Security shall be treated as its owner for all purposes.
9. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next
succeeding paragraphs, the Indenture or the Securities may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Securities) and any
existing default or compliance with any provision of the Indenture or the
Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities (including consents obtained
in connection with a tender offer or exchange offer for Securities).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Security held by a non-consenting Holder of
Securities): (i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Security, (iii) reduce the rate of or change
the time for payment of interest on any Security, (iv) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest on the
Securities, (except a rescission of acceleration of the Securities by the
Holders of at least a majority in aggregate principal amount thereof and a
waiver of the payment default that resulted from such acceleration), (v) make
any Security payable in money other than that stated in the Securities,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Securities to receive payments of
principal of or premium, if any, or interest on the Securities or (vii) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Securities, the Company and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to provide for any supplemental indenture required pursuant to Section 3.16 of
the Indenture, to provide for the assumption of the Company's obligations to
Holders of the Securities in the case of a merger, consolidation or sale of
assets, to make any change that would provide any additional rights or benefits
to the Holders of the Securities or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements of
the Securities and Exchange Commission (the "COMMISSION") in order to effect or
maintain the qualification of the Indenture under the TIA.
A-6
<PAGE>
10. DEFAULTS AND REMEDIES. Events of Default under the Indenture
include: (i) a default for 30 days in the payment when due of interest on the
Securities; (ii) a default in payment when due of the principal of or premium,
if any, on the Securities, at maturity or otherwise; (iii) a failure by the
Company to comply with the provisions described under the covenants "Limitations
on Restricted Payments," "Limitations on Incurrence of Indebtedness and Issuance
of Preferred Stock," "Asset Sales," and "Change of Control;" (iv) a failure by
the Company for 60 days after notice to comply with any of its other agreements
in the Indenture or the Securities; (v) any default that occurs under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Significant Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Significant Subsidiaries) whether such
Indebtedness or Guarantee exists on the date of the Indenture, or is created
after the date of the Indenture, which default (a) constitutes a Payment Default
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or that has been so accelerated, aggregates
$25.0 million or more; (vi) failure by the Company or any of its Significant
Subsidiaries to pay a final judgment or final judgments aggregating in excess of
$25.0 million entered by a court or courts or competent jurisdiction against the
Company or any of its Significant Subsidiaries if such final judgment or
judgments remain unpaid or undischarged for a period (during which execution
shall not be effectively stayed) of 60 days after their entry; and (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Securities by written notice to the Company and the Trustee, may
declare all the Securities to be due and payable immediately (plus, in the case
of an Event of Default that is the result of willful actions (or inactions) by
or on behalf of the Company intended to avoid prohibitions on redemptions of the
Securities contained in the Indenture or the Securities, an amount of premium
applicable pursuant to the Indenture). Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries,
all outstanding Securities shall become due and payable without further action
or notice. Holders of the Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Securities notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in such
Holders' interest.
A-7
<PAGE>
The Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by written notice to the Trustee may on
behalf of the Holders of all of the Securities waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest or premium on, or the
principal of, the Securities.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
The above description of Events of Default and remedies is qualified
by reference, and subject in its entirety, to the more complete description
thereof contained in the Indenture.
11. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations
on the ability of the Company and its Subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase Equity Interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company or its Subsidiaries, issue or sell Equity Interests of the Company's
Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and
enter into certain mergers and consolidations.
12. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not Trustee.
13. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Securities, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
14. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
A-8
<PAGE>
15. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers as a convenience to Holders. No representation is made as to
the accuracy of such numbers either as printed on the Securities and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Tenet Healthcare Corporation
2700 Colorado Avenue
Santa Monica, California 90404
Attention: Treasurer
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: For value received (I) or
(we) hereby sell, assign and transfer this Security to
_______________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and do hereby irrevocably constitute and appoint_______________________________
Attorney to transfer this Security on the books of the Company with full power
of substitution in the premises.
_______________________________________________________________________________
Date: ______________
Your Signature:___________________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
__________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security purchased by
the Company pursuant to Section 3.10 or Section 3.13 of the Indenture, check the
appropriate box:
/ / Section 3.10 / / Section 3.13
(Asset Sale) (Change of Control)
If you want to have only part of the Security purchased by the Company
pursuant to Section 3.10 or Section 3.13 of the Indenture, state the amount you
elect to have purchased:
$ _______________
Date:____________
Your Signature:___________________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
__________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-11
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guarantor"), a subsidiary of
Tenet Healthcare Corporation (or its successor), a Nevada corporation (the
"Company"), and The Bank of New York, as trustee under the indenture referred to
below (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of October 16, 1995, providing for the
issuance of an aggregate principal amount of $500,000,000 of 8 5/8% Senior Notes
due 2003 (the "Securities");
WHEREAS, Section 3.16 of the Indenture provides that under certain
circumstances the Company is required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the Guarantor
shall guarantee the payment of the Securities pursuant to a Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Securities or the Obligations
of the Company hereunder and thereunder, that: (a) the principal of, premium, if
any, and interest on the Securities will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, and (to the extent permitted by law)
interest on any interest on the
B-1
<PAGE>
Securities and all other payment Obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be promptly paid in full, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Securities or any of such other payment
Obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration, redemption or otherwise. Failing payment when due of
any amount so guaranteed for whatever reason the Guarantor shall be obligated to
pay the same immediately. An Event of Default under the Indenture or the
Securities shall constitute an event of default under this Guarantee, and shall
entitle the Holders of Securities to accelerate the Obligations of the Guarantor
hereunder in the same manner and to the same extent as the Obligations of the
Company. The Guarantor hereby agrees that its Obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Securities or the Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of the Guarantor. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Guarantee will not be discharged except by complete
performance of the Obligations contained in the Securities and the Indenture.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company, the Guarantor, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the Guarantor, any
amount paid by either to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
The Guarantor agrees that it shall not be entitled to, and hereby waives, any
right of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby. The Guarantor further agrees that, as between the Guarantor,
on one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the Obligations guaranteed hereby may be accelerated as provided in
Article 5 of the Indenture for the purposes of this Guarantee, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the Obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such Obligations as provided in Article 5 of the
Indenture, such Obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantor for the purpose of this Guarantee.
3. EXECUTION AND DELIVERY OF GUARANTEE. To evidence its Guarantee set
forth in Section 2, the Guarantor hereby agrees that a notation of such
Guarantee substantially in the form of EXHIBIT A shall be endorsed by an officer
of such Guarantor on each Security authenticated and delivered by the Trustee
and that
B-2
<PAGE>
this Supplemental Indenture shall be executed on behalf of such Guarantor, by
manual or facsimile signature, by its President or one of its Vice Presidents.
The Guarantor hereby agrees that its Guarantee set forth in Section 2
shall remain in full force and effect notwithstanding any failure to endorse on
each Security a notation of such Guarantee.
If an Officer whose signature is on this Supplemental Indenture or on
the Guarantee no longer holds that office at the time the Trustee authenticates
the Security on which a Guarantee is endorsed, the Guarantee shall be valid
nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of the Guarantors.
4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) Except as set forth in Articles 3 and 4 of the Indenture, nothing
contained in this Supplemental Indenture or in the Securities shall prevent any
consolidation or merger of the Guarantor with or into the Company or any
Subsidiary of the Company that has executed and delivered a supplemental
indenture substantially in the form hereof or shall prevent any sale or
conveyance of the property of the Guarantor as an entirety or substantially as
an entirety, to the Company or any such Subsidiary of the Company.
(b) Except as provided in Section 4(a) hereof or in a transaction
referred to in Section 5 hereof, the Guarantor shall not consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person unless (1)
either (x) the Guarantor shall be the surviving Person of such merger or
consolidation or (y) the surviving Person or transferee is a corporation,
partnership or trust organized and existing under the laws of the United States,
any state thereof or the District of Columbia and such surviving Person or
transferee shall expressly assume all the obligations of the Guarantor under
this Guarantee and the Indenture pursuant to a supplemental indenture
substantially in the form hereof; (2) immediately after giving effect to such
transaction (including the incurrence of any Indebtedness incurred or
anticipated to be incurred in connection with such transaction) no Default or
Event of Default shall have occurred and be continuing; and (3) the Company has
delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each
stating that such consolidation, merger or transfer complies with the Indenture,
that the surviving Person agrees to be bound thereby, and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
B-3
<PAGE>
the Guarantor, the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Guarantor, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Guarantor.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Guarantor in accordance with this Section 4(b) hereof, the successor
corporation shall succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such successor
corporation thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee. All
Guarantees so issued shall in all respects have the same legal rank and benefit
under the Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of the Indenture as though all of such Guarantees had
been issued at the date of the execution hereof.
5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale, lease,
conveyance or other disposition (by merger, consolidation or otherwise) of
assets of the Guarantor (including, if applicable, disposition of all of the
Capital Stock of the Guarantor), any Liens in favor of the Trustee in the assets
sold, leased, conveyed or otherwise disposed of shall be released; PROVIDED that
in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds
therefrom are applied, in accordance with Section 3.10 of the Indenture. If the
assets sold, leased, conveyed or otherwise disposed of (by merger, consolidation
or otherwise) include all or substantially all of the assets of the Guarantor or
all of the Capital Stock of the Guarantor in each case, in compliance with the
terms of the Indenture, then the Guarantor shall be automatically and
unconditionally released from and relieved of its Obligations under its
Guarantee; PROVIDED that in the event of an Asset Sale, such Asset Sale is
effected, and the Net Proceeds therefrom are applied, in accordance with Section
3.10 of the Indenture. Upon delivery by the Company to the Trustee of an
Officers' Certificate to the effect that such sale, lease, conveyance or other
disposition was made by the Company in accordance with the provisions of the
Indenture, including without limitation of Section 3.10 thereof, if applicable,
the Trustee shall execute any documents reasonably required in order to evidence
the release of the Guarantor from its Obligations under its Guarantee.
Nothing herein shall relieve the Company from its obligation to apply
the proceeds of any Asset Sale as provided in Section 3.10 of the Indenture.
6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under
the Securities and the Indenture and (ii) the amount, if any, which would not
have (A) rendered the
B-4
<PAGE>
Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and
in the Debtor and Creditor Law of the State of New York) or (B) left it with
unreasonably small capital at the time its Guarantee of the Securities was
entered into, after giving effect to the incurrence of existing Indebtedness
immediately prior to such time; PROVIDED that it shall be a presumption in any
lawsuit or other proceeding in which the Guarantor is a party that the amount
guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above
unless any creditor, or representative of creditors of the Guarantor, or debtor
in possession or trustee in bankruptcy of the Guarantor, otherwise proves in
such a lawsuit that the aggregate liability of the Guarantor is limited to the
amount set forth in clause (ii). In making any determination as to the solvency
or sufficiency of capital of the Guarantor in accordance with the previous
sentence, the right of the Guarantor to contribution from other Subsidiaries of
the Company that have executed and delivered a supplemental indenture
substantially in the form hereof and any other rights the Guarantor may have,
contractual or otherwise, shall be taken into account.
7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying
Agent other than the Trustee shall have been appointed by the Company and be
then acting under the Indenture, the term "Trustee" as used in this Supplemental
Indenture shall in each case (unless the context shall otherwise require) be
construed as extending to and including such Paying Agent within its meaning as
fully and for all intents and purposes as if such Paying Agent were named in
this Supplemental Indenture in place of the Trustee.
8. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Guarantor, as such, shall have any liability
for any obligations of the Company or the Guarantor under the Securities, any
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Securities by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Securities. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
9. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
10. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
11. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
B-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date first above written.
Dated: _________________ ___, ____
[Guarantor]
By: ______________________________
Name:
Title:
The Bank of New York,
as Trustee
By: ______________________________
Name:
Title:
B-6
<PAGE>
EXHIBIT A TO SUPPLEMENTAL INDENTURE
GUARANTEE
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Securities or the Obligations of the Company to the Holders or
the Trustee under the Securities or under the Indenture, that: (a) the principal
of, and premium, if any, and interest on the Securities will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on overdue principal, premium, if any, and (to the extent permitted
by law) interest on any interest on the Securities and all other payment
Obligations of the Company to the Holders or the Trustee under the Indenture or
under the Securities will be promptly paid in full, all in accordance with the
terms thereof; and (b) in case of any extension of time of payment or renewal of
any Securities or any of such other payment Obligations, the same will be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration, redemption or otherwise.
Failing payment when due of any amount so guaranteed, for whatever reason, the
Guarantor shall be obligated to pay the same immediately.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to this Guarantee and the Indenture are expressly set forth
in a Supplemental Indenture, dated as of _________ __, ____ to the Indenture,
and reference is hereby made to the Indenture, as supplemented, for the precise
terms of this Guarantee.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its respective successors and
assigns to the extent set forth in the Indenture until full and final payment of
all of the Company's Obligations under the Securities and the Indenture and
shall inure to the benefit of the successors and assigns of the Trustee and the
Holders of Securities and, in the event of any transfer or assignment of rights
by any Holder of Securities or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof. This a
Guarantee of payment and not a guarantee of collection.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized signatories.
B-7
<PAGE>
For purposes hereof, the Guarantor's liability will be that amount
from time to time equal to the aggregate liability of the Guarantor hereunder,
but shall be limited to the lesser of (i) the aggregate amount of the
Obligations of the Company under the Securities and the Indenture and (ii) the
amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as
such term is defined in the federal Bankruptcy Law and in the Debtor and
Creditor Law of the State of New York) or (B) left it with unreasonably small
capital at the time its Guarantee of the Securities was entered into, after
giving effect to the incurrence of existing Indebtedness immediately prior to
such time; PROVIDED that it shall be a presumption in any lawsuit or other
proceeding in which the Guarantor is a party that the amount guaranteed pursuant
to its Guarantee is the amount set forth in clause (i) above unless any
creditor, or representative of creditors of the Guarantor, or debtor in
possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a
lawsuit that the aggregate liability of the Guarantor is limited to the amount
set forth in clause (ii). The Indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of the Guarantor to
contribution from other Subsidiaries of the Company that have become Guarantors
and any other rights the Guarantor may have, contractual or otherwise, shall be
taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
[GUARANTOR]
By:_________________________
Name:
Title:
B-8
<PAGE>
FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
This First Amendment to Guarantee Reimbursement Agreement ("Amendment")
dated as of May 30, 1991, is entered into by and between National Medical
Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a
Nevada corporation ("New Hillhaven").
RECITALS
A. New Hillhaven and NME entered into that certain Guarantee Reimbursement
Agreement, dated as of January 31, 1990 (as the same may be amended, restated,
modified, supplemented, renewed or replaced from time to time, the
"Reimbursement Agreement"). Unless otherwise defined herein, the terms defined
in the Reimbursement Agreement are used herein as therein defined. The
Reimbursement Agreement provides, among other things, for the reimbursement by
New Hillhaven of all Obligations paid by NME after the Distribution Date.
B. New Hillhaven and certain of its Subsidiaries have entered into that
certain Master Loan Agreement, dated as of the date hereof (the "Master Loan
Agreement"), with THC Facilities Corp. (the "Lender") pursuant to which New
Hillhaven and such Subsidiaries (collectively, the "Borrowers") may borrow from
time to time amounts up to a total principal sum of $200,000,000 (the "THC
Facilities Loans").
C. The THC Facilities Loans may be used by the Borrowers as follows: (i)
approximately $117,000,000 for the refinance of certain obligations described in
Appendix A to the Reimbursement Agreement, consisting of (a) the spinoff MP
Funding Loans, and (b) the Cardinal Put Option MP Funding Loans (collectively
referred to herein as the "MP Funding Loans" to the extent not refinanced with
THC Facilities Loans and "Refinance Loans" to the extent refinanced with THC
Facilities Loans), and (ii) approximately $83,000,000 to finance Parcels and
Projects (each as defined in the Master Loan Agreement) (collectively, the "New
THC Loans").
D. The Lender has entered into a Credit Agreement with Swiss Bank
Corporation and certain other banks (the "Banks"). It is necessary for the
Lender to enter into such Credit Agreement in order for the Lender to make the
THC Facilities Loans to the Borrowers. As an inducement to Swiss Bank
Corporation and the Banks to enter into the Credit Agreement with the Lender,
NME has agreed to guaranty the Lender's obligations under the Credit Agreement
up to the principal sum of $200,000,000, pursuant to that certain Guaranty,
dated as of the date hereof, in favor of Swiss Bank Corporation and the Banks.
E. New Hillhaven and NME desire to amend the Reimbursement Agreement (i)
to add the THC Facilities Loans as Obligations under the Reimbursement
Agreement, (ii) to provide for a special guarantee fee applicable to the New THC
Loans, and (iii) to modify the guarantee fee charged for the Refinance Loans
during the Interim Period (defined herein).
<PAGE>
NOW THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree to
amend, modify and supplement the Reimbursement Agreement as follows:
AGREEMENT
1. THC FACILITIES LOAN OBLIGATIONS.
The obligations of the Borrowers pursuant to the Master Loan Agreement,
including, without limitation, the THC Facilities Loans (collectively, the "THC
Facilities Loan Obligations") hereby are added as, and shall be deemed to be,
"Obligations" under (and as defined in) in the Reimbursement Agreement, and all
terms, covenants, and conditions of the Reimbursement Agreement, except as
expressly provided herein, shall apply to the THC Facilities Loan Obligations.
2. GUARANTEE FEE.
(a) NEW THC LOANS. The guarantee fee provisions of Section 2 of the
Reimbursement Agreement shall not apply to the New THC Loans. Instead, New
Hillhaven shall pay to NME a guarantee fee equal to 1% per annum of the daily
outstanding balance of said New THC Loans. Such guarantee fee shall be paid in
quarterly installments on the last business day of each fiscal quarter, with the
first installment due August 30, 1991. The principal amount of the New THC
Loans shall not be included as part of the outstanding Obligations under Section
2(c)(i) of the Reimbursement Agreement for purposes of calculating the guarantee
fee referred to in Section 2 of the Reimbursement Agreement.
(b) REFINANCE LOANS. For the period commencing on the date of the
Master Loan Agreement and continuing through May 31, 1995 (the "Interim
Period"), New Hillhaven shall pay NME a guarantee fee equal to 1% per annum on
the daily outstanding balance of the Refinance Loans rather than the guarantee
fee otherwise applicable to such Refinance Loan pursuant to the provisions of
Section 2 of the Reimbursement Agreement. In the event that any or all of the
Refinance Loans are refinanced with THC Facilities Loans after the date of the
Master Loan Agreement, the foregoing 1% guarantee fee shall be effective for
each Refinance Loan as of the date of such refinancing. Such guarantee fee
shall be paid in quarterly installments on the last business day of each fiscal
quarter, with the first installment due August 30, 1991. Commencing June 1,
1995, the guarantee fee charged for the Refinance Loans shall revert back to the
guarantee fee applicable to such Refinance Loans and all other Obligations
(other than the New THC Loans) pursuant to the provisions of Section 2 of the
Reimbursement Agreement. During the Interim Period, the principal amount of the
Refinance Loans shall not be included as part of the outstanding Obligations
under Section 2(c)(i) of the Reimbursement Agreement for purposes of calculating
the guarantee fee referred to in Section 2 of the Reimbursement Agreement. From
and after May 31, 1995, the principal amount of the Refinance Loans shall be
included as part of the outstanding Obligations under Section 2(c)(i) of the
Reimbursement Agreement for purposes of calculating the guarantee fee referred
to in Section 2 of the Reimbursement Agreement.
<PAGE>
(c) MP FUNDING LOANS. To the extent not refinanced by Refinance Loans,
the Obligations consisting of MP Funding Loans shall continue to be Obligations
and shall be included as part of the outstanding Obligations under Section
2(c)(i) of the Reimbursement Agreement for purposes of calculating the guarantee
fee referred to in Section 2 of the Reimbursement Agreement. The guarantee fee
payable with respect thereto shall be governed by the terms of the Reimbursement
Agreement.
3. EFFECT ON REIMBURSEMENT AGREEMENT.
Except as expressly amended by this Amendment, all of the terms and
conditions of the Reimbursement Agreement shall remain in full force and effect.
4. CAPTIONS.
The captions and headings used herein are for the convenience of reference
and shall not be construed in any manner to limit or modify any of the terms
hereof.
5. GOVERNING LAW.
This Amendment shall be governed by and construed in accordance with the
laws of the State of California.
6. COUNTERPARTS.
This Amendment may be executed in counterparts, each of which shall be an
original, but all of which together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be duly executed on its behalf as of the date first set forth above.
NATIONAL MEDICAL ENTERPRISES, INC.
By: \s\ Raymond L. Mathiasen
Title: Senior Vice President
THE HILLHAVEN CORPORATION
By: /s/ R.K. Schneider
Title: Vice President Treasury
<PAGE>
MEMORANDUM OF UNDERSTANDING
This memorandum confirms my intent and certain understandings regarding my
continued employment by Tenet Healthcare Corporation ("Tenet"). I hereby
confirm my intent to continue as Chairman of the Board and Chief Executive
Officer of Tenet for a period of not less than two years. I understand that
Tenet intends to grant me, on or about June 1, 1996, options under Tenet's Stock
Incentive Plan to purchase 900,000 shares of Tenet common stock and that these
options would be exercisable at a price equal to the closing price of Tenet's
common stock on the date of grant and expire not later than ten years from the
date of grant. While past practice has been to vest options in equal portions
over three years from the date of grant, I understand that these options would
vest 66 2/3% on the second anniversary of the date of grant and 100% on the
third anniversary of the grant date. I understand that as a result of this
vesting schedule, under the terms of the stock incentive plan, if I leave Tenet
voluntarily over the next two years, other than for reasons covered in the stock
option plan and stock option agreement such as in the event of a change in
control, I will not be entitled to any of these 900,000 stock options. I
further understand that Tenet does not intend to grant any additional options to
me during fiscal 1997 and fiscal 1998.
/s/ Jeffrey C. Barbakow Date: May 21, 1996
-------------------------------------- -------------
JEFFREY C. BARBAKOW
<PAGE>
MEMORANDUM OF UNDERSTANDING
This memorandum confirms my intent and certain understandings regarding my
continued employment by Tenet Healthcare Corporation ("Tenet"). I hereby
confirm my intent to continue as President and Chief Operating Officer of Tenet
for a period of not less than two years. I understand that Tenet intends to
grant me, on or about June 1, 1996, options under Tenet's Stock Incentive Plan
to purchase 450,000 shares of Tenet common stock and that these options would be
exercisable at a price equal to the closing price of Tenet's common stock on the
date of grant and expire not later than ten years from the date of grant. While
past practice has been to vest options in equal portions over three years from
the date of grant, I understand that these options would vest 66 2/3% on the
second anniversary of the date of grant and 100% on the third anniversary of the
grant date. I understand that as a result of this vesting schedule, under the
terms of the stock incentive plan, if I leave Tenet voluntarily over the next
two years, other than for reasons covered in the stock option plan and stock
option agreement such as in the event of a change in control, I will not be
entitled to any of these 450,000 stock options. I further understand that Tenet
does not intend to grant any additional options to me during fiscal 1997 and
fiscal 1998.
/s/ Michael H. Focht Date: May 21, 1996
------------------------------ -------------
MICHAEL H. FOCHT, SR.
<PAGE>
EXECUTIVE OFFICERS RELOCATION PROTECTIONS AGREEMENT
TERMINATION BENEFITS
If the Company's move to Santa Barbara results in a relocation of your household
and your employment with Tenet is terminated involuntarily for any reason other
than cause, as described below, you will be entitled to receive as termination
benefits a severance package of 24 months of salary and benefits continuation
together with re-employment assistance.
In addition, any stock options which have been granted or may be granted to you,
and which are vested or become vested during your employment or during any
period of salary continuation, will continue to be exercisable up until ninety
(90) days after the end of the salary continuation period unless by their terms
the options shall expire sooner.
In the event your employment is terminated for cause, you will not be entitled
to any termination benefits.
If you voluntarily terminate your employment with Tenet within 24 months of your
relocation to Santa Barbara, the amount paid on your behalf or to you as
relocation benefits will be considered a loan. The loan amount due will be
reduced 1/24th for each month you are employed within the initial 24-month
period.
RELOCATION BENEFITS AT TERMINATION
If your employment is terminated involuntarily for other than cause, and the
Company has relocated you to the Santa Barbara area, you may elect to have the
Company move you back to the location of your residence prior to your having
moved to the Santa Barbara area. Further, the Company will assist you with the
sale of your Santa Barbara area home on a basis equivalent to the arrangements
for initially moving you to the Santa Barbara area. For example, if the Company
paid for realtor's fees and closing costs for the move to Santa Barbara, then
Tenet would pay for those same expenses for the move from Santa Barbara. Any
rental differential or mortgage/interest/tax differential then in effect would
cease. No payments will be made in lieu of the Company providing such
relocation expense.
"CAUSE" DEFINED
As used in this agreement, the term "cause" shall include, but shall not be
limited to, dishonesty, fraud, willful misconduct, self-dealing or violations of
the Tenet Standards of Conduct, breach of fiduciary duty (whether or not
involving personal profit), failure, neglect or refusal to perform your duties
in any material respect, violation of law (except traffic violations or similar
minor infractions), material violation of Tenet's Human Resources or other
policies, or any material breach of this agreement; provided, however, that a
failure to achieve or meet business objectives as defined by the Company shall
not be considered "cause" so long as you have devoted your best and good faith
efforts and full attention to the achievement of those business objectives.
<PAGE>
SEVERANCE PROTECTION PLAN
FOR EXECUTIVE OFFICERS
TERMINATION BENEFITS
Upon the occurrence of a Change of Control (as defined below) of Tenet
Healthcare Corporation (the "Company"), all then unvested stock options held by
each Participant (as defined below) in the Severance Protection Plan (the
"Plan") will become vested as of the date of such Change of Control. In
addition, if a Participant is terminated for other than Cause (as defined below)
or the Participant terminates for Good Reason (as defined below) within two
years of the date of the occurrence of a Change of Control, the Participant
will be entitled to a lump-sum payment equal to two times the Participant's
then-current base salary plus the Participant's target bonus for the then-
current fiscal year under the Company's Annual Incentive Plan ("AIP"); provided
that such payment shall be less any salary continuation amounts payable under
any other severance agreement or severance policy of the Company. The
Participant also will receive an additional pro-rated award (the "Pro-Rata
Bonus") under the AIP for the then-current fiscal year calculated by multiplying
(x) the number of months or partial months elapsed for that fiscal year divided
by 12 by (y) an amount equal to not less than the Participant's target award for
the then-current fiscal year. Furthermore, the Participant will be permitted to
continue to receive benefits under the Company's (or its successor's) health
care plan until the Participant reaches age 65 or is employed by another
employer offering health care coverage to the Participant for the same cost to
the Participant as the Participant was paying while employed by the Company
(subject to adjustment based on the consumer price index). The total payments
that are deemed to be contingent upon a Change of Control in accordance with the
rules set forth in Section 280g of the Internal Revenue Code of 1986, as amended
(the "Code"), when added to the present value of all other payments that are
payable to the Participant and are contingent upon a Change of Control, may not
exceed an amount equal to two hundred and ninety-nine percent (299%) of the
Participant's "base amount" as that term is defined in Section 280g of the Code
and applicable regulations. The Pro Rata Bonus is not subject to this limit.
Participants also are entitled to reimbursement for reasonable legal fees, if
any, necessary to enforce payment of benefits under the Plan.
"PARTICIPANT" DEFINED
A "Participant" is any individual designated as a participant in the Plan
by the Compensation and Stock Option Committee of the Board of Directors of the
Company.
"CAUSE" DEFINED
"Cause" shall mean the willful, substantial, continued and unjustified
refusal of the Participant to perform the duties of his or her office to the
extent of his or her ability to do so; any conduct on the part of the
Participant which constitutes a breach of any statutory or common law duty of
loyalty to the Company; or any illegal or publicly immoral act by the
Participant which materially and adversely affects the business of the Company.
<PAGE>
"CHANGE OF CONTROL" DEFINED
(A) A "Change in Control" of the Company shall be deemed to have occurred
if: (i) any Person is or becomes the beneficial owner directly or indirectly of
securities of the Company representing 20% or more of the combined Voting Stock
of the Company or; (ii) individuals who, as of April 1, 1994, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors; provided, however,
that (a) any individual who becomes a director of the Company subsequent to
April 1, 1994, whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be deemed to have been a member of the
Incumbent Board and (b) no individual who was elected initially (after April 1,
1994) as a director as a result of an actual or threatened election contest, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other
actual or threatened solicitations of proxies or consents by or on behalf of any
person other than the Incumbent Board shall be deemed to have been a member of
the Incumbent Board.
(B) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(C) "Person" shall mean an individual, firm, corporation or other entity
or any successor to such entity, together with all Affiliates and Associates of
such Person, but "Person" shall not include the Company, any subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or any
subsidiary of the Company, or any Person organized, appointed, established or
holding Voting Stock by, for or pursuant to the terms of such a plan.
(D) "Voting Stock" with respect to a corporation shall mean shares of that
corporation's capital stock having general voting power, with "voting power"
meaning the power under ordinary circumstances (and not merely upon the
happening of a contingency) to vote in the election of directors.
TERMINATION FOR "GOOD REASON" DEFINED
A voluntary termination for "Good Reason" shall mean a voluntary
termination following: (i) material downward change in the functions, duties,
or responsibilities which reduce the rank or position of the Participant; (ii) a
reduction in the Participant's annual base salary; (iii) a material reduction in
the Participant's annual incentive plan bonus payment other than for financial
performance as it broadly applies to all similarly situated Participants in the
same plan; (iv) a material reduction in the Participant's retirement or
supplemental retirement benefits that does not broadly apply to all Participants
in the same plan; or (v) transfer of the Participant's office to a location that
is more than fifty (50) miles from the Participant's current principal office
location.
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
BOARD OF DIRECTORS RETIREMENT PLAN
Effective January 1, 1985
Section 1
STATEMENT OF PURPOSE
The Board of Directors Retirement Plan (the "Plan") of National Medical
Enterprises, Inc. ("NME") has been adopted by the members of the Board of
Directors of NME who are employees of the Company to attract, retain, motivate
and provide financial security to members of the Board of Directors who are not
employees of the Company (the "Participants").
Section 2
DEFINITIONS
2.1 AGREEMENT. "Agreement" means a written agreement substantially in the
form of Exhibit A between NME and a Participant.
2.2 ANNUAL BOARD RETAINER. "Annual Board Retainer" means the total annual
retainer paid to the Director by NME for Service on NME's Board of Directors,
excluding any separate fees paid for meeting attendance or service on any
committees of the Board of Directors.
2.3 COMMITTEE. "Committee" means the members of the Executive Committee
of the Board of Directors of NME who are employees of the Company.
2.4 COMPANY. "Company" means National Medical Enterprises and its
Subsidiaries.
2.5 CHANGE OF CONTROL. "Change of Control" shall be deemed to have
occurred if (a) any person as such term is used in Sections 13(c) and 14(d)(2)
of the Securities Exchange Act of 1934, or as amended, is or becomes the
beneficial owner directly or indirectly of securities of NME representing thirty
percent or more of the combined voting power of NME's then outstanding
securities, or (b) during any two-year period after January 1, 1985, individuals
who at the beginning
<PAGE>
of such period constitute the Board of Directors of NME cease for any reason
other than death or disability to constitute a majority of the Board.
2.6 DIRECTOR. A "Director" is any member of the board of Directors of NME
who is not an employee of the Company who enters into an Agreement to
participate in this Plan.
2.7 ELIGIBLE CHILDREN. "Eligible Children" means all natural or adopted
children of a Participant under the age of 21, including any child conceived
prior to the death of a Participant.
2.8 FINAL ANNUAL BOARD RETAINER. "Final Annual Board Retainer" means the
Annual Board Retainer being paid to a Director at the time of his Termination of
Service on the Board of Directors of NME.
2.9 NORMAL RETIREMENT. "Normal Retirement" means any Termination of
Service during the life of a Participant on or after the date on which the
Participant attains age 65 and completes ten Years of Service as a Director,
including service before and after January 1, 1985.
2.10 PARTICIPANT. "Participant" shall include any Director who is not a
participant in the NME Supplemental Executive Retirement Plan and who, with the
permission of the Committee, enters into an Agreement to participate in this
Plan.
2.11 SERVICE. "Service" refers to service as a Director of NME.
2.12 SUBSIDIARY. A "Subsidiary" of the Company is any corporation,
partnership, venture or other entity in which the Company owns 50% of the
capital stock or otherwise has a controlling interest as determined by the
Committee, in its sole and absolute discretion.
2.13 SURVIVING SPOUSE. "Surviving Spouse" means the person legally married
to the Participant for at least one year prior to the Participant's death or
Termination of Service.
2.14 TERMINATION OF SERVICE. "Termination of Service" means the ceasing of
the Participant's service as a Director of NME any reason whatsoever, whether
voluntarily or involuntarily.
2.15 YEAR. A "Year" is a period of twelve consecutive calendar months.
2.16 YEAR OF SERVICE. "Year of Service" means each complete year of
Service as a Director of NME. Years of Service shall be deemed to have begun as
of the first day of the calendar month of service and to have ceased on the last
day of the calendar month of service.
<PAGE>
Section 3
RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT BENEFIT.
(a) Upon a Participant's Normal Retirement, NME agrees to pay to the
Participant an annual Normal Retirement Benefit for ten years in an amount equal
to his Final Annual Board Retainer, provided the Normal Retirement Benefit shall
not exceed $25,000 (Annual Board Retainer in 1985) increased by a compounded
rate of six percent per year from 1985 to the year of the Participant's
Termination of Service.
(b) If a Participant who is receiving a Normal Retirement Benefit
dies, his Surviving Spouse or Eligible Children shall be entitled to receive (in
accordance with Sections 3.4 and 3.5) the installments of the Participant's
Normal Retirement Benefit for the remainder of the ten year period.
(c) If a Participant dies while serving as a Director of NME, his
Surviving Spouse or Eligible Children shall be entitled at Participant's death
to receive (in accordance with Section 3.4 and 3.5) the installments of the
Normal Retirement Benefit which would have been payable to the Participant in
accordance with Section 3.1(a) for a period of ten years.
3.2 VESTING OF RETIREMENT BENEFIT. A Participant's interest in his
Retirement Benefit shall, subject to Section 5.5, vest in accordance with the
following schedule:
Years of Service
After 1/1/85 Vested Benefit
---------------- --------------
Less than 5 0%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
Years of Service shall only include Service after January 1, 1985.
Notwithstanding the foregoing, a Participant who is at least 65 years old and
who has completed at least ten Years of Service (including Service before and
after January 1, 1985) will, subject to Section 5.5, be fully vested in his
Retirement Benefit.
<PAGE>
3.3 TERMINATION BENEFIT. Upon any Termination of Service of the
Participant before Normal Retirement for any reason other than death after the
Participant has completed at least five Years of Service subsequent to January
1, 1985, NME shall pay to the Participant, commencing upon Termination of
Service or at age 65, whichever is later, a Retirement Benefit determined under
Sections 3.1 and 3.2, but with the following adjustments:
(a) Only the Participant's actual Years of Service (excluding Service
before January 1, 1985) as of the date of his Termination of Service shall be
used.
(b) For purposes of determining the Final Annual Board Retainer, as
used in Section 3.1, the Annual Board Retainer in effect on the date of the
Participant's Termination of Service shall be used, and the maximum Retirement
Benefit shall be determined based on the year of the Participant's Termination
of Service.
(c) (i) If a Participant dies after commencement of payment of his
Retirement Benefit under this Section 3.3, the Surviving
Spouse or Eligible Children shall be entitled at
Participant's death to receive (in accordance with Sections
3.4 and 3.5) the Participant's Retirement Benefit for the
remainder of the ten year period.
(ii) If a Participant, who has a vested interest under Section
3.2, dies after Termination of Service but at death is not
receiving any Retirement Benefits under this Plan, the
Surviving Spouse or Eligible Children shall be entitled at
Participant's death to receive (in accordance with Sections
3.4 and 3.5) the installments of the Retirement Benefit
which would have been payable to the Participant if he had
retired on the day before he died based on his vested
interest under Section 3.2.
3.4 DURATION OF BENEFIT PAYMENT. Retirement Benefits shall be paid
monthly over a period of ten years.
Surviving Spouse payments shall be paid monthly over the remainder of
the ten year period.
Eligible Children Benefit payments shall be paid monthly over the
remainder of the ten year period, but not beyond the date when the youngest of
the Eligible Children reaches age 21.
<PAGE>
3.5 RECIPIENTS OF BENEFIT PAYMENTS. If a Participant dies without a
Surviving Spouse but is survived by any Eligible Children, then benefits will be
paid to the Eligible Children or their legal guardian, if applicable. The total
monthly benefit payment will be equal to the monthly benefit that a Surviving
Spouse would have received, which will be paid in equal shares to each of the
Eligible Children until the youngest of the Eligible Children attains age 21.
If the Surviving Spouse dies after the death of the Participant but is
survived by Eligible Children, then the total monthly benefit previously paid to
the Surviving Spouse will be paid in equal shares to each of the Eligible
Children until the youngest of the Eligible Children attains age 21. When any
of the Eligible Children reaches age 21, his share will be reallocated equally
to the remaining Eligible Children.
3.6 CHANGE OF CONTROL. In the event of a Change of Control of NME while
this Plan remains in effect which results in a Participant's Termination of
Service as a Director of NME or a Participant's failure to be reelected as a
Director of NME when his term of office expires, (i) a Participants Retirement
Benefit hereunder will be fully vested in the Participant without regard to his
Years of Service with NME and (ii) notwithstanding any other provisions of this
Plan, a Participant will be entitled to receive the full Normal Retirement
Benefit commencing at age 65.
Section 4
PAYMENT
4.1 COMMENCEMENT OF PAYMENTS. Payments under this Plan shall begin not
later than the first day of the calendar month following the occurrence of an
event which entitles a Participant (or his Surviving Spouse or Eligible
Children) to payments under this Plan.
4.2 WITHHOLDING; UNEMPLOYMENT TAXES. To the extent required by the law in
effect at the time payments are made, NME shall report all payments hereunder
and shall withhold therefrom any taxes required to be withheld by the Federal or
any state or local government.
4.3 RECIPIENTS OF PAYMENTS. All payments to be made by NME under this
Plan shall be made to the Participant during his lifetime. All subsequent
payments under the Plan shall be made by NME to the Participant's Surviving
Spouse, Eligible Children or their guardian, if applicable.
<PAGE>
4.4 NO OTHER BENEFITS. NME shall pay no benefits hereunder to the
Participant, his Surviving Spouse, Eligible Children or their legal guardian, if
applicable, by reason of Termination of Service or otherwise, except as
specifically provided herein.
Section 5
CONDITIONS RELATED TO BENEFITS
5.1 ADMINISTRATION OF PLAN. The Committee has been authorized to
administer the Plan and to interpret, construe and apply its provisions in
accordance with its terms. The Committee shall administer the Plan and shall
establish, adopt or revise such rules and regulations as it may deem necessary
or advisable for the administration of the Plan. All decisions of the Committee
shall be by vote or written consent of the majority of its members and shall be
final and binding.
5.2 NO RIGHT TO ASSETS. Neither a Participant nor any other person shall
acquire by reason of the Plan any rights in or title to any assets, funds or
property of NME and its subsidiaries whatsoever including, without limiting the
generality of the foregoing, any specific funds or assets which NME, in its sole
discretion, may set aside in anticipation of a liability hereunder. No trust
shall be created in accordance with or by the execution or adoption of this Plan
or any Agreement with a Participant, and any benefits which become payable
hereunder shall be paid from the general assets of NME. A Participant shall
have only an unsecured contractual right to the amounts, if any, payable
hereunder.
5.3 NO TENURE RIGHTS. Nothing herein shall constitute a contract of
continuing service or in any manner obligate NME to continue the Service of a
Director, or obligate a Director to continue in the Service of NME, and nothing
herein shall be construed as fixing or regulating the compensation paid to a
Director.
5.4 RIGHT TO TERMINATE OR AMEND. Except during any two year period after
any Change of Control of NME, NME reserves the sole right to terminate the Plan
at any time and to terminate an Agreement with any Participant at any time. In
the event of termination of the Plan or of a Participant's Agreement, a
Participant shall be entitled only to the vested portion of his accrued benefits
under Section 3 of the Plan as of the time of the termination of the Plan or his
Agreement. All further vesting and benefit accrual shall cease on the date of
termination of the Plan or his
<PAGE>
Agreement. Benefits will be paid in the amounts specified and will commence at
the time specified in Section 3 as appropriate. NME further reserves the right
in its sole discretion to amend the Plan in any respect except that Plan
benefits cannot be reduced during any two year period after any Change of
Control of NME. No amendment of the Plan (whether there has or has not been a
Change of Control of NME) that reduces the value of the benefit theretofore
accrued and vested by the Participant shall be effective.
5.5 ELIGIBILITY. Eligibility to participate in the Plan is expressly
conditional upon a Director's furnishing to NME certain information and taking
physical examinations and such other relevant action as may be reasonably
requested by NME. Any Participant who refuses to provide such information or to
take such action shall not be enrolled as or shall thereupon cease to be a
Participant under the Plan. Any Participant who commits suicide during the two-
year period beginning on the date of his Agreement, or who makes any material
misstatement of information or non-disclosure of medical history, will not
receive any benefits hereunder unless, in the sole discretion of the Committee,
benefits in a reduced amount are awarded.
5.6 OFFSET. If at the time payments or installments of payments are to be
made hereunder, any Participant or his Surviving Spouse or both are indebted to
NME or its Subsidiaries, then the payments remaining to be made to the
Participant or his Surviving Spouse or both may, at the discretion of the
Committee, be reduced by the amount of such indebtedness; provided, however,
that an election by the Committee not to reduce any such payment or payments
shall not constitute a waiver of any claim for such indebtedness.
5.7 CONDITIONS PRECEDENT. No Retirement Benefits will be payable
hereunder to any Participant (i) whose Service with NME is terminated because of
his willful misconduct or gross negligence in the performance of his duties or
(ii) who within three years after Termination of Service becomes an employee,
director or consultant to any third party engaged in any line of business in
competition with the Company that accounts for more than ten percent of the
gross revenues of the Company taken as a whole.
<PAGE>
Section 6
MISCELLANEOUS
6.1 NONASSIGNABILITY. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof, which are,
and all rights to which are, expressly declared to be unassignable and non-
transferable. No part of the amounts payable shall, prior to actual payment, be
subject to seizure, or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person, nor
be transferable by operation of law in the event of a Participant's or any
person's bankruptcy or insolvency.
6.2 GENDER AND NUMBER. Wherever appropriate herein, the masculine may
mean the feminine and the singular may mean the plural or vice versa.
6.3 NOTICE. Any notice required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the principal office of NME, directed to the
attention of the Secretary of the Committee. Such notice shall be deemed given
as of the date of delivery or, if delivery is made by mail, as of the date shown
on the postmark or on the receipt for registration or certification.
6.4 VALIDITY. In the event any provision of this Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
6.5 APPLICABLE LAW. This Plan shall be governed and construed in
accordance with the laws of the State of California.
6.6 SUCCESSORS IN INTEREST. This Plan shall inure to the benefit of, be
binding upon, and be enforceable by, any corporate successor to NME or successor
to substantially all of the assets of NME.
6.7 NO REPRESENTATION ON TAX MATTERS. NME makes no representation to
Participants regarding current or future income tax ramifications of the Plan.
<PAGE>
EXHIBIT A
NATIONAL MEDICAL ENTERPRISES, INC.
BOARD OF DIRECTORS RETIREMENT PLAN AGREEMENT
THIS AGREEMENT is made and entered into at Los Angeles, California, as of
the first day of January, 1985, by and between National Medical Enterprises,
Inc. ("NME") and ______________
("Director").
WHEREAS, NME has adopted a Board of Directors Retirement Plan (the "Plan");
and
WHEREAS, since he presently serves as a member of the Board of Directors of
NME and is not an employee of the Company, the Director is eligible to
participate in the Plan; and
WHEREAS, the Plan requires that an agreement be entered into between NME
and Director setting out certain terms and benefits of the plan as they apply to
the Director;
NOW, THEREFORE, NME and the Director hereby agree as follows:
1. The Plan, a copy of which is attached, is hereby incorporated into and
made a part of this Agreement as though set forth in full herein. The parties
shall be bound by, and have the benefit of, each and every provision of the
Plan, including but not limited to the non-assignability provisions of Section
6.1 of the Plan.
2. The Director was born on _______________, 19___, and his or her
present service as a member of the Board of Directors of NME began on
_______________, 19___.
3. This Agreement shall inure to the benefit of, and be binding upon,
NME, its successors and assigns, and the Director and his or her Surviving
Spouse and Eligible Children.
IN WITNESS WHEREOF, the parties hereto have signed and entered into this
Agreement on and as of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By
------------------------------------
Its
------------------------------------
------------------------------------
Director
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
1. ELIGIBILITY. Each Director and Officer of National Medical
Enterprises, Inc. (the "Company") and any full-time employee of the Company and
its subsidiaries designated by the Compensation and Stock Option Committee (the
"Committee") of the Board of Directors of the Company shall be eligible to
participate in this Deferred Compensation Plan of the Company (the "Plan"),
pursuant to the terms and conditions described herein.
2. PARTICIPATION.
(a) On the date of adoption of the Plan and at any time thereafter, a
Director, Officer or full-time employee designated by the Committee (the
"Participant") may elect to participate in the Plan by directing that $5,000 or
more of the compensation which may thereafter be earned annually by him for
services as a Director (including fees payable for services as a member of a
committee of the Board) or Officer or full-time employee of the Company or any
subsidiary thereof be credited to a deferred compensation account subject to the
terms of the Plan.
(b) An election to participate in the Plan shall be in the form of a
document executed by a person who is eligible to become a Participant and filed
with the Company, and such election shall continue in effect until the
Participant ceases to be eliible for the Plan, or until the Participant
terminates such election, in whole or in part, by written notice filed with the
Company. Any such termination, in whole or in part, shall become effective at
the close of the fiscal quarter ending immediately following the date on which
the Company received such notice, or at the end of such later fiscal quarter as
may be designated in the notice of termination. "Fiscal quarter" shall mean any
quarter of the fiscal year adopted by the Company for reporting its financial
condition and operating results.
(c) A Participant who has filed a termination of election may
thereafter file an election to participate for any future fiscal quarters with
respect to any future compensation earned by him for services to the Company or
any subsidiary thereof. Such election shall be made in writing as provided in
Section 2(b) hereof.
1.
<PAGE>
3. DEFERRED COMPENSATION ACCOUNTS.
(a) All deferred amounts shall be held with the general funds of the
Company, shall be credited to an account in the name of the individual
Participant and shall bear interest, as described herein.
(b) Based on the Participant's deferred compensation account balanced
at the beginning of the fiscal quarter, the account shall be credited at the end
of the fiscal quarter with an interest equivalent to be calculated quarterly on
the basis of one quarter of the percentage rate which is equal to one point
below the prime interest rate charged by Manufacturers Hanover Trust Company on
the last day of the fiscal quarter (or such other rate as is set from time to
time by the Committee).
4. EVENTS CAUSING DISTRIBUTION. A Participant's deferred compensation
shall become distributable upon the first to occur of any of the following
events:
(a) The retirement of the Participant from active service with the
Company or any subsidiary thereof.
(b) The termination of the Participant's employment by the Company or
any subsidiary thereof for any reason, whether voluntary or involuntary;
(c) The death of the Participant;
(d) The total and permanent incapacity of the Participant, due to
physical impairment or legally established mental incompetence, to perform the
usual duties of his employment with the Company or any subsidiary thereof, which
disability shall be determined on the basis of (i) medical evidence by a
licensed physician designated by the Company or (ii) evidence that the
Participant has become entitled to receive primary benefits as a disabled
employee under the Social Security Act in effect on the date of such disability;
(e) The occurrence of an unforeseeable emergency caused by accident,
illness or other causes beyond the control of the Participant which results, in
the sole judgment of the Committee, in substantial hardship to the Participant.
Any distribution pursuant to this Section 4(e) shall be in an amount not greater
than the amount necessary, in the sole judgment of the Committee, to alleviate
any hardship caused to the Participant by reason of such emergency; or
(f) Such earlier date as may be specified by the Participant at the
time he elects to participate in the Plan.
2.
<PAGE>
5. FORM OF DISTRIBUTION. Compensation that has been deferred, together
with accumulated interest, will be distributed to the Participant in 120
approximately equal monthly payments, unless the Committee, in its sole
discretion, determines, upon written request of the employee, that payment shall
be made over a shorter period or in a lump sum.
Payment shall commence 30 days after the occurrence of the event causing
distribution, with interest continuing to accrue pursuant to Section 3(b) hereof
until the full amount of deferred compensation is paid.
6. DESIGNATION OF BENEFICIARY. Each Participant may designate a
beneficiary to receive distribution of the such Participant's deferred
compensation if the Participant is not living when any portion of such
compensation become distributable. If the Participant fails to designate a
beneficiary, or if the Participant's designated beneficiary does not survive
until the time when any portion of the Participant's deferred compensation
become distributable, such portion of the Participant's deferred compensation
shall be paid in a lump sum to the Participant's estate 120 days immediately
following the date of the Participant's death.
7. MISCELLANEOUS.
(a) The Participant's deferred compensation account under this Plan
shall not be assignable by the Participant and shall not be subject to
attachment, lien, levy, or other creditors' rights under state or Federal law.
(b) All funds or assets, together with all interest, accumulations
and increments thereon, of the deferred compensation of all Participants shall
remain the funds and assets of the Company, and shall be subject to the
Company's absolute ownership and control until the time when such funds or
assets are distributed in accordance herewith. The obligation of the Company to
Participants hereunder is a contractual obligation only, and the Participants
shall have no preferred or specific interest, by way of trust, escrow, annuity
or otherwise, in and to any specific assets or funds of the Company.
(c) Copies of the Plan and any and all amendments thereto shall be
made available to eligible Participants of all reasonable times at the office of
the Director of Compensation of the Company to all Directors, Officers and each
other eligible full-time employee of the Company and its subsidiaries. All
notices to the Company hereunder shall be filed with the Director of
3.
<PAGE>
Compensation of the Company.
(d) The Plan may be amended prospectively, from time to time, by the
Committee, and the interest rate applicable hereunder may be increased or
decreased prospectively by the Committee as provided in Section 3 hereof, but no
amendment shall, in any event, be made to the Plan which would reduce the
amounts already earned by any Participant or change the date or provisions for
distribution of such amounts, unless each Participant personally approves such
amendments insofar as the amendments affect him.
The foregoing Plan is approved by the Board of Directors of the Company on
behalf of the Company on March 23, 1983, and shall be applicable to any
Director, Officer or full-time employee who is designated by the Committee as
eligible for the Plan and who elects to participate in the Plan.
\s\ Richard K. Eamer
------------------------------
Richard K. Eamer, Chairman
Attest: \s\ Marcus E. Powers
--------------------
Marcus E. Powers
Secretary
4.
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
NOTICE OF ELECTION TO DEFER COMPENSATION
Pursuant to the terms of the deferred Compensation Plan of National Medical
Enterprises, Inc. (hereafter referred to as the "Company") adopted at a meeting
of the Board of Directors held on March 23, 1983, at which a quorum was present
and at all times acting, I hereby elect to defer _____________(specify amount to
be deferred per fiscal year - the amount must equal or exceed $5,000) of my
compensation that will be payable to and receivable by me in consideration for
service I will perform for the Company. Said deferral is to be accomplished by
withholding $__________ per pay period beginning on _______________(date) and
withholding $__________ from my annual incentive award which is normally paid
following the close of each fiscal year (enter dollar amount or zero, as
appropriate).
Such election shall continue in effect each succeeding fiscal year until such
time as I file written notice of termination (or a change in the amount of
compensation to be deferred) with the Director of Compensation of the Company,
or such time as I cease to be eligible to participate in the Plan.
I understand that in the event of my death, and I am not survived by a named
beneficiary, all amounts deferred pursuant to this Plan, together with
accumulated interest, less any amounts paid out from my account, shall be
payable in full to my estate 120 days immediately following the date of my
death.
- ------------ ------------------------------------------------------
Date Signature of Director, Officer or Full-time Employee
------------------------------------------------------
Printed Name of Director, Officer or Full-time Employee
- ------------ ------------------------------------------------------
Date Spouse's Signature
------------------------------------------------------
Printed Name of Spouse
Received:
-------------------------
John A. Lynn
Director of Compensation
-------------------------
Date
NOTE: If the Director, Officer or full-time employee electing to defer
compensation is a party to an employment contract with the Company, this
election will not be valid until said employment contract is amended to reflect
the election by this notice.
5.
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
BENEFICIARY DESIGNATION
DEFERRED COMPENSATION PLAN
I designate the following beneficiary or beneficiaries to receive payment, in
the even of my death, of my interest in any Deferred Compensation heretofore or
hereafter payable to me pursuant to the National Medical Enterprises Deferred
Compensation Plan (please see "Instructions for Naming the Beneficiary" on the
reverse side of this form):
PRIMARY BENEFICIARY
OR BENEFICIARIES AGE RELATIONSHIP ADDRESS
- ------------------- --- ------------ -------
In the event that the Primary Beneficiary or Beneficiaries herein named is (are)
deceased, I elect to name a Successor Beneficiary.
SUCCESSOR BENEFICIARY
OR BENEFICIARIES AGE RELATIONSHIP ADDRESS
- ------------------- --- ------------ -------
I reserve the right to change any beneficiary from time to time by filing with
the Company a copy of this form.
I agree that the last designation received by the Company prior to my death
shall control any testamentary or other disposition I may make; however, if a
former spouse is one of the beneficiaries named above but is not my spouse at
the time of my death, such designation shall be deemed revoked. I acknowledge
that this designation is subject to laws in the state of my residence. I
further agree that the Company may make a lump sum payment to the legal
representative of my estate if there is any questions as to the right of any
beneficiary to take hereunder, the Company, its directors, the Compensation
Committee and any member thereof, and any employee of the Company, shall have no
further liability with respect hereto.
- ------------ ------------------------------------------------------
Date Signature of Director, Officer or Full-time Employee
------------------------------------------------------
Printed Name of Director, Officer or Full-time Employee
- ------------ ------------------------------------------------------
Date Spouse's Signature
------------------------------------------------------
Printed Name of Spouse
6.
<PAGE>
INSTRUCTIONS FOR NAMING THE BENEFICIARY:
It is important that your beneficiary designation be clear so that there will be
no question as to your meaning. If you need assistance, contact your company
representative.
The following are the most common designations:
- Mary J. Doe, Wife (NOT Mrs. John J. Doe).
- Mary J. Doe, Wife, if living, otherwise to Joseph W. Doe, Son.
- Mary J. Doe, Wife, if living, otherwise to Jane Doe, Daughter, and
Joseph W. Doe, Son, in equal shares or to the survivor.
- Estate of Insured.
If you name more than one beneficiary with unequal shares, please show the
amount of the distribution to be paid to each beneficiary to fractional parts;
for example "1/3 to Mary Jones, Mother, and 2/3 to Edith Jones, Wife."
Please state age and relationship of each beneficiary. If the beneficiary is
not related to you either by blood or marriage, insert the words "Not Related,"
and state address of beneficiary.
The signature on this form must be in ink. Do not erase. If corrections are
necessary, line out the error and initial the correction.
7.
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC.
1991 STOCK INCENTIVE PLAN
Dated September 25, 1991
1. Purpose of the Plan.
The purpose of the 1991 Stock Incentive Plan of National Medical
Enterprises, Inc. is to promote the interests of the Company and its
shareholders by strengthening the Company's ability to attract, motivate and
retain employees, advisors and consultants of training, experience and ability,
and to provide a means to encourage stock ownership and a proprietary interest
in the Company to officers and valued employees of the Company and consultants
and advisors to the Company upon whose judgment, initiative, and efforts the
financial success and growth of the business of the Company largely depend.
2. Definitions.
(a) "Appreciation Right" means a right to receive an amount, representing
the difference between a price per share of Common Stock assigned on the date of
grant and the Fair Market Value of a share of Common Stock on the date of
exercise of such grant, payable in cash and/or Common Stock.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Compensation and Stock Option Committee of the
Board, unless the Board appoints another committee to administer the Plan.
(d) "Common Stock" means the $.075 par value Common Stock of the Company.
(e) "Company" means National Medical Enterprises, Inc., a Nevada
corporation.
(f) "Eligible Person" means an Employee, advisor or consultant of the
Company or any of its present or future subsidiary corporations eligible to
receive an Incentive Award but shall not include a director who is not an
Employee of the Company.
(g) "Employee" means any executive officer or any employee of the Company,
or of any of its present or future subsidiary corporations.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time or any successor statute.
(i) "Fair Market Value" means the closing price of a share of Common Stock
on the New York Stock Exchange on the date as of which fair market value is to
be determined or the actual sale price of the shares acquired upon exercise if
the shares are sold in a same day sale, or if no sales were made on such date,
the closing price of such shares on the New York Stock Exchange on the next
preceding date on which there were such sales.
(j) "Incentive Award" means an Option, Incentive Stock Award, Appreciation
Right, Performance Unit, Restricted Unit, or cash bonus award granted under the
Plan.
<PAGE>
(k) "Incentive Stock Award" means a right to the grant or purchase, at a
price determined by the Committee, of Common Stock of the Company which is
nontransferable and subject to substantial risk of forfeiture until specific
conditions are met. Such conditions will be determined by the Committee. An
Incentive Stock Award includes a Performance Unit paid in Common Stock of the
Company.
(l) "Incentive Stock Option" means an Option intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended and the Treasury
Regulations thereunder.
(m) "Option" means an Incentive Stock Option or a nonqualified or
nonstatutory stock option.
(n) "Performance Unit" means a grant made under Section 9 entitling a
Participant to a payment of Common Stock or cash at the end of a performance
period if certain conditions as may be established by the Committee are met.
(o) "Participant" means any Eligible Person selected to receive an
Incentive Award pursuant to Section 5.
(p) "Plan" means the 1991 Stock Incentive Plan as set forth herein, which
may be amended from time to time.
(q) "Restricted Unit" means a grant made under Section 10 entitling a
Participant to a payment of cash at the end of a vesting period established by
the Committee equivalent in value to the Fair Market Value of a share of Common
Stock with such limits as to maximum value, if any, as may be established by the
Committee.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 11 of the Plan,
the aggregate number of shares of Common Stock that may be issued or transferred
or exercised pursuant to Incentive Awards under the Plan is 18,000,000 shares of
Common Stock.
(b) The shares of Common Stock to be delivered under the Plan will be made
available, at the discretion of the Board or the Committee, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased on the
open market.
(c) If any share of Common Stock that is the subject of an Incentive Award
is not issued or transferred and ceases to be issuable or transferable for any
reason, such share of Common Stock will no longer be charged against the
limitations provided for in Section 3(a) and may again be made subject to
Incentive Awards. However, shares as to which an Option has been surrendered in
connection with the exercise of a related Appreciation Right will not again be
available for the grant of any further Incentive Awards. Incentive Awards to the
extent they are paid out in cash and not in Common Stock shall not be applied
against the limitations provided for in Section 3(a).
4. Administration of the Plan.
(a) The Plan will be administered by the Committee, which will consist of
two or more persons (i) who are not eligible to receive Incentive Awards under
the Plan, and (ii) who have not been eligible at any time within one year before
appointment to the Committee for selection as
<PAGE>
persons to whom Incentive Awards may be granted pursuant to the Plan, or to whom
shares may be allocated or Options or Appreciation Rights may be granted
pursuant to any other plan of the Company or any of its subsidiary corporations
entitling the participants therein to acquire stock, appreciation rights, or
options of the Company or any of its present or future subsidiary corporations,
except that this requirement shall not prohibit any person from serving on the
Committee solely by reason of the fact that such person is eligible or may have
been granted such rights under the Company's Directors Stock Option Plan or the
Director Restricted Share Plan.
(b) The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to determine the Eligible Persons to whom, and the time or times at
which, Incentive Awards may be granted and the number of shares, units, or
Appreciation Rights subject to each Incentive Award. The Committee also has
authority to interpret the Plan, to make determinations as to whether a grantee
is permanently and totally disabled, and to determine the terms and provisions
of the respective Incentive Award agreements and to make all other
determinations necessary or advisable for Plan administration. The Committee
has authority to prescribe, amend, and rescind rules and regulations relating to
the Plan. All interpretations, determinations, and actions by the Committee
will be final, conclusive, and binding upon all parties.
(c) No member of the Board nor the Committee will be liable for any action
or determination made in good faith by the Board or the Committee with respect
to the Plan or any Incentive Award under it.
5. Eligibility.
(a) All Employees who have been determined by the Committee to be key
Employees and all consultants and advisors to the Company, or to any subsidiary,
present or future, that have been selected by the Committee are eligible to
receive Incentive Awards under the Plan; however, only Employees who have been
determined by the Committee to be key Employees shall be eligible to receive
Incentive Stock Options under the Plan. The Committee has authority, in its
sole discretion, to determine and designate from time to time those Eligible
Persons who are to be granted Incentive Awards, and the type and amount of
Incentive Award to be granted. Each Incentive Award will be evidenced by a
written instrument and may include any other terms and conditions consistent
with the Plan, as the Committee may determine.
(b) No person will be eligible for the grant of any Incentive Stock Option
who owns or would own immediately after the grant of such Option, directly or
indirectly, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any subsidiary corporation.
This does not apply if, at the time such Incentive Stock Option is granted, the
Incentive Stock Option price is at least 110% of the Fair Market Value of the
Common Stock on the date of the grant. In this event, the Incentive Stock
Option by its terms is not exercisable after the expiration of five years from
the date of grant.
6. Terms and Conditions of Stock Options.
(a) The purchase price of Common Stock under each Option shall be
determined by the Committee and shall not be less than an amount allowed by
applicable law; however, the purchase price under an Incentive Stock Option will
be at least equal to the Fair Market Value of the Common
<PAGE>
Stock on the date of grant.
(b) Options may be exercised as determined by the Committee but in no
event after 15 years from the date of grant; however, an Incentive Stock Option
shall not be exercisable after the expiration of 10 years from the date of the
grant.
(c) Upon the exercise of an Option, the purchase price will be payable in
full in cash or, in the discretion of the Committee, by the assignment and
delivery to the Company of shares of Common Stock owned by the optionee
(including Common Stock subject to Incentive Stock Awards under the Plan); or in
the discretion of the Committee, by a promissory note secured by shares of
Common Stock bearing interest at a rate determined by the Committee; or by a
combination of any of the above. The purchase price may, in the discretion of
the Committee, also be paid by delivering a properly executed exercise notice
for such Option along with irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds necessary to fully
pay the purchase price and such other documents as the Committee may determine.
Any shares assigned and delivered to the Company in payment or partial payment
of the purchase price will be valued at the Fair Market Value on the exercise
date.
(d) With respect to Incentive Stock Options granted under the Plan, the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive Stock
Options are exercisable for the first time by an Employee during any calendar
year shall not exceed one hundred thousand dollars ($100,000) or such other
limit as may be required by the Internal Revenue Code of 1986, as amended.
(e) No fractional shares will be issued pursuant to the exercise of an
Option nor will any cash payment be made in lieu of fractional shares.
(f) With respect to the exercise of an Option under the Plan, the
Participant may, in the discretion of the Committee, receive a replacement
Option under the Plan to purchase a number of shares of Common Stock equal to
the number of shares of Common Stock, if any, which the Participant delivered on
exercise of the Option, with a purchase price equal to the Fair Market Value on
the exercise date and with a term extending to the expiration date of the
original Option.
(g) At the time a Participant exercises an Option, the Committee may grant
a cash bonus award in such amount as the Committee may determine. The Committee
may make such a determination at the time of grant or exercise. The cash bonus
award may be subject to any condition imposed by the Committee, including a
reservation of the right to revoke a cash bonus award at any time before it is
paid.
(h) All Incentive Stock Options shall be granted within 10 years from the
date this Plan is adopted or is approved by the shareholders, whichever is
earlier.
(i) Incentive Stock Options by their terms shall not be transferable by an
Employee, other than by will or by laws of descent and distribution and shall be
exercisable only by an Employee during his or her lifetime.
7. Terms and Conditions of Appreciation Rights.
(a) An Appreciation Right may be granted in connection with an Option,
either at the time of grant or at any time thereafter during the term of the
Option.
<PAGE>
(b) An Appreciation Right granted in connection with an Option will
entitle the holder, upon exercise, to surrender such Option or any portion
thereof to the extent unexercised, with respect to the number of shares as to
which such Appreciation Right is exercised, and to receive payment of an amount
computed pursuant to Section 7(d). Such Option will, to the extent surrendered,
then cease to be exercisable.
(c) Subject to Section 7(i), an Appreciation Right granted in connection
with an Option hereunder will be exercisable at such time or times, and only to
the extent that a related Option is exercisable, will expire no later than the
related Option expires, and will not be transferable except to the extent that
such related Option may be transferable.
(d) Upon the exercise of an Appreciation Right granted in connection with
an Option, the holder will be entitled to receive payment of an amount
determined by multiplying:
(i) The difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related Option from the Fair Market
Value of a share of Common Stock on the date of exercise of such
Appreciation Right, by
(ii) The number of shares as to which such Appreciation Right will
have been exercised.
(e) An Appreciation Right granted without relationship to an Option will
be exercisable as determined by the Committee but in no event after 15 years
from the date of grant.
(f) An Appreciation Right granted without relationship to an Option will
entitle the holder, upon exercise of the Appreciation Right, to receive payment
of an amount determined by multiplying:
(i) The difference obtained by subtracting the amount assigned to the
Appreciation Right by the Committee on the date of grant (which shall not
be less than allowed by applicable law) from the Fair Market Value of a
share of Common Stock on the date of exercise of such Appreciation Right,
by
(ii) The number of shares as to which such Appreciation Right will
have been exercised.
(g) At the time of grant of an Appreciation Right, the Committee may
determine the maximum amount payable with respect to such Appreciation Right.
(h) Payment of the amount determined under Section 7(d) or (f) may be made
solely in whole shares of Common Stock valued at their Fair Market Value on the
date of exercise of the Appreciation Right or alternatively, in the sole
discretion of the Committee, solely in cash or a combination of cash and shares
as the Committee deems advisable. If the Committee decides that payment may be
made in shares of Common Stock, and the amount payable results in a fractional
share, payment for the fractional share will be made in cash.
(i) An Appreciation Right granted in connection with an Incentive Stock
Option may be exercised only when the market price of the Common Stock subject
to the Incentive Stock Option exceeds the purchase price of a share of Common
Stock related to the Incentive Stock Option.
8. Terms and Conditions of Incentive Stock Awards.
<PAGE>
(a) All shares of Incentive Stock Awards granted pursuant to the Plan will
be subject to the following conditions:
(i) The shares may not be transferred, assigned or subject to any
encumbrance, pledge or charge until the restrictions are removed or expire
or unless otherwise allowed by the Committee.
(ii) The Committee may require the Participant to enter into an escrow
agreement providing that the certificates representing Incentive Stock
Awards granted or sold pursuant to the Plan will remain in the physical
custody of an escrow holder until all restrictions are removed or expire.
(iii) Each certificate representing Incentive Stock Awards granted
pursuant to the Plan will bear a legend making appropriate reference to the
restrictions imposed.
(iv) The Committee may impose the conditions on any shares granted or
sold pursuant to the Plan as it may deem advisable, including, without
limitation, restrictions under the Securities Act of 1933, as amended,
under the requirements of any stock exchange upon which such shares of the
same class are then listed and under any blue sky or other securities laws
applicable to such shares.
(v) The Committee, in its sole discretion, may elect to settle all or
a portion of an Incentive Stock Award in cash in lieu of issuing shares of
Common Stock based on the Fair Market Value on the date of payment.
(b) The restrictions imposed under subparagraph (a) above upon Incentive
Stock Awards will lapse in accordance with a schedule or other conditions as
determined by the Committee, subject to the provisions of Section 11(d) and
Section 13(e).
(c) Subject to the provisions of subparagraph (a) above and Section 13(e),
the holder will have all rights of a shareholder with respect to the Incentive
Stock Awards granted or sold, including the right to vote the shares and receive
all dividends and other distributions paid or made with respect thereto, unless
the Committee determines otherwise at the time the Incentive Stock Awards are
granted or sold.
9. Terms and Conditions of Performance Units.
Performance Units, measured in whole or in part by the value of shares of
Common Stock, the performance of the Participant, the performance of the
Company, its subsidiaries or any separate business units or properties thereof,
or any combination thereof, may be granted under the Plan. Such incentives may
be payable in Common Stock, cash or both, and shall be subject to such
restrictions and conditions, as the Committee shall determine. At the time of a
Performance Unit grant, the Committee shall determine, in its sole discretion,
one or more performance periods and performance goals to be achieved during the
applicable performance periods as well as a target payment value for the
Performance Unit or a range of payment values. No performance period shall
exceed 15 years from the date of the grant. The performance goals applicable to
a Performance Unit grant may be subject to such later revisions as the Committee
shall deem appropriate to reflect significant unforeseen events such as changes
in laws, regulations or accounting practices, or unusual or nonrecurring items
or occurrences. At the end of the performance period, the Committee shall
determine the extent to which performance goals have been attained or a degree
of achievement between maximum and minimum levels in order to establish the
level of payment to
<PAGE>
be made, if any, and shall determine if payment is to be made in the form of
Common Stock or cash or both.
10. Terms and Conditions of Restricted Units.
Restricted Units may be granted under the Plan based on past, current and
potential performance. Such Units shall be subject to such restrictions and
conditions as the Committee shall determine. At the time of a Restricted Unit
grant, the Committee shall determine, in its sole discretion, the vesting period
of the Units and the maximum value of the Units. No vesting period shall exceed
15 years from the date of the grant. A Restricted Unit grant may be made
subject to such later revisions as the Committee shall deem appropriate to
reflect significant unforeseen events such as changes in laws, regulations or
accounting practices, or unusual or nonrecurring items or occurrences. At the
end of the vesting period applicable to Restricted Units granted to a
Participant, a cash amount equivalent in value to the Fair Market Value of one
share of Common Stock on the last day of the vesting period, subject to any
maximum value determined by the Committee at the time of grant, shall be paid
with respect to each such Restricted Unit to the Participant.
During the vesting period for Restricted Units, the Committee may provide
that a Participant shall be paid with respect to each Restricted Unit, cash
amounts in the same amount and at the same time as a dividend on a share of
Common Stock.
11. Adjustment Provisions.
(a) Subject to Section 11(b), if the outstanding shares of Common Stock of
the Company are increased, decreased, or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, spin off, sale of all
or substantially all the property of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment may be made in (i)
the maximum number and kind of shares provided in Section 3, (ii) the number and
kind of shares, units, or other securities subject to the then-outstanding
Incentive Awards, and (iii) the price for each share or other unit of any other
securities subject to then-outstanding Incentive Awards without change in the
aggregate purchase price or value as to which such Incentive Awards remain
exercisable or subject to restrictions.
(b) Despite the provisions of Section 11(a), upon dissolution or
liquidation of the Company or upon a reorganization, merger, or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or upon the sale of all or substantially all the
property of the Company, all Incentive Awards then outstanding under the Plan
will be fully vested and exercisable and all restrictions will immediately
cease, unless provisions are made in connection with such transaction for the
continuance of the Plan and the assumption or the substitution for such
Incentive Awards of new incentive awards covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices.
(c) Adjustments under Section 11(a) and 11(b) will be made by the
Committee, whose determination as to what adjustments will be made and the
extent thereof will be final, binding and conclusive. No fractional interest
will be issued under the Plan on account of any such adjustments.
<PAGE>
(d) In the event a Change of Control occurs or in the event that any
Person makes a filing under Sections 13(d) or 14(d) of the Exchange Act with
respect to the Company, the Committee may, in its sole discretion, without
obtaining shareholder approval, take any one or more of the following actions
with respect to all Eligible Persons and Participants:
(i) Accelerate the exercise dates of any outstanding Appreciation
Rights or Options, accelerate the vesting dates of outstanding Restricted
Units or Incentive Stock Awards or the performance period of outstanding
Performance Units, make outstanding Appreciation Rights or Options fully
vested and exercisable, or make outstanding Restricted Units fully vested
and outstanding Performance Units fully payable;
(ii) Determine that all or any portion of conditions associated with
any Incentive Award have been met;
(iii) Grant a cash bonus award to any of the holders of
outstanding Options;
(iv) Grant Appreciation Rights to holders of outstanding Options;
(v) Pay cash to any or all Option holders in exchange for the
cancellation of their outstanding Options;
(vi) Make any other adjustments or amendments to the Plan and
outstanding Incentive Awards and substitute new Incentive Awards.
For purposes of this Section 11(d), the following definitions shall apply:
(A) A "Change in Control" of the Company shall have occurred when a
Person, alone or together with its Affiliates and Associates, becomes
the beneficial owner of 20% or more of the general voting power of the
Company.
(B) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
(C) "Person" shall mean an individual, firm, corporation or other entity
or any successor to such entity, but "Person" shall not include the
Company, any subsidiary of the Company, any employee benefit plan or
employee stock plan of the Company, or any Person organized,
appointed, established or holding Voting Stock by, for or pursuant to
the terms of such a plan or any Person who acquires 20% or more of the
general voting power of the Company in a transaction or series of
transactions approved prior to such transaction or series of
transactions by the Board.
(D) "Voting Stock" shall mean shares of the Company's capital stock having
general voting power, with "voting power" meaning the power under
ordinary circumstances (and not merely upon the happening of a
contingency) to vote in the election of directors.
<PAGE>
12. General Provisions.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant who is an Employee any right to continue in the
employ of the Company or any of its subsidiaries or affect the right of the
Company to terminate the employment of such Participant or terminate the
consulting or advisory services of any Participant at any time with or without
cause.
(b) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all then-applicable requirements imposed by
federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent
to the issuance of shares pursuant to the grant or exercise of an Incentive
Award, the Company may require the Participant to take any reasonable action to
meet such requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Incentive Award except as to such shares of Common Stock, if any, that have been
issued or transferred to such Participant.
(d) The Company shall have the right to deduct from any settlement,
including the delivery or vesting of shares or Units, made under the Plan any
federal, state or local taxes of any kind required by law to be withheld with
respect to such payments or take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such taxes.
With respect to any nonqualified stock Option, the Committee may, in its
discretion, permit the Participant to satisfy, in whole or in part, any tax
withholding obligation which may arise in connection with the exercise of the
nonqualified stock Option by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of the tax
withholding.
(e) No Incentive Award and no right under the Plan, contingent or
otherwise, will be transferable, assignable or subject to any encumbrances,
pledge or charge of any nature except that, under such rules and regulations as
the Company may establish pursuant to the terms of the Plan, a beneficiary may
be designated with respect to an Incentive Award in the event of death of a
Participant. If such beneficiary is the executor or administrator of the estate
of the Participant, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto.
(f) The Company may make a loan to a Participant in connection with (i)
the exercise of an Option in an amount not to exceed the aggregate exercise
price of the Option being exercised and the amount of any federal and state
taxes payable in connection with such exercise for the purpose of assisting such
optionee to exercise such Option and (ii) an Incentive Stock Award or
Performance Unit paid in Common Stock in an amount not to exceed the amount of
any federal and state taxes payable upon expiration of any applicable forfeiture
provision, performance period or vesting period for the purpose of assisting the
holder of the Incentive Stock Award or Performance Unit to enjoy the rights
thereunder. Any such loan may be secured by shares of Common Stock or other
collateral deemed adequate by the Committee and will comply in all respects with
all applicable laws and regulations. The Committee may adopt policies regarding
eligibility for such loans, the maximum amounts thereof and any terms and
conditions not specified in the Plan upon which such loans will be made. Such
loans will bear interest at a rate determined by the Committee.
(g) The Committee may cancel, with the consent of the Participant, all or
a portion of any Option or Appreciation Right granted under the Plan to be
conditioned upon the granting to the Participant of a new Option or Appreciation
Right for the same or a different number of shares as
<PAGE>
the Option or Appreciation Right surrendered, or may require such voluntary
surrender as a condition to a grant of a new Option or Appreciation Right to
such Participant. Subject to the provisions of Section 6(d), such new Option or
Appreciation Right shall be exercisable at the price, during the period and in
accordance with any other terms or conditions specified by the Committee at the
time the new Option or Appreciation Right is granted, all determined in
accordance with the provisions of the Plan without regard to the price, period
of exercise, or any other terms or conditions of the Option or Appreciation
Right surrendered.
(h) The forms of Options and Appreciation Rights granted under the Plan
may contain such other provisions as the Committee may deem advisable.
13. Amendment and Termination.
(a) The Board will have the power, in its discretion, to amend, suspend or
terminate the Plan at any time, subject to approval of the shareholders of the
Company to the extent necessary for the continued applicability of Rule 16b-3
under the Exchange Act.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Incentive Award agreement as it
deems advisable.
(c) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate, impair or adversely affect any
right or obligation under any Incentive Award previously granted under the Plan.
(d) An Appreciation Right or an Option held by a person who was an
Employee at the time such Appreciation Right or Option was granted will expire
immediately if and when the Participant ceases to be an Employee, except as
follows:
(i) If the employment of an Employee is terminated by the Company
other than for cause, for which the Company will be the sole judge, then
the Appreciation Rights and Options will expire three months thereafter
unless by their terms they expire sooner. During said period, the
Appreciation Rights and Options may be exercised in accordance with their
terms, but only to the extent exercisable on the date of termination of
employment.
(ii) If the Employee retires at normal retirement age or retires with
the consent of the Company at an earlier date or becomes permanently and
totally disabled, as determined by the Committee, while employed by the
Company, the Appreciation Rights and Options of the Employee will be
exercisable and will expire in accordance with their terms.
(iii) If an Employee dies while employed by the Company, the
Appreciation Rights and Options of the Employee will become fully
exercisable as of the date of death and will expire three years after the
date of death unless by their terms they expire sooner. If the Employee
dies or becomes permanently and totally disabled as determined by the
Committee within the three months referred to in subparagraph (i) above,
the Appreciation Rights and Options will become fully exercisable as of the
date of death or such permanent disability and will expire, in the case of
death, one year after the date of such death. In the case of permanent and
total disability such Options and Appreciation Rights will expire in
accordance with their terms. If the Employee dies or becomes permanently
and totally disabled as determined by the Committee subsequent to the time
the Employee retires at normal retirement age or retires with the consent
of the Company at an earlier date, the Appreciation Rights and Options will
fully vest as of the date of death or permanent and total
<PAGE>
disability and will expire, in the case of death, one year after the date
of death. In the case of permanent and total disability, such Appreciation
Rights and Options will expire in accordance with their terms.
(e) In the event a holder of Incentive Stock Awards, Performance Units or
Restricted Units ceases to be an Employee, all such Incentive Stock Awards,
Performance Units or Restricted Units subject to restrictions at the time his or
her employment terminates will be returned to the Company unless the Committee
determines otherwise except as follows:
(i) In the event the holder of Incentive Stock Awards or Restricted
Units ceases to be an Employee due to death all such Incentive Stock Awards
or Restricted Units subject to restrictions at the time his or her
employment terminates will no longer be subject to said restrictions.
(ii) If an Employee retires at normal retirement age or retires with
the consent of the Company at an earlier date or becomes permanently and
totally disabled as determined by the Committee, all such Incentive Stock
Awards, Performance Units and Restricted Units will continue to vest over
the applicable vesting or performance period provided that during these
periods such Employee does not engage in or assist any business that the
Company, in its sole discretion, determines to be in competition with
businesses engaged in by the Company.
(iii) In the event a holder of Performance Units ceases to be an
Employee prior to the end of a performance period applicable thereto, the
Committee in its sole discretion shall determine whether to make any
payment to the Participant in respect of such Performance Unit and the
timing of such payment, if any.
(f) The Committee may in its sole discretion determine, (i) with respect
to an Incentive Award, that any Participant who is on leave of absence for any
reason will be considered as still in the employ of the Company, provided that
rights to such Incentive Award during a leave of absence will be limited to the
extent to which such right was earned or vested at the commencement of such
leave of absence, or (ii) with respect to any Appreciation Rights and Options of
any Employee who is retiring at normal retirement age or with the consent of the
Company at an earlier age, or of an Employee who becomes permanently and totally
disabled as determined by the Committee that the Appreciation Rights and/or
Options of such Employee will accelerate and become fully exercisable on a date
specified by the Committee which is not later than the effective date of such
Employee's retirement or on a date specified by the Committee which is not later
than the date that the Employee becomes permanently and totally disabled as
determined by the Committee.
14. Effective Date of Plan and Duration of Plan.
This Plan will become effective upon adoption by the Board subject to
approval by the holders of a majority of the shares which are represented in
person or by proxy and entitled to vote on the subject at the 1991 Annual
Meeting of Shareholders of the Company. Unless previously terminated, the Plan
will terminate on September 25, 2006 except with respect to Incentive Awards
then outstanding.
<PAGE>
TENET WILL DISTINGUISH ITSELF AS A LEADER IN REDEFINING HEALTHCARE DELIVERY AND
WILL BE RECOGNIZED FOR THE PASSION OF ITS PEOPLE AND PARTNERS IN PROVIDING
QUALITY, INNOVATIVE CARE TO THE PATIENTS IT SERVES IN EACH COMMUNITY.
[LOGO] TENET 1996 ANNUAL REPORT
[Front cover]
TENET HEALTHCARE CORPORATION 3820 State Street, Santa Barbara, California 93105
<PAGE>
TENET IS...
75 hospitals, specialty care facilities, outpatient centers, home health
agencies and many other related businesses
65,000 dedicated people --including physicians, nurses and support staff--
providing quality, cost-effective medical care to their local communities
TENET IS REDEFINING HEALTHCARE
Our Tenets
Meet the needs of each and every patient, whose care is our
primary purpose and MISSION
Maintain and enhance cooperative RELATIONSHIPS with physicians to
better serve the healthcare needs of our communities
Forge strong partnerships with those who share our VALUES
Achieve standards of EXCELLENCE which become the benchmark of
industry practices
Use INNOVATION and creativity to identify and solve problems
Apply quality management and LEADERSHIP principles to foster
continued employee development
Treat each other, our patients and our partners with RESPECT and
dignity
Hold INTEGRITY and honesty as our most important principles and
perform at all times at the highest ethical standards
ACHIEVE a competitive return for our investors
STRIVE for improvement day in and day out in everything we do
[Background is floor tiles.]
[Front inside cover.]
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
[LOGO] LETTER TO OUR SHAREHOLDERS
[Photo of Chairman & CEO, Jeffrey C. Barbakow
and President and COO, Michael H. Focht, Sr.]
In fiscal 1996 Tenet Healthcare Corporation established itself as a dynamic
and respected force in healthcare. In the space of just 12 months, we compiled a
list of accomplishments that, we believe, lays a firm foundation on which to
build the future of this company.
Consider what we have achieved. In fiscal 1996 we successfully merged the
cultures of two large, disparate corporations to create what, in many ways,
amounts to a brand-new company with its own distinct identity, culture and
values.
Tenet today has a proven track record of solid financial results that
affirm the effectiveness of our business and operating strategies. We have
strengthened our integrated delivery networks in key areas through strategically
sound acquisitions, partnerships and internal development. We have completed the
monetization of most of Tenet's non-core assets, which enabled us to reduce our
debt and gives us the financial flexibility to further expand our business. We
have negotiated a new bank agreement that will provide us with the additional
financial resources we need to achieve steady, long-term growth. At the same
time, we have made substantial progress in our cost-reduction and
cost-containment programs, which is critical to maintaining Tenet's competitive
position in the communities we serve.
We have accomplished much in other areas, too. For example, Tenet today has
a clear mission--guided by the principles defined in our new Vision Statement
that appears on the front cover of this publication and in Our Tenets printed on
the inside front cover. We are particularly proud of the independent recognition
Tenet won in fiscal 1996 for its achievements, as seen in the results of a March
1996 Fortune magazine survey that rated our company as one of the most-admired
healthcare companies in the nation.
With all those accomplishments in mind, our goal in this year's annual
report is to define for you exactly who we are and how we are redefining
healthcare in the communities we serve. The most effective way to do this, we
believe, is by highlighting the achievements of our hospitals, physicians,
nurses and support staff over the last year as they--individually and together--
met the daily challenge of delivering quality, innovative healthcare to our most
important constituents--our patients.
FISCAL 1996 RESULTS
For the fiscal year ended May 31, 1996, Tenet reported earnings per share
from continuing operations--excluding gains on sales of assets and unusual
charges--of $1.27. That's compared with $1.09 fully diluted in the prior year, a
gain of 17 percent.
Providing a strong finish to what has been a very successful fiscal year,
the company reported a 25 percent increase in earnings per share from continuing
operations in the fourth quarter of fiscal 1996, excluding gains and unusual
charges. Earnings per share for the quarter were $0.35, compared with $0.28
fully diluted in the prior-year quarter.
Net operating revenues for the 1996 fiscal year were $5,559,000,000,
compared with $3,318,000,000 in fiscal 1995. Revenues for the prior year reflect
the acquisition of American Medical Holdings Inc. (AMH) for only the fourth
quarter. Net income from continuing operations in the 1996 fiscal year was
1
<PAGE>
$271,000,000, compared with $200,000,000 in the 1995 fiscal year, excluding
gains on sales of assets and unusual charges in both years.
[EARNINGS GROWTH CHART]
Earnings per Share Net Income
($ millions)
1995 $1.09 1995 200
1996 $1.27 1996 271
From Continuing Operations Excluding Gains and Unusual Charges.
Same-facility patient revenues increased 3.8 percent over the prior fiscal
year on a 2.2 percent increase in same-facility admissions and a 23.5 percent
increase in same-facility outpatient visits.
EBITDA margins in the 1996 fiscal year increased to 19.8 percent, up from
18.8 percent in the prior year. EBITDA margins are a useful measure of operating
efficiency. Operating margins for the year were 14 percent, compared to 12.9
percent in the prior year, excluding unusual charges in both years.
A more complete discussion of our financial results can be found in the
Financial Statements and the Management's Discussion and Analysis section later
in this report.
UNLOCKING OUR ASSETS
Crucial to our success in fiscal 1996 was the completion of our ambitious
plan to monetize this company's extensive non-core assets and refocus on our
core domestic operations.
It had been clear to us for some time that our company had a powerful
balance sheet and enormous financial strength. Much of it, however, was locked
up in non-core assets. The challenge we faced was to realize the best value for
those assets, giving us the funds to pursue the aggressive growth strategy we
needed to be competitive in the U.S. healthcare marketplace. In fiscal 1996 we
successfully completed that strategic restructuring by selling substantially all
of our international operations and monetizing most of our other non-core assets
for an amount that exceeded our initial estimates of their worth. All told, we
have generated almost $1 billion through monetization.
In the first quarter of fiscal 1996 we sold our two Singapore hospitals
for $243.3 million in cash and the assumption by the buyer of $78.3 million
in debt. In October 1995 we sold our 30 percent interest in a Malaysian
hospital for $12 million and our 52 percent interest in Australian Medical
Enterprises, Ltd., a Western Australia-based healthcare company, for $68.3
million. In February 1996 we sold our 40 percent interest in a hospital in
Thailand for $20.6 million. And in May 1996 the sale of our approximately 42
percent interest in Westminster Health Care Holdings PLC, a British nursing
home operator, brought us $120.2 million.
Closer to home, we received $91.8 million in September 1995 from the
sale of our preferred stock holdings in The Hillhaven Corporation to Vencor
Inc., a Louisville, Ky.-based provider of long-term-care services. In
January 1996 we sold $320 million in exchangeable subordinated notes due 2005
that can be exchanged after Nov. 6, 1997 for Tenet's 8.3 million shares of
Vencor common stock, at a price of $38.55 per Vencor share. Tenet received
those shares in exchange for its Hillhaven shares when Vencor acquired
Hillhaven. We are very pleased to have realized such attractive proceeds from
our Hillhaven investment, which was valued at only $225 million in July 1994.
In fiscal 1995 we received $75.5 million in connection with the sale of
75 percent of our dialysis business to a venture capital firm. That former
subsidiary, now known as Total Renal Care, has since gone public and our
remaining investment had a market value of $107
2
<PAGE>
- --------------------------------------------------------------------------------
"WE FIRMLY BELIEVE THAT PROVIDING QUALITY, COST-EFFECTIVE HEALTHCARE
TO OUR PATIENTS IS THE KEY TO PROTECTING AND
ADDING VALUE TO OUR SHAREHOLDERS' INVESTMENT."
- --------------------------------------------------------------------------------
million at July 31, 1996. With the sale of our former corporate headquarters in
Santa Monica, Calif., in June 1996, our program to divest non-core assets is
essentially complete.
[BALANCE SHEET IMPROVEMENT GRAPH]
March 1, 1995 1.85 - 1
May 31, 1995 1.65 - 1
Aug. 31, 1995 1.53 - 1
Nov. 30, 1995 1.38 - 1
Feb. 29, 1996 1.23 - 1
May 31, 1996 1.27 - 1
LONG-TERM DEBT-TO-EQUITY RATIO
In fiscal 1996 we also achieved our stated goal of cutting $60 million in
costs after the merger with AMH. We did that by various means, including
renegotiating supply contracts to obtain better pricing, increasing our
hospitals' compliance with the company's national purchasing contracts, lowering
overhead costs through reductions in headquarters staffing, decreasing bad debt
expense and reducing information system costs through consolidation and
outsourcing.
As a result of all these measures, we have seen a dramatic improvement in
our balance sheet. Our long-term debt-to-equity ratio was approximately
1.21-to-1 at May 31, 1996--down from 1.85-to-1 at March 1, 1995, the date of the
AMH merger.
As part of our strategy of creating a more integrated and responsive
overhead structure for Tenet in fiscal 1996, we completed a top-level corporate
staff reorganization designed to integrate the company's financial departments.
Trevor Fetter, who joined Tenet in October 1995 as an executive vice president
responsible for corporate development and strategy, was named to the additional
position of chief financial officer. As such, he oversees the previously
separate functions of accounting, treasury and investor relations, as well as
broad areas of corporate strategy. Formerly an investment banker and then chief
financial officer of Metro-Goldwyn-Mayer Inc., Trevor is committed to enhancing
the value of our shareholders' investment.
ACQUISITIONS AND PARTNERSHIPS
One of the things we believe distinguishes us from our competitors and
truly defines us as a company is our approach to acquisitions. At Tenet, our
interest is in acquiring strategic long-term assets that will substantially
strengthen our integrated delivery networks and enhance our ability to care for
our patients. Moreover, we look for partners who share our goals and values and
our commitment to providing quality, cost-effective healthcare.
Our acquisition of Mercy+Baptist Medical Center--now known as Memorial Medical
Center--in New Orleans, a 759-bed, two-hospital system that we purchased in
August 1995, and 471-bed Providence Memorial Hospital in El Paso, Texas, which
we purchased in September 1995, affirmed the effectiveness of that strategy.
Shortly after fiscal 1996 ended, we acquired Hialeah Hospital, a 378-bed
hospital in another of our strong markets--South Florida. All three of these
hospitals brought a wide range of additional services and programs to help
strengthen our existing networks in those areas.
We have also made it clear that we are not in business simply to own bricks
and mortar. We believe partner-
3
<PAGE>
ships--as opposed to outright acquisitions--with others who share our beliefs
offer additional ways to build our integrated delivery systems.
[FOCUSING ON OUR CORE BUSINESS - PIECHARTS]
- 1993 -
Other Operations 5.6%
Rehabilitation Hospitals 15.9%
Psychiatric Hospitals 15.9%
International Operations 4.3%
General Hospitals 58.2%
- 1996 -
General Hospitals 96.0%
Other Operations 3.1%
International Operations 0.9%
NET OPERATING REVENUES BY LINE OF BUSINESS
In fiscal 1996 we entered into a number of partnerships that enabled us
to add to our patient care services and expand our business. For example, in
July 1995, we acquired a one-third interest--which subsequently was increased
to a 50 percent interest--in St. Clair Hospital, an 82-bed nonprofit hospital
just outside of Birmingham, Ala. In October 1995 we negotiated a long-term
lease of the Medical Center of Manchester, a 49-bed hospital in Manchester,
Tenn. In November 1995 we acquired the 104-bed nonprofit Methodist Hospital
of Jonesboro in Jonesboro, Ark., 5 percent of which is now owned by a
nonprofit partner.
We also believe physicians are an indispensable component of our
integrated healthcare delivery systems. During fiscal 1996, we continued to
invest additional funds in acquiring or assuming the management of physician
practices. Tenet currently owns or manages the practices of over 600
physicians affiliated with our hospitals.
GROWING RECOGNITION, GROWING STRENGTH
Reflecting the growing strength of our balance sheet, in March 1996 we
negotiated a new five-year $1.55 billion unsecured revolving credit agreement
with our banks. Our previous secured bank credit facility included a term
loan and a $500 million revolving credit line. The existing balance under the
term loan was rolled into a new five-year $1.55 billion unsecured revolver,
eliminating mandatory term loan payments of $45 million per quarter. At July
26, 1996 we had $561 million available under this agreement.
Because it offers lower interest spreads and contains less restrictive
covenants than the previous bank agreement, the new bank agreement will
contribute significantly to our company's future growth by providing greater
financial flexibility for acquisitions and partnerships. The agreement also
enhances the credit quality of our publicly traded debt through elimination
of the secured position of our bank debt.
Shortly after the new bank agreement was concluded, the two major
ratings agencies--Standard & Poor's Ratings Services and Moody's Investors
Services, Inc.--both upgraded Tenet's credit rating. The rating on Tenet's
senior unsecured notes was upgraded to Ba1 from Ba2 by Moody's and to BB from
BB minus by Standard & Poor's. At the same time, Standard & Poor's affirmed
its BB corporate credit rating and B plus rating on $1.2 billion of Tenet's
subordinated debt.
When we launched our new identity in March 1995, we chose the name Tenet
to reflect the importance we place on maintaining high standards of
integrity, ethics and responsibility in our dealings with our patients,
physicians, payors, employees and the communities we serve.
Clearly, our message has been heard. We are particularly proud of how
Tenet was rated in a survey of corporate reputations that appeared in the
March 4, 1996 issue of Fortune, one of the nation's top business mag-
4
<PAGE>
- --------------------------------------------------------------------------------
"JUST 12 MONTHS AFTER WE LAUNCHED OUR NEW IDENTITY AND NAME,
TENET WAS RANKED AS ONE OF THE MOST-ADMIRED HEALTHCARE COMPANIES
IN THE COUNTRY BY PARTICIPATING INDUSTRY EXECUTIVES AND ANALYSTS."
- --------------------------------------------------------------------------------
azines. Just 12 months after we launched our new identity and name, Tenet was
ranked as one of the most-admired healthcare companies in the country by
participating industry executives and analysts. Overall, Tenet ranked in the top
20 percent--better than 80 percent of the 414 companies in the survey.
VISION AND VALUES
On the cover of this year's Annual Report you will find a very important
statement, one that we feel truly captures the character and culture of Tenet.
This is our VISION STATEMENT--our declaration of what makes this company truly
distinctive. On the inside front cover we have printed OUR TENETS--10 guiding
principles that support the VISION STATEMENT.
The purpose of these two documents is simple: They stand as an unequivocal
reminder to everyone who works for Tenet--physicians, nurses, administrators,
executives and other employees--of how we expect them to conduct themselves
whenever and wherever they are engaged in the daily business of this company.
We thought long and hard about the wording of both of these documents
before committing them to the page. The emphasis on quality is deliberate. We
firmly believe that providing quality, cost-effective healthcare to our patients
is the key to protecting and adding value to our shareholders' investment.
Moreover, we are convinced that emphasizing quality in everything we do will
help position our company for long-term growth, profitability and stability well
into the future.
WHAT THE FUTURE HOLDS
Clearly, we have accomplished much since we first introduced Tenet
Healthcare Corporation to you 17 months or so ago.
As we consider the future, it is also clear that much remains to be
accomplished. Pressures from managed care pricing and the prospect of eventual
changes in Medicare reimbursement remain a concern to all of us in this rapidly
changing industry. However, we believe the record of accomplishments that we
have compiled in fiscal 1996--our first year as Tenet--is an important first
step in our march toward future success.
As we indicate in OUR TENETS, and as we have demonstrated throughout fiscal
1996, we are committed as a company to using innovation and creativity to solve
problems. We believe it is innovation and creativity that will spell the
difference between success and failure.
We appreciate the confidence you have shown in Tenet and we look forward to
the opportunity you have given us to build the healthcare company of tomorrow.
/s/ Jeffrey C. Barbakow /s/ Michael H. Focht, Sr.
JEFFREY C. BARBAKOW MICHAEL H. FOCHT SR.
Chairman and Chief Executive Officer President and Chief Operating Officer
AUGUST 5, 1996
5
<PAGE>
[LOGO] QUALITY THAT MEASURES UP
When Ann Dechairo, Chief Nursing Officer and Associate Administrator at USC
University Hospital in Los Angeles, wants to learn how other Tenet hospitals
across the country are working to improve the results of their hip replacement
surgery programs, all she has to do is switch on her computer.
Designed to enhance quality patient care as it helps control costs, Tenet's
innovative computerized Outcomes Management System allows users to identify
"best practices" within the Tenet network for specific diagnostic-related groups
(DRGs). The system, containing clinical and demographic information from Tenet
hospitals and physicians, tracks the performance of individual hospitals--and
even individual physicians' practice patterns--according to resource
consumption, length of stay and complications. Tenet's system offers more
information than the basic financial and demographic data contained in a
standard hospital discharge bill. By grouping patients according to the severity
of their illness, more accurate comparisons of hospital and physician
performance are possible. Developed by our Medical Affairs department, the
system has been implemented in most Tenet hospitals.
We believe one of the things that defines Tenet as a company is our
commitment to providing quality, innovative care. In fiscal 1996 we continued
our companywide push to control costs and eliminate resource overuse at our
hospitals, while at the same time holding quality of service paramount.
Eliminating inefficiencies in treatment gives us additional resources to improve
outcomes through consistent, effective patient care. At Tenet we are focused
not only on providing quality, cost-effective healthcare, but also on accurately
measuring the value of our services.
[Picture of a hospital worker at a hospital computer.]
As part of our effort to promote quality and cost-efficiency throughout the
Tenet system, Medical Affairs is working to provide physicians and hospital
staff with the information they need to achieve the best results for their
patients. The Outcomes Management System is just one step in that process.
Medical Affairs also conducts conferences and seminars to educate
Tenet-affiliated physicians and hospital executives about new clinical advances
and the use of outcomes management techniques to improve the quality and
cost-effectiveness of clinical care. Some of our best educators are at the
hospitals themselves. Brookwood Medical Center in Birmingham, Ala., holds
training sessions for physicians and staff from other Tenet facilities on case
management, a system designed to deliver care in a more planned and integrated
fashion.
[Picture of measuring tubes.]
REDUCING COSTS, MEASURING QUALITY
Tenet's case management program, a companywide system to maximize
efficiency by identifying cost-per-procedure variables among physicians,
resulted in more than $12 million annualized savings in fiscal 1996. Nacogdoches
Medical Center in Nacogdoches, Texas, recently applied the case management model
to its cardiac catheterization lab. By standardizing supplies used in the lab,
the hospital expects to realize annualized savings of more than $300,000 in
fiscal 1997 while maintaining standards of quality patient care. Regionally,
our integrated delivery networks have developed additional cost-reduction
programs. For example, Tenet South Florida HealthSystem uses volume-purchasing
leverage in the marketplace to negotiate lower prices for medical equipment,
supplies and services. The Florida region's implantable prosthetics program is
expected to exceed its annualized savings goal of $1.85 million in fiscal 1996.
Lower cost is just one part of the value equation. The more important part
is quality. One of the most effective ways of measuring quality, we believe, is
to ask our patients. Our comprehensive patient satisfaction monitoring system
regularly conducts surveys to help us improve both quality of care and patient
satisfaction. Reflecting the importance our company places on quality, a portion
of the compensa-
6
<PAGE>
- --------------------------------------------------------------------------------
AT TENET WE ARE FOCUSED NOT ONLY ON PROVIDING
QUALITY, COST-EFFECTIVE HEALTHCARE, BUT ALSO ON
ACCURATELY MEASURING THE VALUE OF OUR SERVICES.
- --------------------------------------------------------------------------------
tion that our hospital executives and managers receive is directly related to
their hospitals' performance in the surveys.
Tenet also performs annual quality/risk surveys of our hospitals to monitor
quality of care. We work with hospital department managers and staff to review
quality issues raised by the hospitals' quality improvement committees and the
actions that have been taken to address these issues.
OUR INNOVATIVE PATIENT CARE
[Picture of doctors in an operating room.]
Innovation is another important aspect of quality care. Many Tenet
hospitals have taken a lead in their communities in providing innovative
treatment programs. In Houston, Park Plaza Hospital operates the Plaza
Empowerment Center which provides the hospital's HIV/AIDS patients with free
counseling and support services. The on-campus center and the expertise of the
hospital's physicians in treating HIV/AIDS has established Park Plaza as a major
provider of medical services to HIV/AIDS patients in the Houston area. In Fort
Lauderdale, Fla., North Ridge Medical Center was recently selected as one of 25
sites in the country to conduct clinical trials on patients with tremors. North
Ridge neurologists and neurosurgeons will surgically implant stimulators in the
thalamus region of the brain for the purpose of tremor control. USC University
Hospital recently conducted its first liver transplant. The procedure was
performed by two surgeons recruited to USC School of Medicine last year from the
University of Pittsburgh Liver Transplantation Institute. Tenet's Rehabilitation
Institute of New Orleans offers paraplegics an electrical device that makes it
possible for them to stand upright and walk. Redding Specialty Hospital in
Redding, Calif., also plans to offer this treatment.
[LOGO] LOOKING AHEAD -- WE BELIEVE THE USE OF OUTCOMES MANAGEMENT TO
IMPROVE QUALITY AND COST-EFFICIENCY IS ONE OF THE MOST SIGNIFICANT
DEVELOPMENTS IN HEALTHCARE TODAY. AS A RESULT, WE ARE COMMITTED TO MAKING
OUR COMPANY A LEADER IN THIS AREA. PART OF THAT COMMITMENT INCLUDES THE
DEVELOPMENT OF NEW, SOPHISTICATED INFORMATION SYSTEMS DESIGNED TO HELP OUR
PHYSICIANS AND NURSING STAFF MONITOR PATIENT OUTCOMES. FOR EXAMPLE, WE
RECENTLY TESTED THE QUALITY RISK SAFETY COMPUTER SYSTEM IN FOUR TENET
HOSPITALS. THIS SYSTEM, WHICH SUPPLEMENTS THE OUTCOMES MANAGEMENT SYSTEM
DATABASE, IS DESIGNED TO GIVE PHYSICIANS SPECIFIC MEANS OF MEASURING THE
EFFECTIVENESS OF THEIR TREATMENTS BY RECORDING ADVERSE EVENTS THAT CAN
SOMETIMES AFFECT PATIENTS DURING HOSPITALIZATION. WE ARE ALSO DEVELOPING
INNOVATIVE LONGITUDINAL DATABASES THAT TRACK PATIENT OUTCOMES OVER TIME,
FOLLOWING DISCHARGE FROM THE HOSPITAL.
[Picture of a blood presure meter.]
"I've had two angioplasties at Redding Medical Center. I chose to come back here
this year for cardiac rehab after having emergency bypass surgery at another
hospital. I wouldn't go anywhere else. The nurses and the doctors here are just
great. They're very friendly, very caring. They make every individual patient
feel special. The care that I've gotten here has been excellent. I've never felt
better."
[Photo of a patient.]
Joe Manzanares
PATIENT AT REDDING MEDICAL CENTER, REDDING, CALIF.
7
<PAGE>
[LOGO] BUILDING INTEGRATED DELIVERY NETWORKS
[Map of South Florida facilities.]
If you come to Tenet's Hollywood Medical Center suffering from chest pains,
you're only a short distance away from one of South Florida's leading open heart
surgery programs.
In an arrangement that is typical of the "seamless" healthcare delivery
systems being developed by our multihospital networks, cardiac patients
requiring invasive treatment are first stabilized at Hollywood and then
transferred to North Ridge Medical Center, a Tenetowned tertiary hospital about
15 miles away in Fort Lauderdale. After surgery at North Ridge's Heart
Institute, patients may return to Hollywood for rehabilitation if they wish.
Throughout the treatment, a designated Hollywood staff member serves as liaison
between physicians at the two Tenet South Florida HealthSystem hospitals to
ensure continuity of care for the patient.
The successful integration of our healthcare delivery networks within South
Florida, Greater New Orleans and El Paso, Texas, is one of Tenet's major
achievements in fiscal1996. The strength of the networks was evident in the
growth of patient admissions during fiscal1996, as well as in our ability to
obtain managed care contracts in all three markets. The integration of the
networks also allowed for substantial cost savings through consolidation of
management, staff and services.
Above all, the three networks' success demonstrated the effectiveness of
our companywide strategy of pursuing quality acquisitions and affiliations in
our key markets.
GAINING STRENGTH IN SOUTH FLORIDA
For example, the acquisition of 378-bed Hialeah Hospital in June1996
expanded the Tenet South Florida HealthSystem covering Dade, Broward and Palm
Beach counties to 49 facilities. Hialeah is the seventh acute care hospital in
our 2,400-bed South Florida system, which also includes physical rehabilitation,
psychiatric and skilled nursing facilities, as well as outpatient surgery, home
healthcare, diagnostic, worker's compensation and occupational therapy centers.
South Florida also showed that affiliations with the right partners--as
opposed to outright acquisitions--offer additional opportunities to serve our
patients. In October 1995 the South Florida system joined forces with
Intracoastal Health System, a large nonprofit West Palm Beach healthcare
provider, to create the most extensive network of hospitals and affiliated
physicians in Palm Beach County. The joint venture, which links three Tenet
hospitals with two Intracoastal hospitals, calls for both parties to share the
financial risk of managed care contracting. The partnership also will improve
our provision of cardiology and open heart services in this area.
GROWING RECOGNITION IN NEW ORLEANS
Launched in October 1995, Tenet Louisiana HealthSystem, an integrated
network of seven acute care hospitals and 24 other free-standing healthcare
facilities with a total of1,81 beds, is the largest investor-owned healthcare
services provider in New Orleans. The network employs or contracts with more
than100 physicians. Our affiliated independent practice associations (IPAs)--a
physician hospital organization called the Peoples Health Network--include 682
primary care physicians and specialists.
A key factor in the network's success was Tenet's purchase in August 1995
of Mercy+Baptist Medical Center--now known as Memorial Medical Center--one of
New Orleans' premier acute care facilities. The two-hospital system added
tertiary services--including an active oncology program--to the network, as well
as Mercy+Baptist Health, a physician hospital organization (PHO) representing
350 physicians and caring for100,000 New Orleans residents who are members of
its medical plan.
Independent recognition of the Louisiana network's success came in April
1996 when the system--through the
8
<PAGE>
- --------------------------------------------------------------------------------
[U.S. map with stars on South Florida, Greater New Orleans and El Paso, Texas.]
THE SUCCESSFUL INTEGRATION OF OUR HEALTHCARE DELIVERY NETWORKS WITHIN SOUTH
FLORIDA, GREATER NEW ORLEANS AND EL PASO, TEXAS IS ONE OF TENET'S MAJOR
ACHIEVEMENTS IN FISCAL 1996.
- --------------------------------------------------------------------------------
Peoples Health Network--was selected as a finalist for the Health Care Financing
Administration's Medicare Choices demonstration project. Nationwide, only 25
providers were chosen from among 372 applicants to participate in the program,
which is designed to test costeffective ways for the government to move Medicare
patients into managed care. Tenet, the only investor-owned hospital company
selected for the project, will offer a three-tiered point-of-service program
consisting of a health maintenance organization (HMO), a preferred provider
organization (PPO) and an out-of-network benefit.
OUR EL PASO NETWORK
Sierra Providence Health Network was created in October 1995 with the
purchase by Tenet of 41-bed Providence Memorial Hospital, El Paso's largest
nonprofit, acute care hospital. The network--composed of Sierra Medical Center,
Providence Memorial, two rehabilitation hospitals and11 other ancillary
facilities--has 680 affiliated physicians and over 900 beds, more beds than any
other healthcare system in El Paso. Through their health plans, approximately
305,000 El Paso residents choose the Tenet network for their healthcare, as do
another 50,000 residents of Mexico.
In June 1996 the network broke ground on a new "bedless" hospital on the
East Side of the city, which will expand the system's outpatient services in
that area. Recognizing the particular healthcare needs of the community, Tenet
and Sierra Providence have created a $300,000 endowment-in collaboration with
the University of Texas at El Paso--to fund healthcare services for residents of
El Paso's colonias, underdeveloped settlements lacking basic services such as
healthcare facilities, potable water and sewage disposal.
[LOGO] LOOKING AHEAD -- THE SUCCESS OF OUR SOUTH FLORIDA AND NEW ORLEANS
NETWORKS HAS PROVIDED NEW OPPORTUNITIES FOR ACQUISITIONS AND PARTNERSHIPS
IN BOTH OF THOSE AREAS. WE ARE ACTIVELY NEGOTIATING TO ADD FACILITIES IN
SOUTH FLORIDA. WE ALSO ARE PREPARING TO EXPAND TENET LOUISIANA HEALTHSYSTEM
OUTSIDE METROPOLITAN NEW ORLEANS. IN EL PASO, SIERRA PROVIDENCE IS WELL
PLACED TO CONTRACT WITH THE STATE IF TEXAS CHANGES TO A MANAGED CARE MODEL
FOR ITS MEDICAID POPULATION. WE HAVE BEGUN CONSOLIDATING OUR EXTENSIVE LOS
ANGELES-AREA FACILITIES INTO A FULLY INTEGRATED REGIONAL SYSTEM BY SEEKING
OUT OTHER NETWORK PARTNERS, EXPANDING OUR REGIONAL MANAGEMENT SERVICES
ORGANIZATION (MSO) AND ADDING ADDITIONAL SERVICES, SUCH AS HOME HEALTHCARE
AND INFUSION PROGRAMS. WE BELIEVE OUR ABILITY TO WORK COLLABORATIVELY WITH
BOTH NONPROFIT PARTNERS AND GOVERNMENTAL AGENCIES UNIQUELY POSITIONS US TO
FIND CREATIVE SOLUTIONS FOR THE CHALLENGES FACING HEALTHCARE.
[Picture of a teddy bear]
"I had my baby at Palm Beach Gardens Medical Center because I heard they offer
new mothers an extra day for recovery if they need it. This is my first baby,
so I knew I'd need all the training and help I could get! It was wonderful
having that extra time for myself. The nurses were so helpful. They showed me
how to hold the baby for breast feeding, how to wash him--all the little
things you don't even think about. I would definitely go back."
[Photo of mother and child patients.]
BRIGITTE AND MIKHAIL HAY
PATIENTS AT PALM BEACH GARDENS MEDICAL CENTER, PALM BEACH GARDENS, FLA.
9
<PAGE>
[LOGO] DIFFERENT COMMUNITIES, SPECIALIZED STRATEGIES
[Picture of Redding Hospital.]
[Picture of patient with a therapist.]
[Picture of a child patient.]
[Picture of a patient with a doctor.]
[Picture of patient with family.]
[Picture of an eye doctor.]
[Picture of patient with a therapist.]
[Picture of a newborn.]
Redding Medical Center faces a unique challenge.
Unlike our South Florida, New Orleans and El Paso networks, all of which
serve more densely populated urban areas with larger concentrations of
healthcare facilities, Redding's service area covers almost 40,000 square miles
and nine rural Northern California counties, stretching from the Pacific Coast
to Nevada, from the Oregon border south into the Sacramento Valley.
To succeed in this environment, the 185-bed Tenet hospital and its 84-bed
psychiatric and rehabilitation facility, Redding Specialty Hospital, have had to
move beyond the traditional model of a hospital. Instead of acting as a
stand-alone facility serving only its immediate geographic area, Redding has
created its own regional integrated delivery system by affiliating with seven
smaller, non-Tenet hospitals and five outlying primary care and Indian health
clinics, all of which serve as referral sources for the hospital's tertiary
programs. In fiscal 1996, the hospital added a home healthcare agency, a
physical therapy and wellness center, an industrial and occupational medicine
clinic and two primary care clinics to the network. The facilities are
complemented by an affiliated IPA--the first in the area--and Tenet's own HMO,
Modesto-based National Health Plans, the only federally qualified HMO in the
Redding area.
Similar success stories can be found at Tenet hospitals throughout the
country. From San Luis Obispo, Calif., to Hickory, N.C., to Nederland, Texas,
Tenet hospitals in our smaller, less-populated markets are using creative and
innovative ways to redefine healthcare delivery in their local communities.
In these regional integrated delivery networks, the acute care hospitals
serve as the hub of the system. The other links in the network are created by
forging alliances with quality non-Tenet facilities, contracting and affiliating
with primary care physician practices and developing additional ancillary
services--such as senior centers, home healthcare agencies and occupational
health clinics --to increase the geographic reach of the system and to meet
growing demand for outpatient services.
EXPANDING THROUGH AFFILIATIONS
In many areas we are expanding our networks by forming joint ventures with
nonprofit hospitals. In September 1995, for example, two Southeast Texas Tenet
hospitals--138-bed Mid-Jefferson Hospital in Nederland and 236-bed Park Place
Medical Center in Port Arthur--joined forces with three Baptist Healthcare
System hospitals to form Five Star Health Network, a regional integrated
healthcare delivery system. The network offers patients greater geographic
access to services than any other system in the immediate area.
Frye Regional Medical Center in Hickory, N.C., pursues a broad-based
regional network development strategy in the central Piedmont area of North
Carolina, in part by affiliating with primary care physician practices in
outlying areas either in solo practices or as part of multipurpose facilities
that include diagnostic services. These physicians refer patients to the
hospital's tertiary care programs when such services are needed. In fiscal
1996, Frye expanded its four-county network through a partnership with two
nonprofit hospitals. The three-hospital system's PHO includes 300 physicians.
In Modesto, Calif., our large regional hospital, 433-bed Doctors Medical
Center of
10
<PAGE>
- --------------------------------------------------------------------------------
TENET HOSPITALS IN LESS-POPULATED MARKETS ARE
USING CREATIVE AND INNOVATIVE WAYS TO REDEFINE
HEALTHCARE DELIVERY IN THEIR LOCAL COMMUNITIES.
- --------------------------------------------------------------------------------
Modesto, serves as the "flagship" hospital for its local Tenet network. In
fiscal 1996, Modesto was selected by the U.S. Department of the Interior to be
the exclusive provider of medical services to Yosemite National Park. Two
physicians with 15 support staff are based in the park at a clinic that the
hospital inaugurated on Jan. 1, 1996.
[Picture of patient with a doctor.]
Piedmont Healthcare System in Rock Hill, S.C., is another example of an
emerging integrated delivery system with a single Tenet hospital serving as the
hub. The "spokes" of the Piedmont network include a pain clinic, home care
service, ambulatory surgical center, women's diagnostic center, ambulance
service and nine primary care physician practices owned and operated by the
hospital. In fiscal 1996 Piedmont successfully negotiated a 50-year extension to
its contract with York County to provide hospital and healthcare services in the
area.
[Picture of patient doing rehab.]
As the above examples demonstrate, at Tenet we tailor the healthcare
delivery system to the particular needs and characteristics of the communities
we serve.
[LOGO] LOOKING AHEAD -- TO FURTHER STRENGTHEN OUR POSITION IN OUR SMALLER
MARKETS, WE WILL CONTINUE TO EXPAND SERVICES, EITHER BY ADDING ANCILLARY
SERVICES LIKE HOME HEALTHCARE AND OUTPATIENT SERVICES, OR THROUGH STRATEGIC
AFFILIATIONS WITH OTHER QUALITY PARTNERS, INCLUDING NONPROFIT HEALTHCARE
PROVIDERS SUCH AS RELIGIOUS AND EDUCATIONAL INSTITUTIONS. IN SELECTED
MARKETS WE MAY INTRODUCE HMOS ENABLING US TO APPROACH EMPLOYERS DIRECTLY TO
SEEK NEW BUSINESS. SUCH A STRATEGY MAY BE EMPLOYED ALONE, AS IN NORTHERN
CALIFORNIA WHERE WE OWN NATIONAL HEALTH PLANS, A MODESTO-BASED HMO, OR IN
CONCERT WITH LOCAL PARTNERS, AS IN BIRMINGHAM, ALA., WHERE TENET'S
BROOKWOOD MEDICAL CENTER OWNS AND OPERATES AN HMO IN A JOINT VENTURE WITH
TWO NONPROFIT HOSPITALS. INTENSIVE SPECIALIZED SERVICES, SUCH AS ONCOLOGY,
CARDIOVASCULAR AND NEUROSURGERY PROGRAMS, REPRESENT ANOTHER MEANS TO
STRATEGICALLY POSITION FOR THE FUTURE. BECAUSE LESS-INTENSIVE MEDICAL
PROCEDURES INCREASINGLY ARE BEING OFFERED IN OUTPATIENT SETTINGS, WE
BELIEVE IT IS IMPORTANT FOR OUR HOSPITALS TO BE ABLE TO OFFER MORE
SPECIALIZED SERVICES FOR THOSE PATIENTS REQUIRING INPATIENT CARE. MANY OF
OUR HOSPITALS ARE ALREADY BUILDING STRONG PROGRAMS IN THESE AREAS.
[Picture of maternity floor sign at Garfield Medical Center.]
"This is a very challenging and exciting place to work. Garfield is unique
because of the cultural and ethnic diversity of our patients. We have doctors
and nurses who speak all the different languages and dialects of our patients.
Our staff is very committed. We see the struggle our patients go through every
day and we grow very close tothem and their families. Tenet has given us an
increased focus on ethics and on being a role model in healthcare."
[Photo of a nurse at Garfield Medical Center.]
SHIRLEY TANG, R.N.
DIRECTOR OF REHABILITATION AND THE PEDIATRIC UNIT AT GARFIELD MEDICAL CENTER IN
MONTEREY PARK, CALIF.
11
<PAGE>
[LOGO] THE TENET ADVANTAGE
Piedmont Healthcare System in Rock Hill, S.C. launched a $22 million
expansion program in fiscal 1996 that will add a new open heart surgery program
to the 268-bed Tenet hospital's growing list of services, as well as a new
emergency room. When completed, the project will expand the hospital's current
diagnostic cardiology services, give area residents more extensive treatment
options closer to home and attract new business to the hospital.
[Picture of a doctor's office.]
The funds for the Piedmont project were part of $370 million that Tenet
invested to enhance patient care at its hospitals and other facilities in
fiscal 1996. The money went for design and construction of new buildings,
expansion and renovation of existing facilities, equipment additions and
replacement, introduction of new medical technologies and various other
capital improvements. Another $352 million went for the acquisition of five
new acute care hospitals to strengthen our existing networks and better
position our hospitals. Approximately $58 million more was used for the
acquisition of physician practices connected to our hospitals.
Part of what defines Tenet as a company is our management philosophy of
"guided autonomy." Guided autonomy means that we set overall company
direction and provide appropriate resources for our hospitals, while each
hospital --in consultation with its governing board of physicians and local
residents--determines how best to meet its community's healthcare needs.
Among the resources we provide are extensive expertise in managed care
contracting, group purchasing discounts for medical and other supplies,
assistance in identifying and implementing new clinical developments and
emerging medical technology, and regional marketing programs. All support
services, most of which are now housed in our centrally located Dallas
Operations Center, are intended to provide individual Tenet hospitals and
medical groups with opportunities to improve patient care, expand their
businesses and realize cost savings and other benefits they could not obtain
on their own.
OUR NATIONAL RESOURCES
[Picture of Tenet's Dallas Operations Center.]
Our success in managed care contracting in fiscal 1996 affirmed the
effectiveness of this strategy. In California, for example, we negotiated to
include all 26 of our hospitals in the new Blue Cross contract for that
state, and all but two of our hospitals are signed up as healthcare providers
to the Blue Shield network. In some areas--such as North and South Carolina,
New Orleans and South Florida--we have successfully sought exclusivity
agreements in our managed care contracts to give our hospitals a competitive
edge in their markets. For example, the strength of the Louisiana network
was reflected by the exclusive contract we signed with Community Health
Network (United Healthcare) under which Tenet will provide all inpatient
services for Community Health's Medicare HMO in the West Bank, Uptown and
North Shore areas of New Orleans. Companywide we signed more than 400 new
managed care contracts in fiscal 1996.
Contributing to the success of our multihospital integrated healthcare
delivery systems in South Florida and New Orleans were the regionwide Tenet
marketing campaigns that launched the two networks. Extensive multimedia
campaigns, including print, direct mail, radio and TV--a company first--were
implemented in both South Florida and Louisiana.
[Picture of ad for Tenet South Florida HealthSystem.]
In fiscal 1996 our group purchasing program, BuyPower, increased its
estimated annual purchasing volume to more than $1.6 billion with the addition
of Universal Health Services Inc., a large Pennsylvania-based healthcare
12
<PAGE>
- --------------------------------------------------------------------------------
ALL OF OUR SUPPORT SERVICES ARE INTENDED TO PROVIDE
OUR HOSPITALS AND MEDICAL GROUPS WITH OPPORTUNITIES
TO IMPROVE PATIENT CARE, EXPAND THEIR BUSINESSES
AND REALIZE COST SAVINGS THAT THEY WOULD
NOT BE ABLE TO OBTAIN ON THEIR OWN.
- --------------------------------------------------------------------------------
company, and Coram Healthcare, a national home care company. BuyPower's
membership now represents more than 1,800 hospitals and other healthcare
facilities, giving us additional volume-purchasing strength to reduce the cost
of the supplies and equipment we need to best serve our patients. By the end of
fiscal 1996 we had renegotiated over 400 supply contracts for total estimated
annualized price-reduction savings of $36 million. We realized $23 million of
those savings in fiscal 1996.
Other savings came from expanded participation by our hospitals in our
company's equipment maintenance program, improvements in our internal
collection agency's efforts at reducing bad debt and consolidation of
management, staff and services among some of our network hospitals.
[LOGO] LOOKING AHEAD -- ADDITIONAL PRESSURES FROM MANAGED CARE PRICING AND
THE PROSPECT OF REDUCTIONS IN THE LEVEL OF MEDICARE REIMBURSEMENT IN THE
FUTURE MAKE IT IMPERATIVE THAT OUR COST-CONTAINMENT EFFORTS CONTINUE IN
FISCAL 1997 AND BEYOND. MANY OF THE COST-CUTTING INITIATIVES WE UNDERTOOK
IN FISCAL 1996 ARE DESIGNED TO REAP SIGNIFICANT LONG-TERM BENEFITS. FOR
EXAMPLE, IN JULY 1995 WE SIGNED A SEVEN-YEAR CONTRACT WITH PEROT SYSTEMS
FOR CONSULTING AND TECHNOLOGY SERVICES THAT ARE EXPECTED TO RESULT IN
SIGNIFICANT SAVINGS FOR TENET OVER THE COURSE OF THE CONTRACT. WE WILL
CONTINUE TO USE OUR SIZE AND SCOPE TO LOOK FOR AND DEVELOP WAYS TO GIVE OUR
HOSPITALS, NETWORKS AND PHYSICIANS A COMPETITIVE ADVANTAGE IN THE
MARKETPLACE, PARTICULARLY IN THE AREA OF INFORMATION SYSTEMS AND NEW
TECHNOLOGIES. FOR EXAMPLE, IN FISCAL 1997 WE WILL LAUNCH A NEW INTERACTIVE
SERVICE ON THE WORLD WIDE WEB PORTION OF THE INTERNET. THE SERVICE WILL
INCLUDE TENET'S OWN WEB SITE AS WELL AS INDIVIDUAL SITES FOR MANY OF OUR
HOSPITALS. EVENTUALLY ALL TENET HOSPITALS WILL BE ONLINE. THE WEB OFFERS A
NEW MEDIUM THROUGH WHICH WE WILL BE ABLE TO MARKET THE WIDE RANGE OF
SERVICES OFFERED AT OUR HOSPITALS.
[Picture of Creighton University.]
"Saint Joseph Hospital and Saint Joseph Center for Mental Health are the
primary teaching hospitals for Creighton University School of Medicine. Our
medical students and residents have been receiving training there since 1892.
We've had a very good relationship with Tenet since they became the majority
owners of the hospitals. The company has been very supportive of our academic
emphasis, in addition to making the hospitals available for teaching
purposes. We look forward to a long, productive relationship with Tenet."
[Photo of The Reverence Michael Morrison, S.J.
President of Creighton University, Omaha, Neb.]
THE REVEREND MICHAEL MORRISON, S.J.
PRESIDENT OF CREIGHTON UNIVERSITY,
OMAHA, NEB.
13
<PAGE>
[LOGO] DEVELOPING PARTNERSHIPS WITH PHYSICIANS
Graham Bolton, M.D., Medical Director of the Senior Clinic at Tenet's RHD
Memorial Hospital in Dallas, is the sixth member of his family to practice
medicine in a line stretching back to Civil War times. Dr. Bolton has one major
advantage over his forebears, however: He spends less time worrying about
day-to-day management of his practice.
Because of the crucial role they play at the heart of our integrated
healthcare delivery networks, Tenet is committed to continuing its strong
relationships with physicians by providing them with the resources they need to
do what they do best--practice medicine. As part of that effort, we offer
physicians a variety of support services, from management of their practices to
assistance with managed care contracting and training in new clinical
developments and emerging medical technologies.
During fiscal 1996 we enhanced our delivery networks by acquiring or
assuming the management of physician practices in many key geographic areas,
including Greater New Orleans, Florida, Southern California, Alabama, Georgia,
Arkansas, Missouri, North Carolina, South Carolina and Texas. In the Greater
New Orleans area alone, we own or manage the practices of over 100 physicians.
[Picture of patient with a doctor.]
As part of our efforts to increase efficiency and reduce costs for the over
600 physicians whose practices Tenet owns or manages nationwide, we established
Dallas-based Tenet Physician Services to support the business needs of those
practices. In fiscal 1996, Tenet Physician Services began consolidating the
management of these physician practices into five regional management services
organizations (MSOs)--in California, Florida, Louisiana, Texas and Atlanta--
under the guidance of regional managers with experience in physician practice
management. The purpose of the consolidation is to achieve consistency and
improve the efficiency of the practices while providing them with all the
resources available under the Tenet corporate umbrella, including access to
sophisticated computer and information systems. Because of the expense, these
systems may not be financially feasible for small, independent practices. By
the end of fiscal 1996 the department had installed the Medic computerized
practice management system in 176 Tenet-owned or managed practices. We plan to
add another 175 to the system over the next 12 months
[Picture of monitors.]
ACCESS TO MANAGED CARE
One of the most difficult issues facing the individual physician in today's
healthcare market is providing quality care in the face of pressures to maintain
or reduce healthcare costs. One solution is having greater access to managed
care contracts. In fiscal 1996 we continued to provide cooperative venture
opportunities for Tenet-affiliated physicians--including membership in IPAs and
PHOs--under which they can share managed care risk and negotiate contracts
together. Tenet offers physicians the opportunity to become partners with a
large, financially stable company with extensive corporate resources.
As part of our efforts to help our hospitals and physician practices
negotiate financially and operationally sound managed care contracts, our
Managed Care Business Development department in Dallas is developing a
computer system that tracks contract information. The department also compiles
actuarial data on patients at all Tenet hospitals in order to provide highly
detailed cost estimates for specific treatments and patient populations. This
data will allow our hospitals and physician practices to more accurately project
costs of delivering patient care under any proposed capitated-risk contract.
14
<PAGE>
- --------------------------------------------------------------------------------
TENET IS COMMITTED TO CONTINUING ITS STRONG RELATIONSHIP WITH PHYSICIANS BY
PROVIDING THEM WITH THE RESOURCES THEY NEED TO DO WHAT THEY DO BEST--
PRACTICE MEDICINE
[Picture of two doctors.]
- --------------------------------------------------------------------------------
PROVIDING EDUCATIONAL SUPPORT
Tenet further supports its physicians by sponsoring continuing education
programs and seminars. In fiscal 1996 our Medical Affairs department conducted
training seminars for physicians in such areas as quality improvement and new
medical technologies, including endoscopic minimally invasive cardiac and
thoracic surgery. In December 1995 Tenet received provisional national
accreditation from the Accreditation Council for Continuing Medical Education
allowing the company to offer physicians Category I CME credits for
ACCME-approved continuing education courses it sponsors through its Medical
Affairs department.
Our company also is committed to helping educate new physicians. Several of
our hospitals have agreements with university medical schools to act as graduate
training sites for physicians. In Los Angeles, Tenet owns and operates USC
University Hospital, a quarternary-care referral center and a teaching hospital
for the University of Southern California School of Medicine. Tenet also
operates Saint Joseph Hospital, the primary teaching hospital for Creighton
University School of Medicine in Omaha, Neb. In Houston, Tenet's Park Plaza
Hospital has developed a family practice outpatient center staffed by Baylor
College of Medicine physicians and residents. Tenet's Spalding Regional Hospital
in Griffin, Ga., serves as a continuing medical education center for Emory
University School of Medicine in Atlanta. Tenet's St. Francis Hospital in
Memphis, Tenn., is a training site for family practice residents at the
University of Tennessee Medical School, and Palmetto General Hospital, a Tenet
facility in Hialeah, Fla., serves as a training site for family practice
residents at Nova Southeastern University. Tenet recently signed an affiliation
agreement with Louisiana State University Medical School under which two Tenet
hospitals--Memorial Medical Center (formerly Mercy+Baptist Medical Center) in
New Orleans and Kenner Regional Medical Center in Kenner, La.--will become
teaching hospitals for the university.
[LOGO] LOOKING AHEAD -- USING OUR EXTENSIVE EXPERIENCE IN STATES WITH HEAVY
MANAGED CARE PENETRATION, SUCH AS CALIFORNIA AND FLORIDA, TENET WILL HELP
ITS AFFILIATED PHYSICIANS BETTER POSITION THEMSELVES IN AREAS LIKE THE
SOUTHEAST, WHERE MANAGED CARE IS STILL EVOLVING. FURTHER, OUR COMPANY'S
INVOLVEMENT IN THE MEDICARE CHOICES DEMONSTRATION PROJECT IN NEW ORLEANS
WILL GIVE PHYSICIANS THROUGHOUT THE TENET SYSTEM ACCESS TO THE EXPERTISE WE
DEVELOP AS A RESULT OF THAT PROJECT--EXPERTISE WHICH, WE BELIEVE, WILL
PROVE INVALUABLE IF MEDICARE CHANGES TO A MANAGED CARE MODEL FOR
REIMBURSEMENT. IN FISCAL 1997 AND BEYOND, WE WILL FOCUS ON EXPANDING OUR
STRONG BASE OF PRIMARY CARE PHYSICIANS TO SERVE AS "GATEKEEPERS" FOR
MANAGED HEALTHCARE DELIVERY.
[Picture of doctor treating a patient.]
"I've been in practice for 44 years and I still look forward to coming to work
every day. In part, I think that's because there's someone managing my practice
whom I can rely on and trust to do what's right for my patients. Most of us are
too busy taking care of the medical part of our practice to interject ourselves
into the business part. Tenet has the expertise, the track record and the
integrity to assume that responsibility. I've had a very good working
relationship with them. "Tenet is committed to continuing its strong
relationships with physicians by providing them with the resources they need to
do what they do best--practice medicine.
[Picture of Graham Bolton, M.D.
Medical Director of the Senior Clinic at RHD Memorial Hospital in Dallas]
GRAHAM BOLTON, M.D.
MEDICAL DIRECTOR OF THE SENIOR CLINIC AT RHD MEMORIAL HOSPITAL IN DALLAS
15
<PAGE>
[LOGO] FINANCIAL SUMMARY
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
CONTINUING OPERATIONS YEARS ENDED MAY 31,
----------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net operating revenues $ 5,559 $ 3,318 $ 2,943 $ 3,178 $ 2,934
----------------------------------------------------------------------
Operating expenses:
Salaries and benefits (2,194) (1,367) (1,293) (1,465) (1,328)
Supplies (764) (432) (339) (349) (319)
Provision for doubtful accounts (290) (137) (107) (115) (123)
Other operating expenses (1,212) (759) (667) (689) (616)
Depreciation (240) (164) (143) (142) (122)
Amortization (81) (31) (18) (18) (19)
Impairment losses (86) - - - -
Restructuring charges - (37) (77) (52) (18)
----------------------------------------------------------------------
Operating income 692 391 299 348 389
Interest expense, net of capitalized portion (312) (138) (70) (75) (89)
Investment earnings 22 27 28 21 29
Equity in earnings of unconsolidated affiliates 20 28 23 13 6
Minority interests in income of consolidated subsidiaries (22) (9) (8) (10) (7)
Net gains on disposals of facilities and long-term
investments and sales of subsidiaries' common stock 346 30 88 122 31
----------------------------------------------------------------------
Income from continuing operations before income taxes 746 329 360 419 359
Taxes on income (348) (135) (144) (155) (141)
----------------------------------------------------------------------
Income from continuing operations $ 398 $ 194 $ 216 $ 264 $ 218
----------------------------------------------------------------------
----------------------------------------------------------------------
Earnings per share from continuing operations,
fully-diluted $ 1.86 $ 1.06 $ 1.23 $ 1.49 $ 1.19
Cash dividends per common share $ -- $ -- $ 0.12 $ 0.48 $ 0.46
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital (deficit) $ 411 $ 268 $ (196) $ 156 $ 224
Total assets 8,332 7,918 3,697 4,173 4,236
Long-term debt, excluding current portion 3,191 3,273 223 892 1,066
Shareholders' equity 2,636 1,986 1,320 1,752 1,674
Book value per common share $ 12.21 $ 9.93 $ 7.95 $ 10.56 $ 10.03
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
[LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the year ended May 31, 1996 was derived principally
from the cash proceeds from operating activities, disposals of assets and
investments, realization of tax benefits associated with losses from its
discontinued psychiatric business, proceeds from the exercises of performance
investment plan options and borrowings under the Company's secured and
unsecured bank credit agreements. Net cash provided by operating activities for
the year ended May 31, 1996 was $195 million after net expenditures of $97
million for discontinued operations and restructuring charges. During 1995 it
was a negative $7 million, principally due to net expenditures of $427 million
for discontinued operations and restructuring charges. Net cash provided by
operating activities in 1994 was $147 million. Management believes that future
cash flows from operations will continue to be positive. This liquidity, along
with the availability of credit under the Company's unsecured credit agreement,
should be adequate to meet debt service requirements and to finance planned
capital expenditures and other known operating needs over the short-term (up to
18 months) and the long-term (18 months to three years).
The Company's cash and cash equivalents at May 31, 1996 were $89 million, a
decrease of $66 million from May 31, 1995. Working capital at May 31, 1996 was
$411 million, compared to $268 million at May 31, 1995 and a working capital
deficit of $196 million at May 31, 1994. The increase in working capital at May
31, 1996 is primarily attributable to a decrease in the current portion of long-
term debt as a new March 1996 credit agreement, described below, eliminated
previously required quarterly payments of debt.
Net proceeds from the sales of facilities, investments and other assets were
$548 million during 1996, compared to $172 million during 1995 and $569 million
in 1994. During 1996 the Company sold its two hospitals and related businesses
in Singapore, its 30% interest in a hospital in Malaysia, its 40% interest in a
hospital in Thailand, and its 52% interest in a company owning nine hospitals
and a pathology business in Australia. The net cash proceeds from all of these
sales aggregated approximately $324 million. In May 1996 the Company sold its
42% interest in Westminster Health Care Holdings PLC (-Westminster') in England
for approximately $120 million. Also during 1996, the Company received
approximately $92 million for its Hillhaven preferred stock in connection with
the acquisition of The Hillhaven Corporation (-Hillhaven') by Vencor, Inc. (-
Vencor'). In June 1996 the Company sold its former corporate headquarters
building in Santa Monica, California. The proceeds from all of these
transactions were used to repay bank loans. The Company's previously announced
plan to divest itself of its non-core assets is now substantially complete.
In March 1996 the Company entered into a new, five-year $1.55 billion
unsecured revolving credit agreement. This agreement replaced the Company's
$2.3 billion secured bank term loan and revolving credit agreement dated
February 28, 1995. Borrowings under the new agreement are unsecured and will
mature on March 1, 2001. The Company generally may repay or prepay loans made
under the agreement and may reborrow at any time prior to such maturity date.
The new agreement provides lower interest margins, generally has less
restrictive covenants than the former agreement and, as mentioned above,
eliminates previously required quarterly repayments of principal. The credit
agreement, among other requirements, has limitations on other borrowings,
liens, investments, the sale of all or substantially all assets and prepayment
of subordinated debt, a prohibition against the Company declaring
17
<PAGE>
[LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
or paying a dividend or purchasing its stock unless its senior long-term
unsecured debt securities are rated BBB or higher by Standard and Poors'
Ratings Services and Baa3 or higher by Moody's Investors Services, Inc., and
covenants regarding maintenance of net worth, debt ratios and fixed charge
coverages. Current debt ratings on the Company's senior debt securities are
BB by Standard and Poors and Ba1 by Moody's.
Gross proceeds from borrowings amounted to $3.0 billion during the year ended
May 31, 1996, consisting primarily of borrowings of $2.1 billion under the
Company's bank credit agreements, $487 million in net proceeds from the sale of
8 5/8% senior notes, and $311 million in net proceeds from the sale of 6%
exchangeable subordinated notes. Borrowings in the prior year amounted to $3.4
billion. Loan repayments were $3.2 billion in 1996 and $2.1 billion during
1995.
Cash payments for property and equipment were $370 million in 1996, compared
to $264 million in 1995. Capital expenditures for the Company, before any
significant acquisitions of facilities and other healthcare operations, are
expected to be approximately $300 million to $400 million annually. Such
capital expenditures relate primarily to the development of healthcare services
networks in selected geographic markets, design and construction of new
buildings, expansion and renovation of existing facilities, equipment additions
and replacement, introduction of new medical technologies and various other
capital improvements.
During fiscal 1996 the Company spent $410 million for purchases of new
businesses, net of cash acquired. These include five general hospitals and a
number of physician practices. These acquisitions were financed primarily by
borrowings under the Company's credit agreements.
The Company's strategy includes the pursuit of growth through the development
of integrated healthcare systems in certain strategic markets, including joint
ventures, hospital acquisitions and physician practice acquisitions. All or
portions of this growth may be financed through available loans under the
Company's revolving credit agreement or,depending on capital market conditions,
the sale of additional debt or equity securities or other bank borrowings. The
Company's unused borrowing capacity under its revolving credit agreement was
$575 million at May 31, 1996.
THE AMH MERGER
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired American Medical Holdings, Inc., (together with 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 acquisition, the Company
also repaid $1.8 billion of debt. The acquisition and debt retirements were
financed by borrowings under the February 28, 1995 credit agreement and the
public issuance of $1.2 billion in new debt securities.
Prior to the merger, the Company operated 33 domestic general hospitals with
6,620 licensed beds in six states and a small number of skilled nursing
facilities, rehabilitation hospitals and psychiatric hospitals located on or
near general hospital campuses. With the merger, the Company acquired 37
domestic general hospitals with 8,831 beds, bringing its domestic general
hospital complement at that time to 70 hospitals with 15,451 licensed
18
<PAGE>
beds in 13 states. The acquisition also included ancillary facilities at or
nearby many of AMH's hospitals, including outpatient surgery centers,
rehabilitation units, long-term-care facilities, a psychiatric hospital, 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 has
resulted in certain cost savings, estimated to be at least $60 million in the
fiscal year ended May 31, 1996. These savings are before any severance or
other costs of implementing certain efficiencies and have been realized through
(i) the elimination of duplicate corporate overhead expenses, (ii) reduced
supplies expense through the incorporation of the acquired facilities into the
Company's existing group-purchasing program, (iii) the achievement of lower
information system costs through consolidation and outsourcing and (iv)
improved collection of the acquired AMH facilities' accounts receivable.
RESULTS OF OPERATIONS
Income from continuing operations before income taxes was $746 million in
1996, compared with $329 million and $360 million in 1995 and 1994,
respectively. The most significant transactions affecting the results of
continuing operations were (i) the acquisition of AMH, (ii) the financing of
the acquisition, which added more than $250 million annually in interest
expense and (iii) a series of divestitures during fiscal 1996, 1995 and 1994.
Fiscal 1996 includes the sales of the Company's interests in its hospitals
and related healthcare businesses in Singapore, Australia, Malaysia and
Thailand, its interest in Westminster, the sale of the Company's investment in
preferred stock of Hillhaven, and the exchange of its interest in the common
stock of Hillhaven for 8,301,067 shares of common stock of Vencor. Fiscal 1995
includes the sale of a 75% interest in Total Renal Care Holdings, Inc.(-TRC').
Fiscal 1994 includes the sale of all but six of the Company's rehabilitation
hospitals and related outpatient clinics 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. These transactions and other unusual pretax items relating to
impairment losses and restructuring charges are shown below:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain (loss) on sales of facilities and long-term investments $ 329 $ (2) $ 88
Gains on sales of subsidiary's common stock 17 32 -
Impairment losses (86) - -
Restructuring charges - (37) (77)
------------------------------------------
Net unusual pretax items (after tax-$0.59 fully diluted
per share in 1996, ($0.03) in 1995 and $0.04 in 1994) $ 260 $ (7) $ 11
------------------------------------------
------------------------------------------
</TABLE>
Income from continuing operations before income taxes, excluding the unusual
items in the table above, was $486 million in 1996, $336 million in 1995 and
$349 million in 1994 and fully-diluted earnings per share from continuing
operations was $1.27, $1.09 and $1.19, respectively.
19
<PAGE>
[LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
The following is a summary of continuing operations for the past three fiscal
years:
<TABLE>
<CAPTION>
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) (PERCENTAGE OF NET OPERATING REVENUES)
<S> <C> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals $ 5,133 $ 2,777 $ 2,133 92.3% 83.7% 72.5%
Other domestic operations (1) 375 310 275 6.8% 9.3% 9.4%
International operations 51 214 175 0.9% 6.5% 5.9%
Divested operations (2) - 17 360 - 0.5% 12.2%
---------------------------------------------------------------------------------------
5,559 3,318 2,943 100.0% 100.0% 100.0%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Operating expenses:
Salaries and benefits (2,194) (1,367) (1,293) 39.5% 41.2% 43.9%
Supplies (764) (432) (339) 13.7% 13.0% 11.5%
Provision for doubtful accounts (290) (137) (107) 5.2% 4.1% 3.6%
Other operating expenses (1,212) (759) (667) 21.8% 22.9% 22.7%
Depreciation (240) (164) (143) 4.3% 5.0% 4.9%
Amortization (81) (31) (18) 1.5% 0.9% 0.6%
Impairment losses (86) - - 1.6% - -
Restructuring charges - (37) (77) - 1.1% 2.6%
---------------------------------------------------------------------------------------
Operating income $ 692 $ 391 $ 299 12.4% 11.8% 10.2%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</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 which have not been divested; (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 Vencor
and other third parties.
(2) Net operating revenues of divested operations consist of revenues from (i)
TRC prior to the August 1994 sale of the Company's approximately 75% equity
interest; (ii) 29 rehabilitation hospitals and 45 related satellite outpatient
clinics prior to their sales to HealthSouth in January and March of 1994; (iii)
and lease income from long-term-care facilities prior to their sales to
Hillhaven in fiscal 1994.
Net operating revenues were $5.6 billion in 1996, compared with $3.3 billion
in 1995 and $2.9 billion in 1994. The current year includes revenues
attributable to facilities acquired in the AMH merger for the entire fiscal
year. The prior year includes three months of revenues attributable to the
facilities acquired in the AMH merger.
Operating income before impairment losses and restructuring charges increased
81.8% to $778 million in 1996 from $428 million in 1995 and $376 million in
1994. The operating margin on this basis increased to 14.0% from 12.9% in 1995
and 12.8% in 1994. The increase in the operating margin is due primarily to
effective cost-control programs in the hospitals and the implementation of
overhead reduction plans.
20
<PAGE>
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
1996 1995 1994 1995 TO 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic general hospitals operating data:
Number of hospitals (at end of period) 74 70 35 4
Licensed beds (at end of period) 16,666 15,622 6,873 6.7%
Net inpatient revenues (in millions) $3,440 $1,938 $1,568.0 77.5%
Net outpatient revenues (in millions) $1,572 $786 $557.0 100.0%
Admissions 487,601 267,868 207,868 82.0%
Equivalent admissions 689,619 358,664 271,004 92.3%
Average length of stay (days) 5.6 5.6 5.6 -
Patient days 2,710,062 1,507,865 1,154,030 79.7%
Equivalent patient days 3,796,184 1,997,508 1,493,314 90.0%
Net inpatient revenues per patient day $1,269 $1,285 $1,359 (1.2)%
Utilization of licensed beds 44.9% 46.4% 46.8% (1.5)%*
Outpatient visits 5,609,550 2,293,586 1,472,258 144.6%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* The % change is the difference between the 1996 and 1995 percentages shown.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals, including those facilities acquired from
AMH, on a same-store basis:
<TABLE>
<CAPTION>
1996 1995 INCREASE(DECREASE)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of hospitals 68 68 -
Average licensed beds 15,218 15,227 (0.1)%
Patient days 2,506,668 2,533,785 (1.1)%
Net inpatient revenues per patient day $1,282 $1,245 3.0%
Admissions 451,134 441,310 2.2%
Net inpatient revenues per admission $7,125 $ 7,149 (0.3)%
Outpatient visits 5,225,621 4,231,726 23.5%
Average length of stay (days) 5.6 5.7 (0.1)*
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* THE % CHANGE IS THE DIFFERENCE BETWEEN THE 1996 AND 1995 PERCENTAGES SHOWN.
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 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 40% of the net patient revenues of the domestic general hospitals
in 1996 and 39% and 36% in 1995 and 1994, 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
certain proposals pending that would convert Medicare reimbursement for
outpatient services to a prospective payment system which, if implemented, may
result in reduced payments. Medicaid programs in certain states in which the
Company operates also are undergoing changes that will result in reduced
payments to hospitals.
21
<PAGE>
[LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
The Company has implemented hospital cost-control programs and overhead
reductions and is forming integrated healthcare delivery systems to address the
reduced payments. Pressures to control healthcare costs have resulted in an
increase in the percentage of revenues attributable to managed care payors. The
percentage of the Company's net operating revenues attributable to managed care
was approximately 28.6% in 1996, 26.7% in 1995, and 23.9% in 1994. The Company
anticipates that its managed care business will continue to increase in the
future.
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. 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
21.0% to $375 million in 1996, compared with $310 million in 1995 and $275
million in 1994. This increase primarily reflects continued growth of National
Health Plans, the Company's HMO and health insurance subsidiary, and the growth
of joint ventures and physician practices.
The $163 million decrease in net operating revenues from the Company's
international operations for the current fiscal year compared to the prior
fiscal year is attributable to the sales of the Company's hospitals and related
healthcare businesses in Singapore and Australia. Net operating revenues and
operating profits of the sold international facilities for the period from June
1, 1995 through the dates of sales were $51 million and $7 million,
respectively.
Operating expenses, which include salaries and benefits, supplies,
provision for doubtful accounts, depreciation and amortization, impairment
losses, restructuring charges and other operating expenses, were $4.9 billion
in 1996, $2.9 billion in 1995 and $2.6 billion in 1994. Operating expenses for
the current year include 12 months of operating expenses from the facilities
acquired in the AMH merger and the prior year includes three months of
operating expenses from the facilities acquired in the AMH merger, and to that
extent, the current and prior-year periods are not comparable. Fiscal 1995 and
1994 also include the operating expenses of the international and other
divested operations discussed above.
Salaries and benefits expense as a percentage of net operating revenues was
39.5% in 1996, 41.2% in 1995 and 43.9% in 1994. The improvement in 1996 is
attributable primarily to reductions in staffing levels in the hospitals and
corporate offices, implemented following the AMH merger.
Supplies expense as a percentage of net operating revenues was 13.7% in 1996,
13.0% in 1995 and 11.5% in 1994. The increase over the prior year is
attributable primarily to a higher supplies expense in the facilities acquired
in the AMH merger and subsequent thereto. The increase is also attributable to
the sales of the Company's international operations. Supplies expense as a
percentage of net operating revenues at the international facilities were
substantially less than supplies expense as a percentage of net operating
revenues at the domestic general hospital operations. The Company expects to
continue to reduce supplies expense through incorporating acquired facilities
into the Company's existing group-purchasing program.
The provision for doubtful accounts as a percentage of net operating revenues
was 5.2% in 1996, 4.1% in 1995 and 3.6% in 1994. The increase is attributable
primarily to higher bad debt experience at the facilities acquired in the AMH
merger and subsequent thereto. The Company, through its collection subsidiary,
Syndicated Office
22
<PAGE>
Systems, has been establishing improved follow-up collection systems by
consolidating the collection of accounts receivable in all the Company's
facilities.
Other operating expenses as a percentage of net operating revenues were 21.8%
in 1996, 22.9% in 1995 and 22.7% in 1994. The improvement in 1996 reflects the
effects of the cost-control programs and overhead-reduction plans mentioned
herein.
Depreciation and amortization expense increased from 1995 and 1994
primarily due to the AMH merger. Goodwill amortization associated with the AMH
merger is approximately $64 million annually.
Impairment losses representing non cash charges of $86 million were recorded
in fiscal 1996 in accordance with Statement of Financial Accounting Standards
No. 121, under which the carrying value of property, plant and equipment and
intangible assets at four general hospitals and three rehabilitation hospitals
and the cost of one undeveloped parcel of land have been written down to their
fair values.
Restructuring charges of $37 million in fiscal 1995 were recorded in
connection with the AMH merger. These charges included severance payments and
outplacement services for involuntary terminations of approximately 890 former
employees of the Company and other costs related to consolidating the
operations of the two companies. Restructuring charges of $77 million in
fiscal 1994 were recorded in connection with a plan to significantly decrease
overhead costs through a reduction in corporate and divisional staffing levels
and to review the resulting office space needs of all corporate operations.
Interest expense, net of capitalized interest, was $312 million in 1996,
compared with $138 million in 1995 and $70 million in 1994. The increase
between 1995 and 1996 was due primarily to the acquisition of AMH and the
senior notes and bank loans used to finance the acquisition and to retire debt
in connection with the merger.
Investment earnings were $22 million in 1996, $27 million in 1995 and $28
million in 1994, and were derived primarily from notes receivable and
investments in debt and equity securities.
Equity in earnings of unconsolidated affiliates was $20 million in 1996, $28
million in 1995 and $23 million in 1994. Substantially all of the decrease
between 1995 and 1996 is due to the exchange of the Company's investment in
Hillhaven for common stock in Vencor. During 1995 the Company's equity in
the earnings of Hillhaven was $16 million. In 1996 it was $7 million through
the date of the exchange and nothing thereafter. The Company's equity in the
earnings of Westminster was $6 million in 1995 and $7 million in 1996. The
Company sold its investment in Westminster in May 1996.
Minority interest in income of consolidated subsidiaries increased in the
current year due to improved operating results at consolidated, but not wholly-
owned facilities and to the effects of minority interests recorded at
facilities acquired in the AMH merger. Minority interest expense was $22
million in 1996, $9 million in 1995 and $8 million in 1994.
Taxes on income as a percentage of pretax income from continuing operations
were 47% in 1996, 41% in 1995 and 40% in 1994. The Company's effective tax-rate
increase in 1996 is primarily due to (i) additional amortization of goodwill
resulting from the AMH merger and (ii) gains from the sales of international
operations. The amortization expense arising from the merger is a noncash
charge but provides no income tax benefits.
BUSINESS OUTLOOK
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. Because of national, state and private industry
efforts to reform healthcare delivery and payment systems, the healthcare
industry as a whole faces increased uncertainty. The Company is unable to
predict whether any healthcare legislation at the federal and/or state level
will be passed in the future, but it continues to monitor all proposed
legislation and analyze its potential impact in order to formulate the
Company's future business strategies.
23
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
---------------------------------------------
(DOLLAR AMOUNTS, EXCEPT PER SHARE AMOUNTS, ARE EXPRESSED IN MILLIONS) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating revenues $ 5,559 $ 3,318 $ 2,943
---------------------------------------------
Operating expenses:
Salaries and benefits (2,194) (1,367) (1,293)
Supplies (764) (432) (339)
Provision for doubtful accounts (290) (137) (107)
Other operating expenses (1,212) (759) (667)
Depreciation (240) (164) (143)
Amortization (81) (31) (18)
Impairment losses (86) -- --
Restructuring charges -- (37) (77)
---------------------------------------------
Operating income 692 391 299
---------------------------------------------
Interest expense, net of capitalized portion (312) (138) (70)
Investment earnings 22 27 28
Equity in earnings of unconsolidated affiliates 20 28 23
Minority interests in income of consolidated subsidiaries (22) (9) (8)
Net gain (loss) on disposals of facilities and long-term investments 329 (2) 88
Gains on sales of subsidiary's common stock 17 32 --
---------------------------------------------
Income from continuing operations before income taxes 746 329 360
Taxes on income (348) (135) (144)
---------------------------------------------
Income from continuing operations 398 194 216
Discontinued operations (25) (9) (701)
Extraordinary charges from early extinguishment of debt (23) (20) --
Cumulative effect of a change in accounting principle -- -- 60
---------------------------------------------
Net income (loss) $ 350 $ 165 $ (425)
---------------------------------------------
---------------------------------------------
Earnings (loss) per share:
Primary:
Continuing operations $ 1.90 $ 1.10 $ 1.29
Discontinued operations (0.12) (0.06) (4.19)
Extraordinary charge (0.11) (0.11) --
Cumulative effect of a change in accounting principle -- -- 0.36
---------------------------------------------
$ 1.67 $ 0.93 $ (2.54)
---------------------------------------------
---------------------------------------------
Fully diluted:
Continuing operations $ 1.86 $ 1.06 $ 1.23
Discontinued operations (0.12) (0.05) (4.10)
Extraordinary charges (0.11) (0.10) --
Cumulative effect of a change in accounting principle -- -- 0.33
---------------------------------------------
$ 1.63 $ 0.91 $ (2.54)
---------------------------------------------
---------------------------------------------
Weighted average shares and share equivalents outstanding (in thousands):
Primary 209,492 176,817 167,024
Fully diluted 216,676 190,139 181,087
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31
-----------------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 89 $ 155
Short-term investments in debt securities 112 139
Accounts and notes receivable, less allowance for doubtful
accounts ($156 in 1996 and $184 in 1995) 838 565
Inventories of supplies, at cost 128 116
Deferred income taxes 279 410
Assets held for sale 39 184
Prepaid expenses and other current assets 60 55
-----------------------------
Total current assets 1,545 1,624
-----------------------------
Investments and other assets 518 362
Property, plant and equipment, net 3,648 3,319
Costs in excess of net assets acquired, less accumulated
amortization ($86 in 1996 and $21 in 1995) 2,574 2,511
Other intangible assets, at cost, less accumulated
amortization ($37 in 1996 and in 1995) 47 102
-----------------------------
$ 8,332 $ 7,918
-----------------------------
-----------------------------
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 60 $ 252
Accounts payable 380 359
Employee compensation and benefits 120 162
Accrued interest payable 68 57
Income taxes payable 33 2
Other current liabilities 473 524
-----------------------------
Total current liabilities 1,134 1,356
-----------------------------
Long-term debt, net of current portion 3,191 3,273
Other long-term liabilities and minority interests 977 1,002
Deferred income taxes 394 301
Commitments and contingencies
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares;
218,713,406 shares issued at May 31, 1996 and May 31, 1995 16 16
Additional paid-in capital 1,542 1,502
Unrealized gains on investments in debt and equity securities 28 --
Retained earnings 1,090 740
Less common stock in treasury, at cost, 2,790,967 at May 31, 1996
and 18,775,274 shares at May 31, 1995 (40) (272)
-----------------------------
Total shareholders' equity 2,636 1,986
-----------------------------
$ 8,332 $ 7,918
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
---------------------------------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 350 $ 165 $ (425)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 321 195 198
Deferred income taxes 243 95 (253)
Gains on sales of facilities and long-term investments (346) (30) (88)
Additions to reserves for discontinued operations,
impairment losses and restructuring charges 127 51 1,175
Extraordinary charges from early extinguishment of debt 23 20 --
Other items 12 (6) (22)
Increase (decrease) in cash from changes in operating assets and liabilities,
net of effects from purchases of new businesses:
Accounts and notes receivable, net (256) (47) (65)
Inventories, prepaid expenses and other current assets (12) 1 (21)
Accounts payable, accrued expenses and income taxes payable (64) (28) (31)
Noncurrent accrued expenses and other liabilities (106) 4 (2)
Net expenditures for discontinued operations and restructuring charges (97) (427) (319)
---------------------------------------------
Net cash provided by (used in) operating activities 195 (7) 147
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (370) (264) (185)
Purchases of new businesses, net of cash acquired (410) (1,429) (5)
Proceeds from sales of facilities, long-term investments and other assets 548 172 569
Other items (36) 8 7
---------------------------------------------
Net cash provided by (used in) investing activities (268) (1,513) 386
- ---------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
2,961 3,445 91
Loan Payments (3,187) (2,091) (428)
Proceeds from exercises of performance investment plan options 203 -- --
Proceeds from exercises of stock options 30 3 1
Cash dividends paid to shareholders -- -- (40)
Other items -- 5 15
---------------------------------------------
Net cash provided by (used in) financing activities 7 1,362 (361)
---------------------------------------------
Net increase (decrease) in cash and cash equivalents (66) (158) 172
Cash and cash equivalents at beginning of year 155 313 141
---------------------------------------------
Cash and cash equivalents at end of year $ 89 $ 155 $ 313
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURES
The Company paid interest (net of amounts capitalized) of $279 million, $113
million, and $62 million for the years ended May 31, 1996, 1995, and 1994,
respectively. Income taxes paid during the same years amounted to $28 million,
$45 million and $30 million, respectively.
The fair value of the assets acquired in connection with the AMH merger in
1995 was approximately $4.6 billion, including goodwill of approximately $2.5
billion. Liabilities assumed were approximately $2.6 billion.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS, OUTSTANDING ISSUED PAID-IN UNREALIZED RETAINED TREASURY
SHARE AMOUNTS IN THOUSANDS) SHARES AMOUNT CAPITAL GAINS EARNINGS STOCK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 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 705 (1) 10
Restricted share cancellations (4) 4
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES, MAY 31, 1995 199,938 16 1,502 -- 740 (272)
Net income 350
Performance investment plan
options exercised 13,499 39 196
Stock options exercised 2,485 1 36
Unrealized gains from changes in
market value of investments
in debt and equity securities,
net of income taxes 28
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, MAY 31, 1996 215,922 $ 16 $ 1,542 $ 28 $ 1,090 $ (40)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
28
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY
Tenet Healthcare Corporation is an investor-owned healthcare services company
that owns or operates, through its subsidiaries and affiliates, general
hospitals and related healthcare facilities serving urban and rural communities
in 13 states and holds investments in other healthcare companies. At May 31,
1996, the Company's subsidiaries operated 74 domestic general hospitals, with a
total of 16,666 licensed beds, located in Alabama, Arkansas, California,
Florida, Georgia, Indiana, Louisiana, Missouri, Nebraska, North Carolina, South
Carolina, Tennessee and Texas. The largest concentrations of hospitals are in
California, Florida, Louisiana and Texas. At May 31, 1996, the Company's
subsidiaries also owned or operated a small number of rehabilitation hospitals,
long-term-care facilities and psychiatric facilities located on the same campus
as, or nearby, the Company's general hospitals, in addition to numerous other
ancillary healthcare operations.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tenet Healthcare
Corporation and its wholly-owned and majority-owned subsidiaries. Significant
investments in other affiliated companies generally are accounted for by the
equity method. Intercompany accounts and transactions are eliminated in
consolidation.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management of the Company to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
D. NET OPERATING REVENUES
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 $6.2 billion, $3.4
billion and $2.7 billion for the years ended May 31, 1996, 1995 and 1994,
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 43% of fiscal 1996
consolidated net operating revenues is from participation of the Company's
hospitals in Medicare and Medicaid programs. In 1995 and 1994 it was
approximately 40%.
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.
29
<PAGE>
E. CASH EQUIVALENTS
The Company treats highly liquid investments with an original maturity of three
months or less as cash equivalents.
F. INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investments in debt and equity securities are classified as available-for-sale,
held-to-maturity or as part of a trading portfolio. The Company has no
significant investments in securities classified as either held-to-maturity or
trading. Securities classified as available-for-sale are carried at fair value
if unrestricted and their unrealized gains and losses, net of tax, are reported
as an adjustment to shareholders' equity. Restricted securities are carried at
cost, adjusted for dividends in excess of earnings subsequent to the date of
investment and for decreases in value that are other than temporary. Realized
gains or losses are included in net income on the specific identification
method, and are immaterial for all years presented.
G. LONG-LIVED ASSETS
PROPERTY, PLANT AND EQUIPMENT: The Company uses the straight-line method of
depreciation for buildings, building improvements and equipment over their
estimated useful lives as follows: buildings and improvements -- generally 25 to
40 years; equipment -- five to 15 years.
INTANGIBLE ASSETS: Preopening costs are amortized over one year. Costs in
excess of the fair value of the net assets of purchased businesses (goodwill)
generally are amortized over 40 years. The straight-line method is used to
amortize these intangible assets. Deferred financing costs are amortized over
the lives of the related loans using the interest method.
Impairment of long-lived assets, including goodwill related to such assets,
is recognized whenever events or changes in circumstances indicate that the
carrying amount of the asset, or related groups of assets, may not be
recoverable. Measurement of the amount of impairment may be based on appraisal,
market values of similar assets or estimates of future discounted cash flows
resulting from use and ultimate disposition of the asset.
H. 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.
I. 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.
J. SALES OF COMMON STOCK OF SUBSIDIARIES
At the time a subsidiary or equity affiliate sells existing or newly issued
common stock to unrelated parties at a price in excess of its book value, the
Company records a gain reflecting its share of the change in the subsidiary's
shareholders' equity resulting from the sale.
30
<PAGE>
K. EARNINGS PER SHARE
Primary earnings per share of common stock is 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 are 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.
L. 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 ("SFAS") No. 52. Exchange gains and losses on forward
exchange contracts designated as hedges of foreign net investments are reported
as an adjustment to shareholders' equity. Currency translation adjustments and
the effect of transaction gains and losses and exchange gains and losses on
forward exchange contracts are insignificant for all years presented. At May
31, 1996, the Company had sold substantially all of its foreign operations.
Note 2. Acquisitions and Disposals of Facilities
DOMESTIC:
In July 1995, the Company acquired a one-third interest (which subsequently has
been increased to a 50% interest) in the leased 82-bed St. Clair Hospital
located outside Birmingham, Alabama. In August 1995, the Company acquired
Memorial Medical Center (formerly known as Mercy+Baptist Medical Center), a
system of two general hospitals with an aggregate of 759 licensed beds located
in New Orleans, Louisiana, and a related physician practice. In September 1995,
the Company acquired Providence Memorial Hospital, a general hospital located in
El Paso, Texas. Providence is licensed for 471 general hospital beds (34 of
which may be used as skilled nursing beds) and is licensed for 30 additional
rehabilitation and sub-acute care beds. In October 1995, the Company entered
into a long-term lease of the 49-bed Medical Center of Manchester in central
Tennessee. In November 1995, the Company acquired the 104-bed Methodist
Hospital of Jonesboro, a general hospital located in Jonesboro, Arkansas. That
hospital is now owned by a limited liability company of which Tenet owns 95% and
is the manager. In fiscal 1996 the Company also acquired several other
physician practices and other healthcare operations. These acquisitions were all
accounted for as purchases. On June 1, 1996, the Company acquired Hialeah
Hospital, a 378-bed acute care hospital in Hialeah, Florida. The Company also
has entered into a definitive agreement to purchase Lloyd Noland Hospital in
Birmingham, Alabama, which purchase the Company expects to complete prior to the
end of the second quarter of fiscal 1997.
In March 1995, in a transaction accounted for as a purchase, the Company
acquired all the outstanding common stock of American Medical Holdings, Inc.
("AMH") for $1.5 billion in cash and 33,156,614 shares of the Company's common
stock valued at $488 million. The total purchase price was allocated to the
assets and liabilities of AMH based on their estimated fair values. The total
purchase price exceeded the fair value of the net assets acquired by
approximately $2.5 billion.
31
<PAGE>
INTERNATIONAL:
In June 1995, the Company sold two hospitals and related healthcare businesses
in Singapore for approximately $243 million, net of $78 million in debt assumed
by the buyer. In October 1995, the Company sold its interest in Australian
Medical Enterprises, Limited ("AME") for a net cash consideration of
approximately $68 million, and the Company sold its interest in a hospital in
Malaysia for net cash consideration of approximately $12 million. In February
1996, the Company also sold its 40% interest in a hospital in Thailand for net
cash consideration of approximately $21 million. These transactions resulted in
gains of approximately $158 million. The net proceeds from these sales were
used to repay secured bank loans under the Company's February 28, 1995 credit
agreement. Net operating revenues of the sold facilities were $51 million in
1996 and $202 million in 1995. Operating profits before general corporate
overhead costs were $7 million in 1996 and $39 million in 1995.
In May 1996, the Company also sold its approximately 42% interest in
Westminster for a gain of $34 million. Pretax cash proceeds from this
transaction were approximately $120 million and were used to repay bank loans.
NOTE 3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, short-term borrowings and
notes, current portion of long-term debt, 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
are not material to the Company's financial position.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the following:
(IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------
Land $ 266 $ 238
Buildings and improvements 2,863 2,593
Construction in progress 118 97
Equipment 1,351 1,215
---------------------------
4,598 4,143
Less accumulated depreciation and amortization 950 824
---------------------------
Net property, plant and equipment $ 3,648 $ 3,319
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
32
<PAGE>
NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS
A. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured loans payable to banks $ 975 $ --
Secured loans payable to banks -- 1,731
9 5/8% Senior Notes due 2002, $300 million face value,
net of $5.9 million unamortized discount 294 293
10 1/8% Senior Subordinated Notes due 2005,
$900 million face value, net of $21.8 million unamortized discount 878 877
8 5/8% Senior Subordinated Notes due 2003, $500 million face value,
net of $11.9 million unamortized discount 488 --
6% Exchangeable Subordinated Notes due 2005, $320 million face
value, net of $9.0 million unamortized discount 311 --
13 1/2% Senior Subordinated Notes due 2001 16 16
15% Junior Subordinated Notes due 2005 -- 26
6 1/2% Swiss franc/dollar dual currency debentures due 1997 16 16
5% Swiss franc bonds due 1996 -- 18
Zero-coupon guaranteed bonds due 1997 and 2002, $130.6 million
face value, net of $28.9 million unamortized discount 102 96
Notes and capital lease obligations secured by property, plant and
equipment, weighted average interest rate of approximately
11.2% in 1996 and 9.6% in 1995, payable in installments to 2009 116 153
Convertible floating-rate debentures -- 219
Unsecured medium-term notes due 1997 36 73
Other notes, primarily unsecured 19 7
---------------------------
3,251 3,525
Less current portion 60 252
---------------------------
$ 3,191 $ 3,273
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
LOANS PAYABLE TO BANKS -- In March 1996, a syndicate of banks entered into a
new, five-year $1.55 billion unsecured revolving credit agreement with the
Company. The agreement replaced the Company's $2.3 billion secured bank term
loan and revolving credit agreement dated February 28, 1995. Unamortized costs
of issuance written off in connection with the refinancing were $36 million.
The write-off is reflected as an extraordinary charge from early extinguishment
of debt in the quarter ended May 31, 1996 in the amount of $23 million, which is
net of tax benefits of $13 million. The $2.3 billion in secured bank loans was
used to finance the AMH merger and repay existing indebtedness. The early
extinguishment of debt in 1995 resulted in an extraordinary loss of $20 million,
net of tax benefits of $12 million.
Borrowings under the new agreement are unsecured and will mature on March 1,
2001. The Company generally may repay or prepay loans made under the agreement
and may reborrow at any time prior to such maturity date. The Company's unused
borrowing capacity under the new agreement was $575 million as of May 31, 1996.
33
<PAGE>
Loans under the new credit agreement generally bear interest at a base rate
equal to the prime rate or, if higher, the federal funds rate plus 0.50%, plus
an interest margin ranging from zero to 25 basis points, or, at the option of
the Company, an adjusted London interbank offered rate ("LIBOR") for one-, two-,
three- or six-month periods plus an interest margin of from 30 to 87.5 basis
points. The Company has agreed to pay the lenders under the new credit agreement
a facility fee on the total loan commitment at rates ranging from 15 to 37.5
basis points. The interest margins and facility fee rates are based on the
ratios of the Company's consolidated net earnings before interest, taxes,
depreciation and amortization ("EBITDA") to interest expense and the ratio of
the Company's consolidated total debt to EBITDA. During the three months ended
May 31, 1996 the weighted average interest rates on these borrowings was 6.1%.
SENIOR NOTES AND SENIOR SUBORDINATED NOTES -- In connection with the AMH merger
and related refinancing, the Company sold, on March 1, 1995, $300 million of
9 5/8% Senior Notes due September 1, 2002 and $900 million of 10 1/8% Senior
Subordinated Notes due March 1, 2005. The proceeds to the Company were $1.17
billion, after underwriting discounts and commissions. The senior notes are not
redeemable by the Company prior to maturity. The senior subordinated notes are
redeemable at the option of the Company, in whole or from time to time in part,
at any time after March 1, 2000, at redemption prices ranging from 105.063% in
2000 to 100% in 2003 and thereafter.
The senior notes are 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 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.
In October 1995, the Company sold $500 million of Senior Notes due December
2003. The notes have a coupon of 8 5/8% and were priced at 99.666% of par to
yield 8.68%. In January 1996, the Company issued $320 million of 6%
Exchangeable Subordinated Notes due 2005 that will be exchangeable at the option
of the holder for shares of common stock of Vencor (see Note 12) at any time on
or after November 6, 1997 at an exchange rate of 25.9403 shares per $1,000
principal amount of the notes, subject to the Company's right to pay an amount
in cash equal to the market price of the shares of Vencor common stock in lieu
of delivery of such shares. The notes will be redeemable at the option of the
Company at any time on or after January 15, 1999 at the redemption prices set
forth in the indenture, plus accrued and unpaid interest. The net proceeds from
the notes sold in October 1995 and January 1996 were applied to repay secured
bank loans under the Company's February 28, 1995 credit agreement.
If the fair market value of the Company's investment in common stock of
Vencor ever exceeds the carrying value of the notes, the Company will adjust the
carrying value of the notes to the fair market value of the investment through a
charge or credit to earnings. Corresponding adjustments to the carrying value of
the investment in Vencor will be credited or charged directly to shareholders'
equity as unrealized gains or losses.
CONVERTIBLE FLOATING-RATE DEBENTURES -- All of the Company's Convertible
Floating-Rate Debentures due in April 1996 were redeemed or converted prior to
that date into shares of the Company's common stock
34
<PAGE>
through the exercise of performance investment plan options purchased by key
employees of the Company. The performance investment plan options permitted the
holder to purchase debentures at 95% of their $105,264 face value. The
debentures were convertible into preferred stock, which, in turn, was
convertible into common stock at an exercise price equivalent to $15.83 per
share. The proceeds from the conversions during the year were used to repay
bank loans under the Company's credit agreements.
During 1996, the Company reduced taxable income by the 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 of $20 million,
was credited to additional paid-in capital.
As a result of the redemption and/or conversions of all of the Company's
convertible floating-rate debentures during fiscal 1996, at May 31, 1996 there
are no potentially dilutive securities except for employee stock options, which
are common stock equivalents for purposes of calculating earnings per share.
UNSECURED MEDIUM-TERM NOTES -- The weighted average interest rates on the
medium-term notes were 9.0% in 1996, 8.3% during 1995 and 8.1% during 1994.
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 by, and liens on the assets of, the Company and its
subsidiaries, investments, the sale of all or substantially all assets and
prepayment of subordinated debt, a prohibition against the Company declaring or
paying dividends on or purchasing its stock unless its senior long-term
unsecured debt securities are rated BBB- or higher by Standard and Poors' Rating
Services and Baa3 or higher by Moody's Investors Service, Inc., and covenants
regarding maintenance of specified levels of net worth, debt ratios and
fixed-charge coverage ratios. Because of dividend restrictions, all of the
Company's retained earnings are restricted. The Company is in compliance with
its loan covenants. There are no compensating balance requirements for any
credit line or borrowing.
B. LONG-TERM DEBT MATURITIES AND LEASE OBLIGATIONS
Future long-term debt cash maturities and minimum operating lease payments are
as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1998 1999 2000 2001 LATER YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt $ 62 $ 101 $ 11 $ 30 $ 982 $ 2,145
Long-term leases 146 138 123 88 78 255
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
Rental expense under operating leases, including short-term leases, was
approximately $177 million in 1996, $111 million in 1995, and $98 million in
1994.
C. NOTE REDEMPTION -- On July 15, 1996, the Company announced that it will
redeem all its 13 1/2% Senior Subordinated Notes due 2001 for $1,038.60 per
$1,000 original principal amount, on August 15, 1996, and will pay accrued
interest of $67.50 per $1,000 original principal amount through the redemption
date.
35
<PAGE>
Note 6. Income Taxes
Taxes on income from continuing operations consist of the following amounts:
(IN MILLIONS) 1996 1995 1994
- -----------------------------------------------------------------------------
Currently payable:
Federal $ 194 $ 101 $ 159
State 35 18 31
Foreign 5 9 6
-----------------------------------------
234 128 196
Deferred:
Federal 80 -- (46)
State 11 2 (6)
-----------------------------------------
91 2 (52)
-----------------------------------------
Other 23 5 --
-----------------------------------------
$ 348 $ 135 $ 144
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The difference between the Company's effective income tax rate and the statutory
federal income tax rate is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
(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 $ 261 35.0% $ 115 35.0% $ 126 35.0%
State income taxes, net of federal
income tax benefit 29 3.9% 14 4.2% 17 4.6%
Goodwill amortization 23 3.0% 5 1.5% -- --
Gain on sale of foreign operations 30 4.1% -- -- -- --
Other 5 0.6% 1 0.3% 1 0.4%
-----------------------------------------------------------
Taxes on income from continuing
operations and effective tax rates $ 348 46.6% $ 135 41.0% $ 144 40.0%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company recognized $60 million as income in the fiscal year ended May 31,
1994 for the cumulative effect on prior years of adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
36
<PAGE>
Deferred tax assets and liabilities as of May 31, 1996 and 1995 relate to the
following:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <S> <S> <C> <C>
Depreciation and fixed-asset basis differences $ -- $ 546 $ -- $ 566
Reserves related to discontinued operations & restructuring charges 87 -- 81 --
Receivables-doubtful accounts and adjustments 118 -- 112 --
Cash-basis accounting change -- 8 -- 16
Accruals for insurance risks 92 -- 81 --
Intangible assets 4 -- -- 2
Other long-term liabilities 82 -- 121 --
Benefit plans 78 -- 99 --
Other accrued liabilities 58 -- 53 --
Investments and other assets -- 87 17 --
Federal and state net operating loss carryforwards -- -- 137 --
Other items 7 -- -- 8
--------------------------------------------------------
$ 526 $ 641 $ 701 $ 592
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Management believes that realization of the deferred tax assets at May 31, 1996
will occur as temporary differences reverse against future taxable income.
Accordingly, no valuation alllowance has been established.
NOTE 7. CLAIMS AND LAWSUITS
A. PROFESSIONAL AND GENERAL LIABILITY INSURANCE
In the normal course of business the Company 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 consolidated financial
statements.
The Company insures substantially all of its professional and comprehensive
general liability risks in excess of self-insured retentions, which vary by
hospital and by policy period from $500,000 to $3 million per occurrence,
through an insurance company owned by several healthcare companies and in which
the Company has a majority 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 rehabilitation hospitals
through a wholly-owned insurance subsidiary, which reinsured risks in excess of
$500,000 with major independent insurance companies. The Company has reached
the policy limits provided by this insurance subsidiary related to the
psychiatric hospitals in certain years. In addition, damages, if any, arising
from fraud and conspiracy claims in psychiatric malpractice cases may not be
insured.
In addition to the reserves recorded by the above insurance subsidiaries, the
Company maintains an unfunded reserve based on actuarial estimates for the
self-insured portion of its professional liability risks. 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 approximately 9%. Adjustments to the reserves are included in results
of operations.
37
<PAGE>
B. SIGNIFICANT LEGAL PROCEEDINGS
The Company has been involved in significant legal proceedings of an unusual
nature related principally to its psychiatric business. During the years ended
May 31, 1996, 1995 and 1994, the Company recorded provisions to estimate the
cost of the ultimate disposition of all of these proceedings and to estimate the
legal fees that it expected to incur. The Company has settled the most
significant of these matters. The remaining reserves for unusual litigation
costs that relate to matters that had not been settled as of May 31, 1996 and an
estimate of the legal fees to be incurred subsequent to May 31, 1996 represent
management's estimate of the remaining net costs of the ultimate disposition of
these matters. There can be no assurance, however, that the ultimate liability
will not exceed such estimates. Although, based upon information currently
available to it, management believes that the amount of damages, if any, in
excess of the reserves for unusual litigation costs that may be awarded in any
of the following unresolved legal proceedings cannot reasonably be estimated,
management does not believe it is likely that any such damages will have a
material adverse effect on the Company's results of operations, liquidity or
capital resources. All of the costs associated with these legal proceedings
except those relating to the AMH merger are classified in discontinued
operations.
PSYCHIATRIC MALPRACTICE CASES -- The Company continues to defend a greater than
normal level of litigation relating to certain of its subsidiaries' former
psychiatric operations. The majority of the lawsuits filed contain allegations
of medical malpractice as well as allegations of fraud and conspiracy against
the Company and certain of its subsidiaries and former employees. Also named as
defendants are numerous doctors and other healthcare professionals. 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 file claims against the Company and certain of its subsidiaries. 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 involving a psychiatric subsidiary of the Company.
Among the suits filed during fiscal 1995 were two lawsuits in Texas state court
with approximately 740 individual plaintiffs at present who purport to have been
patients in certain Texas psychiatric facilities. During fiscal 1996, 64
plaintiffs voluntarily withdrew from one of the lawsuits, and the Company's
motion to recuse the original trial judge in that lawsuit has been granted. In
the second lawsuit, the Texas Supreme Court has ruled that lead counsel for the
plaintiffs may not continue to represent the plaintiffs due to a conflict of
interest as asserted by the defendants. Neither of the two cases currently is
set for trial.
During fiscal 1995 and 1996 lawsuits with approximately 210 individual
plaintiffs at present who purport to have been patients in certain Washington,
D.C. psychiatric facilities, containing allegations similar to those in the
Texas cases described above, were filed in the District of Columbia.
In addition to the above, a purported class action was filed in Texas state
court in May 1995 also containing allegations of fraud and conspiracy similar to
those described in the preceding paragraphs. The plaintiff purports to
represent all persons who were voluntarily admitted to one of 11 psychiatric
hospitals in Texas between January 1, 1981, and December 31, 1991, and who also
fit into one or more of eight categories based on such factors as their age at
the time of admission, status of their insurance at the time of discharge and
whether a certain type of examination was conducted prior to their being
admitted. In February 1996, an insurance company that purports to have paid
claims on behalf of the potential class intervened in the action and the case
was removed to the U.S. District Court in Houston, Texas. A motion by the
plaintiffs to remand the case to Texas state court currently is pending. The
class has not been certified and the Company believes that the class is not
capable of being certified.
38
<PAGE>
The Company expects that additional lawsuits with similar allegations will be
filed. The Company believes it has a number of defenses to each of these actions
and will defend the litigation vigorously. Until the lawsuits are resolved,
however, the Company will continue to incur substantial legal expenses. At May
31, 1996, the reserves for unusual litigation costs related to these actions
primarily represent the estimated costs of defending the actions.
SHAREHOLDER LAWSUITS -- As a result of mediation, the parties in the shareholder
derivative and class action suits filed against the Company in 1991 agreed to a
global settlement of all plaintiffs' claims. Pursuant to the settlement, which
was approved by the court in January 1996, a total of $63.75 million plus
interest was paid by or on behalf of the defendants. Of this amount, Tenet's
directors' and officers' liability insurance ("D&O") carriers paid a total of
$32.5 million plus interest on behalf of the individual defendants. In
addition, one of the D&O carriers reimbursed the Company for $5.5 million in
attorneys' fees expended on the litigation.
Two additional federal class actions filed in August 1993 were consolidated
into one action. This consolidated action is 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 alleges violations of securities laws by the Company
and certain of its executive officers. After unsuccessful mediation, the
parties agreed in May 1995 to proceed with the litigation. In June 1995, the
defendants filed a motion to dismiss and to strike plaintiffs' complaint, which
motion is still pending.
C. LITIGATION RELATING TO THE AMH MERGER
A total of nine purported class actions were filed challenging the merger in
both Delaware and California. In April 1996, the parties to the class actions
executed a stipulation of settlement, and the court has issued an order
approving the settlement. Under the terms of that settlement, the Company
agreed to pay $350,000 for the plaintiffs' attorneys fees and agreed that for a
period of one year following final approval of the settlement it will not engage
in any transaction that will be dilutive to existing shareholders without that
transaction being approved by a majority of its outside directors.
NOTE 8. PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK
In 1988 the Company distributed Preferred Stock Purchase Rights to holders of
the Company's common stock and authorized the issuance of additional rights for
common stock issued after that date. The rights expire in December 1998 unless
previously exercised or redeemed and do not entitle the holders thereof to vote
as shareholders or receive dividends.
The Company may redeem the rights at $.025 per right at any time up to the
10th business day after a public announcement that a person has acquired 20% or
more of the Company's common stock in a transaction or transactions not approved
by the Board of Directors. The rights are not exercisable until after the date
on which the Company's right to redeem the rights has expired. When
exercisable, each right entitles the holder thereof to purchase from the Company
one two-thousandth of a share of Series A Junior Participating Preferred Stock
("Series A Preferred Stock") at a price of $40.61, subject to adjustment.
Subject to the foregoing, in the event the Company is acquired in a merger or
other business combination transaction in which shares of the Company's common
stock are exchanged for shares of another company or more than 50% of the
Company's assets are sold, each holder of a right generally will be entitled
upon exercise to purchase, for the then-current exercise price of the right,
common stock of the surviving company having a market value equal to two
times the exercise price of the rights. The plan also provides that, in the
event of certain other mergers or business combinations, certain self-dealing
transactions or the acquisition by a person of stock having 30% or more of
the Company's general voting power, each holder of a right generally
39
<PAGE>
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.
The Series A Junior Participating Preferred Stock for which the Preferred
Stock Purchase Rights may be exchanged is nonredeemable and has a par value of
$0.15 per share. None of the 225,000 authorized shares are outstanding.
NOTE 9. STOCK BENEFIT PLANS
Under the Company's 1983, 1991 and 1995 stock incentive plans, stock options and
incentive stock awards 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 Company's shares on the date of grant and are
normally exercisable at the rate of one-third per year beginning one year from
the date of grant. Stock options generally expire 10 years from the date of
grant. No incentive stock awards have been granted since 1994.
All awards granted under the 1983, 1991 and 1995 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 these stock benefit plans
were $2 million in fiscal 1996, $4 million in 1995, and $12 million in 1994.
New stock awards may be made only under the 1991 and 1995 plans. At May 31,
1996, there were 295,647 shares of common stock available under the 1991 plan
and 9,137,472 shares available under the 1995 plan for future awards. The table
below summarizes the transactions in all stock option plans in which employees
participate:
<TABLE>
<CAPTION>
(SHARES OF COMMON STOCK) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year (1983 and 1991 plans) 19,617,125 15,426,593
Granted ($13.875 to $20.875 per share in 1996 and 1995) 3,619,346 6,241,700
Exercised ($4.405 to $17.50 per share in 1996 and 1995) (2,459,664) (705,022)
Canceled and other adjustments (1,812,579) (1,346,146)
-----------------------------------
Outstanding at end of year ($4.405 to $22.438 per share at May 31, 1996) 18,964,228 19,617,125
-----------------------------------
-----------------------------------
Exercisable at end of year 9,800,152 8,967,874
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In September 1994 a new 1994 Directors Stock Option Plan replaced a 1991
Director Restricted Share Plan which replaces a 1985 Director Stock Option Plan.
Awards previously made under the 1985 and 1991 plans remain outstanding, but new
awards are made only under the 1994 plan. The plan makes available for issuance
to nonemployee directors options to purchase 500,000 shares of common stock.
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 thereafter. Awards will have an excercise price equal to the fair
market value of the Company's shares on the date of grant, will vest one year
after the date of grant and will expire 10 years after the date of grant. At
May 31, 1996, there were options outstanding under the Directors plans for
322,820 shares of common stock at exercise prices of $8.67 to $21.50 per share.
In November 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 -- "Accounting for Stock-Based Compensation," which establishes a new
accounting standard for the measurement and recognition of stock-based awards to
employees and others. This standard permits entities to continue to account
40
<PAGE>
for stock-based awards using present standards prescribed by APB Opinion No. 25
- -- "Accounting for Stock Issued to Employees." The Company has elected to
continue using the provisions of APB Opinion No. 25 in accounting for its
stock-based awards. Under this option, however, the Company will be required to
disclose the pro forma effect of stock-based awards on net income and earnings
per share as if SFAS No. 123 had been adopted. The disclosure requirements of
SFAS No. 123 are effective for fiscal years beginning after December 15, 1995.
The pro forma disclosures will include the effect of all awards granted in
fiscal years that began after December 15, 1994.
NOTE 10. EMPLOYEE STOCK PURCHASE PLAN
On September 27, 1995, the Company's shareholders approved its 1995 Stock
Purchase Plan under which the Company is authorized to issue up to 2,000,000
shares of common stock to eligible employees of the Company or its designated
subsidiaries who customarily work at least 20 hours per week and six months per
year. Under the terms of the plan, employees can elect to have between 1% and
10% of their base earnings withheld each calendar quarter to purchase, on the
last day of the quarter, shares of the Company's common stock at a purchase
price equal to 85% of the lower of the closing price on the first day of the
quarter or its closing price on the last day of the quarter. The plan commenced
on April 1, 1996. Under the plan, the Company sold 114,876 shares to 3,666
employees on June 30, 1996 at a price of $17.85 per share.
NOTE 11. EMPLOYEE RETIREMENT PLANS
Substantially all domestic employees who are employed by the Company or its
subsidiaries, upon qualification, are eligible to participate in a defined
contribution 401(k) plan. Employees who elect to participate make contributions
of from 1% to 16% of their eligible compensation, and the Company matches such
contributions up to a maximum of 3% of eligible compensation. Company
contributions to the plans for fiscal 1996 were approximately $27 million, they
were $17 million in each of 1995 and 1994.
Substantially all employees who were employed by AMI prior to the merger were
eligible to participate in one of AMI's defined benefit pension plans (the "AMI
Plans"). The benefits under the plans are based on years of service and the
employee's base compensation as defined in the AMI Plans. The Company's policy
is to fund pension costs accrued within the limits allowed under federal income
tax regulations. Contributions are intended to provide not only for benefits
attributed to credited service to date, but also for those expected to be earned
in the future. Effective December 31, 1995, the AMI Plans were frozen. As of
that date, participants under the AMI Plans ceased accruing new benefits and the
AMI Plans ceased accepting new participants. The Company continues to fund
benefits accrued prior to that date.
The following table sets forth the funded status of the AMI Plans and amounts
recognized in the consolidated financial statements as of May 31, 1996 and 1995:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $ 249 $ 271
Accumulated 264 282
--------------------------
--------------------------
Projected benefit obligation 264 285
Plan assets at fair value, primarily listed stocks and corporate bonds (296) (223)
--------------------------
Shortfall/(excess) of plan assets compared to projected benefit obligation (32) 62
Unrecognized net gain 80 13
--------------------------
Pension liability $ 48 $ 75
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Net pension cost for the AMI Plans was $4 million and $2 million for the year
ended May 31, 1996 and for the three months ended May 31, 1995, respectively.
The discount rate used in determining the actuarial present value of the
projected benefit obligation for the AMI Plans approximated 8.0% at May 31, 1996
and 7.0% as of May 31, 1995. The Company does not have a plan that provides any
postretirement benefits other than pensions to retired employees.
NOTE 12. INVESTMENTS
In September 1995, Vencor acquired all of the outstanding common stock of
Hillhaven. As a result of the transaction, the shares of Hillhaven common stock
that had been owned by the Company were exchanged for 8,301,067 shares of Vencor
common stock. In addition, the Company received approximately $92 million in
cash for its Hillhaven Series C and Series D preferred stock. The exchange and
sale of preferred stock resulted in a gain of approximately $176 million. The
Company's investment in Hillhaven previously had been accounted for under the
equity method. Following the exchange, the Company owned less than 20% of
Vencor's common stock and began to account for its investment in Vencor common
stock in accordance with SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." The Company classifies such securities as
"available for sale" whereby the carrying value of the unrestricted Vencor
shares will be adjusted to market value at the end of each accounting period
through a credit or charge, net of income taxes, to shareholders' equity. At
May 31, 1996, the market value of the investment was approximately $263 million.
(See Note 5)
The Company is contingently liable under various guarantees for $146 million
of Vencor's obligations to third parties, including $139 million of lease
obligations and $7 million of long-term debt obligations. The Company is also
contingently liable for approximately $75 million in lease obligations relating
to certain rehabilitation facilities sold in 1994.
In August 1994, the Company completed the sale of a controlling interest in
TRC, an operator of outpatient renal dialysis centers. This transaction
resulted in a $32 million gain to the Company. As part of the transaction, the
Company also received a $75 million cash distribution from TRC prior to the sale
and retained an approximate 25% minority interest. In October 1995, TRC
completed an initial public offering of 6,000,000 shares of its common stock,
which resulted in an additional gain to the Company of approximately $17 million
in fiscal 1996. The Company's ownership interest was reduced to approximately
11.6% as a result of a secondary offering by TRC in April 1996.
Because the Company owned less than 20% of the common shares after the
October 1995 stock sale by TRC, and does not exercise significant influence over
TRC, the Company began accounting for its investment in accordance with SFAS No.
115. At May 31, 1996, the Company's carrying value in its investment in TRC was
$49 million and the market value of this investment was approximately $124
million.
NOTE 13. IMPAIRMENT LOSSES
In March 1995, the FASB issued SFAS No. 121 -- "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement
is effective for fiscal years beginning after December
42
<PAGE>
15, 1995, but the Company has elected to adopt it for the year ended May 31,
1996. Accordingly, the Company recorded, in the fourth quarter of fiscal 1996,
an impairment loss of approximately $86 million, before tax benefits of
approximately $32 million ($0.25 per fully diluted share). The assets deemed to
be impaired consist of three rehabilitation hospitals, four general hospitals
and a parcel of undeveloped land. Two of the seven facilities are being held for
sale. In the case of the rehabilitation hospitals, the principal facts and
circumstances leading to the impairment include recent and forecast reductions
in hospital admissions and payment rates caused by payor-driven shifts in care
from traditional rehabilitation services to skilled nursing facilities. The
impairment of the general hospitals is the result of (i) a change in the use of
one of the facilities from acute care to less-intense specialty care, (ii) lower
patient volumes, and (iii) adverse changes in payor mix.
In determining the amount of the impairment loss, the assets' fair values
were determined by specific market appraisals, reference to recent sales prices
of comparable facilities, either on a per-bed or earnings multiple basis, or by
the present values of discounted expected future cash flows. The two facilities
held for sale had operating losses aggregating $5 million in fiscal 1996, have
carrying amounts totaling $34 million as of May 31, 1996 and are expected to be
sold by December 31, 1996.
NOTE 14. RESTRUCTURING CHARGES
In connection with the AMH merger, the Company relocated substantially all of
its hospital support activities previously located in Southern California and
Florida to the former corporate headquarters of AMH located in Dallas, Texas.
Severance payments and outplacement services for involuntary terminations of
approximately 890 former employees and other related costs in connection with
this move were estimated to be $37 million ($0.12 per fully diluted share) and
were 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 Santa Monica, California,
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 for approximately 110 employees and other
expenses directly related to the overhead reduction plan were estimated to be
approximately $77 million. The Company's corporate headquarters were moved to
new leased office space in Santa Barbara, California, in May 1996 and the former
headquarters building was sold the following month.
Actual costs incurred and charged against the restructuring reserves were
approximately $32 million in 1996, $23 million in 1995 and $35 million on 1994.
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,
1996 and 1995.
NOTE 15. DISCONTINUED OPERATIONS -- PSYCHIATRIC HOSPITAL BUSINESS
In November 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. All 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 the reserve for estimated losses during the
phase-out period, except
43
<PAGE>
for the following: (i) in the fourth quarter of fiscal 1995, the Company
recorded an additional $16 million of estimated litigation costs (less income
tax benefits of $7 million) and (ii) in the fourth quarter of fiscal 1996, the
Company recorded $16 million (less income tax benefits of $6 million) for
additional estimated legal costs and $25 million (less tax benefits of $10
million) to increase the reserves of the Company's wholly-owned insurance
subsidiary for professional liability claims, all of which related to the former
psychiatric hospitals.
Net operating revenues for the discontinued operations for fiscal 1994 were
$476 million. Losses from operations during the year were $266 million, before
income tax benefits of $111 million. In fiscal 1994, 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, along with
$433 million of estimated operating losses during the phase-out period, less tax
benefits of $301 million. By May 31, 1995, substantially all of the assets of
the discontinued operations had been sold.
NOTE 16. 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
risks. The notional amounts of derivatives in the tables below do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure of
the Company through its use of derivatives. There are no cash or collateral
requirements in connection with these agreements.
INTEREST RATE SWAPS -- These derivative financial instruments allow the Company
to make long-term borrowings at floating rates and then swap them into fixed
rates that are lower than those available to the Company if fixed-rate
borrowings were made directly. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. Cross-currency interest rate swaps allow
borrowings to be made in foreign currencies, gaining access to additional
sources of financing while limiting foreign exchange risk. The Company's
exposure to credit loss under these agreements is limited to the interest rate
spread in the event of nonperformance by the other parties. Because the other
parties are creditworthy financial institutions, generally commercial banks, the
Company does not expect nonperformance.
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>
(IN MILLIONS) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notional amount for agreements under which the Company receives fixed rates $ 29 $ 29
Average receive rate 7.0% 7.0%
Average pay rate 6.0% 5.7%
Contract duration 1 YEAR 2 YEARS
Notional amount for agreements under which the Company pays fixed rates $ 69 $ 120
Average pay rate 8.7% 8.5%
Average receive rate 5.8% 5.6%
Contract duration 3--4 YEARS 1--5 YEARS
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
TENET HEALTHCARE CORPORATION:
We have audited the accompanying consolidated balance sheets of Tenet Healthcare
Corporation and subsidiaries as of May 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 6 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, 1996
45
<PAGE>
DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS
Jeffrey C. Barbakow 1, 4
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TENET HEALTHCARE CORPORATION
Michael H. Focht Sr. 1, 5
PRESIDENT AND CHIEF OPERATING OFFICER
TENET HEALTHCARE CORPORATION
Bernice B. Bratter 1, 3, 4
FORMER EXECUTIVE DIRECTOR
SENIOR HEALTH AND PEER COUNSELING
Maurice J. DeWald 1 ,2, 3
CHAIRMAN, VERITY FINANCIAL GROUP, INC.
Peter de Wetter 1, 6
RETIRED EXECUTIVE VICE PRESIDENT
TENET HEALTHCARE CORPORATION
Edward Egbert, M.D. 5, 6
RETIRED PHYSICIAN
Raymond A. Hay 2, 4, 5
CHAIRMAN, ABERDEEN ASSOCIATES
Lester B. Korn 1, 3, 6
CHAIRMAN, KORN TUTTLE CAPITAL GROUP
James P. Livingston 2, 4, 5
RETIRED EXECUTIVE VICE PRESIDENT
TENET HEALTHCARE CORPORATION
Thomas J. Pritzker
PRESIDENT, HYATT CORPORATION
Richard S. Schweiker 2,5
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. PENSION COMMITTEE
CORPORATE AND
OPERATING MANAGEMENT
[PHOTO OF SENIOR MANAGEMENT]
Jeffrey C. Barbakow
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
[PHOTO OF SENIOR MANAGEMENT]
Michael H. Focht Sr.
PRESIDENT AND CHIEF
OPERATING OFFICER
[PHOTO OF SENIOR MANAGEMENT]
Trevor Fetter
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
[PHOTO OF SENIOR MANAGEMENT]
Barry P. Schochet
EXECUTIVE VICE PRESIDENT,
OPERATIONS
[PHOTO OF SENIOR MANAGEMENT]
Thomas B. Mackey
EXECUTIVE VICE PRESIDENT,
WESTERN OPERATIONS
[PHOTO OF SENIOR MANAGEMENT]
W. Randolph Smith
EXECUTIVE VICE PRESIDENT,
EASTERN OPERATIONS
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
T. Dennis Jorgensen
SENIOR VICE PRESIDENT,
ADMINISTRATION
Raymond L. Mathiasen
SENIOR VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
Christi R. Sulzbach
SENIOR VICE PRESIDENT,
PUBLIC AFFAIRS, AND
ASSOCIATE GENERAL COUNSEL
Michael H. Ford
SENIOR VICE PRESIDENT, HEALTH SYSTEM
DEVELOPMENT
David R. Mayeux
SENIOR VICE PRESIDENT,
VENTURE DEVELOPMENT AND SUPPORT
Sanford M. Bragman
VICE PRESIDENT, RISK MANAGEMENT
Dennis M. Brown
VICE PRESIDENT, TENET PHYSICIAN SERVICES
Roger L. Burke
VICE PRESIDENT,
MANAGED CARE BUSINESS DEVELOPMENT
Alan N. Cranford
VICE PRESIDENT, OPERATIONS
INFORMATION SYSTEMS
46
<PAGE>
Steve Dominguez
VICE PRESIDENT, GOVERNMENT PROGRAMS
Edward A. Elliott
VICE PRESIDENT, FINANCIAL PROJECTS
Neil B. Hadley
VICE PRESIDENT, ETHICS
Lynn S. Hart
VICE PRESIDENT, GOVERNMENT RELATIONS
Gary W. Heinrich
VICE PRESIDENT, HUMAN RESOURCES
Lawrence G. Hixon
VICE PRESIDENT, CORPORATE REPORTING
Michael S. Hongola
VICE PRESIDENT, FINANCIAL SYSTEMS
INFORMATION SYSTEMS
Bruce L. Johnson
VICE PRESIDENT, INTERNAL AUDIT
David W. Layne
VICE PRESIDENT AND ASSISTANT GENERAL COUNSEL
William Loorz
VICE PRESIDENT, CONSTRUCTION AND DESIGN
John A. Lynn
VICE PRESIDENT, COMPENSATION
Deborah A. Maicach
VICE PRESIDENT, APPLICATIONS
INFORMATION SYSTEMS
David S. McAdam
VICE PRESIDENT, COMMUNICATIONS
Terence P. McMullen
VICE PRESIDENT AND TREASURER
Paul O'Neill
VICE PRESIDENT, VENTURE DEVELOPMENT
Martin J. Paris, M.D., M.P.H.
VICE PRESIDENT, MEDICAL AFFAIRS
Timothy L. Pullen
VICE PRESIDENT, FINANCE, AND CONTROLLER
Douglas E. Rabe
VICE PRESIDENT, TAXATION
David C. Ricker
VICE PRESIDENT, MATERIEL RESOURCE MANAGEMENT
Jacqueline D. Rissotto
VICE PRESIDENT, EMPLOYEE BENEFITS
Leonard H. Rosenfeld
VICE PRESIDENT, SPECIALTY OPERATIONS
Paul J. Russell
VICE PRESIDENT, INVESTOR RELATIONS
Richard B. Silver
VICE PRESIDENT AND ASSISTANT GENERAL COUNSEL
Donald W. Thayer
VICE PRESIDENT, VENTURE DEVELOPMENT AND SUPPORT
REGIONAL MANAGEMENT
Joel M. Bergenfeld
SENIOR VICE PRESIDENT, OPERATIONS
LOS ANGELES REGION
Jim Biltz
SENIOR VICE PRESIDENT, OPERATIONS
TEXAS REGION
William L. Bradley
SENIOR VICE PRESIDENT, OPERATIONS
CENTRAL STATES REGION
Richard S. Freeman
SENIOR VICE PRESIDENT, OPERATIONS
LOUISIANA REGION
Michael W. Gallo
SENIOR VICE PRESIDENT, FINANCE
WESTERN DIVISION
Ben F. King
SENIOR VICE PRESIDENT, FINANCE
EASTERN DIVISION
Neil M. Sorrentino
SENIOR VICE PRESIDENT, OPERATIONS
NORTHERN REGION
Don S. Steigman
SENIOR VICE PRESIDENT, OPERATIONS
FLORIDA REGION
Edward Tudanger
SENIOR VICE PRESIDENT, OPERATIONS
SOUTHEAST REGION
Barry A. Wolfman
SENIOR VICE PRESIDENT, OPERATIONS
ORANGE COUNTY/SAN DIEGO REGION
Steven R. Blake
VICE PRESIDENT, FINANCE
NORTHERN REGION
Mark H. Bryan
VICE PRESIDENT, FINANCE
FLORIDA REGION
Albert J. Canete
VICE PRESIDENT, FINANCE
ORANGE COUNTY/SAN DIEGO REGION
David Dearman
VICE PRESIDENT, FINANCE
TEXAS REGION
William R. Durham
VICE PRESIDENT, FINANCE
LOUISIANA REGION
William W. Leyhe
VICE PRESIDENT, INTEGRATED DELIVERY SYSTEMS
WESTERN DIVISION
Michael E. Tyson
VICE PRESIDENT, FINANCE
CENTRAL STATES REGION
Anthony P. Whitehead
VICE PRESIDENT, FINANCE
SOUTHEAST REGION
William R. Wilson
VICE PRESIDENT, FINANCE
LOS ANGELES REGION
SUBSIDIARY MANAGEMENT
Arnold M. Robin
PRESIDENT, SYNDICATED OFFICE SYSTEMS
G. Michael Sheley
CHIEF EXECUTIVE OFFICER,
NATIONAL HEALTH PLANS
47
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS FISCAL 1995 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 $1,284 $1,371 $1,432 $1,472 $ 663 $ 639 $ 660 $1,356
Income from continuing operations $ 118 $ 183 $ 71 $ 26 $ 64 $ 46 $ 49 $ 35
Net income (loss) $ 118 $ 183 $ 71 $ (22) $ 64 $ 46 $ 49 $ 6
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Earnings per share from
continuing operations:
Primary $ 0.59 $ 0.90 $ 0.33 $ 0.12 $ 0.38 $ 0.27 $ 0.29 $ 0.17
Fully diluted $ 0.56 $ 0.85 $ 0.33 $ 0.12 $ 0.36 $ 0.27 $ 0.28 $ 0.17
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
Quarterly operating results are not necessarily representative of operations
for a full year. Net operating revenues, amortization and interest expense,
for example, increased significantly in the quarters following the acquisition
of AMH on March 1, 1995. Income from continuing operations and net income in
the first quarter of 1995 includes the effects of a $32 million gain from the
sale of a subsidiary's common stock. The fourth quarter of 1995 was impacted by
a restructuring charge of $37 million, a $9 million charge for discontinued
operations and a $20 million extraordinary charge from early extinguishment of
debt. Unusual items in 1996 include a $124 million gain on asset disposals in
the first quarter, a $171 million gain on asset disposals in the second quarter,
a $17 million gain from the sale of a subsidiary's common stock in the second
quarter, impairment losses of $86 million and asset disposal gains of $34
million in the fourth quarter, as well as a $25 million net charge to
discontinued operations and a $23 million extraordinary charge from early
extinguishment of debt in the fourth quarter.
COMMON STOCK INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS FISCAL 1995 QUARTERS
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High 17 18 1/2 22 1/2 22 1/2 19 19 1/2 16 17 7/8
Low 13 3/8 15 5/8 17 7/8 18 1/8 14 3/4 13 1/8 12 1/2 14 1/2
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
At May 31, 1996, there were approximately 18,700 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. The Company's credit facility currently prohibits the payment of
dividends.
48
<PAGE>
CORPORATE INFORMATION
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
National Medical Enterprises, Inc. (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 (805) 563-7188.
CORPORATE HEADQUARTERS
TENET HEALTHCARE CORPORATION
3820 State St., Santa Barbara, CA 93105
(805) 563-7000
COMMON STOCK LISTING
The company's common stock is listed under the symbol THC on the New York and
Pacific stock exchanges.
Debt securities listed on the New York Stock Exchange:
9 5/8% Senior Notes due 20028
8 5/8% Senior Notes due 2003
10 1/8% Senior Subordinated Notes due 2005
6% Exchangeable Subordinated Notes due 2005
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. 25, 1996,
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 (805) 563-6969.
Report Design by Silverander Communications,
Executive Photographs by Glenn Derbyshire
[Back inside cover.]
[Picture of a column.]
<PAGE>
GLOSSARY OF HEALTHCARE TERMINOLOGY
CAPITATION: A payment method under which a health plan, hospital or physician
is paid a fixed amount per enrolled member, regardless of amount or type of
services delivered.
DIAGNOSTIC-RELATED GROUP (DRG): A classification of patients by diagnosis or
surgical procedure into major diagnostic categories for the purpose of
determining payment of hospitalization charges by Medicare.
FEE-FOR-SERVICE CARE: This is traditional cash-for-service payments and
indemnity insurance coverage, under which patients have the freedom to choose
their own doctor or hospital. Patients usually pay a deductible and co-payment
and the providers are reimbursed the remainder of their usual and customary
charges by the indemnity carrier.
HEALTH CARE FINANCING ADMINISTRATION (HCFA): The federal agency responsible for
administering Medicare and Medicaid.
HEALTH MAINTENANCE ORGANIZATION (HMO): A comprehensive prepaid healthcare
system with emphasis on managed care. HMO patients receive services only through
the doctors, hospitals and other providers approved by the HMO. Providers are
paid either a capitated amount or a discount from their usual and customary
charges.
INDEPENDENT PRACTICE ASSOCIATION (IPA): A group of physicians who have joined
together to negotiate for managed care contracts.
INTEGRATED DELIVERY SYSTEM (IDS): An integrated network designed to streamline
healthcare delivery by coordinating the efforts of hospitals, physician
practices and other facilities in order to provide a full spectrum of care.
MANAGED CARE: An umbrella term for prepaid health insurance plans designed to
cut costs by monitoring access, quality and frequency of medical care. HMOs and
PPOs are the most common managed care plans.
MANAGEMENT SERVICES ORGANIZATION (MSO): An organization formed to provide
administrative and contract management services for physicians.
MEDICAID: A state and federal health insurance program for the poor.
MEDICARE: A federal health insurance program for people 65 and older and for
disabled people under 65.
PHYSICIAN HOSPITAL ORGANIZATION (PHO): A collaborative venture uniting
physicians and hospitals for managed care contracting purposes.
PREFERRED PROVIDER ORGANIZATION (PPO): A health plan in which members may seek
care from a set list of providers, who agree to furnish services for a
predetermined fee.
POINT-OF-SERVICE HMO: The same as an HMO plan, but with one exception: Patients
may use doctors or hospitals outside the network, if they pay more out of
pocket.
PROVIDER SERVICE NETWORK (PSN): A network of healthcare providers that
contracts directly with the Health Care Financing Administration to provide
capitated care for Medicare recipients.
[Inside of foldout flap.]
<PAGE>
----------------------
www.TenetHealth.com
----------------------
WE'RE
ADDING
A NEW
ENTRANCE
TO OUR
HOSPITALS
[PICTURE OF A COMPUTER]
As this year's Annual Report goes to
press, we are putting the finishing
touches to Tenet's first site on the World
Wide Web portion of the Internet.
When Launched, the Tenet site will
provide information about our hospitals
and physicians, financial news about the
company and the services we offer, and
health and wellness information.
We are also building Web sites for all
Tenet hospitals to help them better
serve the health information needs
of their local communities.
Look for us soon on the Internet
------------------------------------
www.TenetHealth.com
[Outside of foldout flap.]
<PAGE>
[Back Outside Cover]
[Picture of floor tiles from lobby of corporate headquarters.]
TENET HEALTHCARE CORPORATION
3820 State St., Santa Barbara, CA 93105
<PAGE>
TENET HEALTHCARE CORPORATION ("TENET")
SUBSIDIARY CORPORATIONS
REVISED AUGUST 6, 1996
Note: All subsidiaries are 100% owned by "Tenet" unless otherwise indicated.
<TABLE>
<CAPTION>
<S><C>
Tenet HealthSystem Holdings, Inc.
(a) Tenet HealthSystem Medical, Inc.
(b) Tenet Management Services, Inc.
(c) Tenet Health Integrated Services, Inc.
(c) Quality Medical Management, Inc.
(c) Mid-Orange Medical Management, Inc.
(c) Alexa Integrated Medical Management, Inc.
(b) Alabama Health Connection, Inc.
(b) Alabama Medical Group, Inc.
(b) American Medical (Central), Inc.
(c) Amisub (Heights), Inc.
(c) Tenet Texas Employment, Inc.
(c) Amisub of Texas, Inc. - OWNERSHIP - LIFEMARK HOSPITALS, INC. (63.68%);
TENET HEALTHSYSTEM MEDICAL, INC. (19.75%);
BROOKWOOD HEALTH SERVICES, INC. (5.10%);
AMI INFORMATION SYSTEMS GROUP, INC. (.42%);
AMERICAN MEDICAL (CENTRAL), INC. (11.05%)
(c) Amisub (Twelve Oaks), Inc.
(c) Lifemark Hospitals, Inc.
(d) Tenet Healthcare, Ltd. - OWNERSHIP - LIFEMARK HOSPITALS, INC., GP (1%);
AMISUB OF TEXAS, INC., LP (70.1%);
AMISUB (HEIGHTS), INC., LP (10.3%);
AMISUB (TWELVE OAKS), INC., LP(18.6%)
(e) Odessa Hospital, Ltd. - OWNERSHIP - TENET HEALTHCARE, LTD., GP (78.125%)
INDIVIDUAL PHYSICIANS, LP (21.875%)
(e) Texas Healthcare Physician Services, Inc.
(d) Amisub (Brownsville MRI), Inc.
(d) Lifemark Hospitals of Florida, Inc.
(e) Palmetto Medical Plan, Inc.
(e) Pain Management Center of Tampa, Inc.
(e) T&C and USF Ob/Gyn Center, Inc.
(d) Lifemark Hospitals of Louisiana, Inc.
(e) Kenner Regional Clinical Services, Inc.
(d) Lifemark Hospitals of Missouri, Inc.
(e) Lifemark RMP Joint Venture - OWNERSHIP - LIFEMARK HOSPITALS OF MISSOURI, INC.(50%)
RMP, L.L.C. (50%)
(d) Regional Alternative Health Services, Inc.
(d) Houston Specialty Hospital, Inc.
(d) Memphis Specialty Hospital, Inc.
(d) Tenet Investments-Kenner, Inc.
(c) Texas Southwest Healthservices, Inc.
(b) American Medical Finance Company
(b) American Medical Home Care, Inc.
(b) American Purchasing Services, Inc.
(b) AMI Ambulatory Centres, Inc.
(c) Surgical Services, Inc. - OWNERSHIP - AMI AMBULATORY CENTRES, INC. (80%);
RANDY PHILLIPS (20%)
(d) Ambulatory Care - Broward Development Corp.
(d) Surgical Services of South Lauderdale, Inc.
(d) Surgical Services of West Dade, Inc.
(b) AMI Arkansas, Inc.
1
<PAGE>
(c) Healthstar Properties Limited Partnership - OWNERSHIP - AMI ARKANSAS, INC., GP (1%), LP (49%)
ST. VINCENT TOTALHEALTH CORPORATION, GP (1%), LP (49%)
(d) Healthstar Ultima, LLC - OWNERSHIP - HEALTHSTAR PROPERTIES LIMITED PARTNERSHIP (70 UNITS)
ARKANSAS CHILDREN'S HOSPITAL (1 UNIT)
QUORUM HEALTH RESOURCES, INC. (1 UNIT)
NORTHWEST MEDICAL CENTER (1 UNIT)
REBSAM REGIONAL MEDICAL CENTER (1 UNIT)
(b) AMI Brokerage Services, Inc.
(b) AMI Diagnostic Services, Inc.
(b) AMI Information Systems Group, Inc.
(c) American Medical International B.V.
(d) American Medical International N.V.
(b) AMI/HTI Tarzana Encino Joint Venture - OWNERSHIP-TENET HEALTHSYSTEM MEDICAL, INC. (30%);
AMISUB OF CALIFORNIA, INC. (26%);
NEW H ACUTE, INC. (12%);
AMI INFORMATION SYSTEMS GROUP, INC. (7%);
ENCINO HOSPITAL CORPORATION (25%)
(b) Tenet System Services, Inc.
(b) Amisub (American Hospital), Inc.
(b) Amisub (Culver Union Hospital), Inc.
(c) Choice Care Network, Inc.
(b) Amisub Development of South Carolina, Inc.
(c) Hilton Head Clinics, Inc.
(b) Amisub (Florida Ventures), Inc.
(c) PBG Outpatient Services, Inc.
(c) Brookwood Diagnostic Center of Tampa, Inc.
(c) Lauderdale Clinical Services, Inc.
(c) Ft. Lauderdale Surgery Center, Inc.
(c) Tampa MOB 107, Inc.
(c) Tampa MOB 104, Inc.
(c) Tampa 8313 West Hillsborough, Inc.
(c) Tampa 4802 Gunn Highway, Inc.
(c) Center for Quality Care, Inc.
(c) Tampa 418 W. Platt St., Inc.
(b) Amisub (GTS), Inc.
(b) Amisub (Hilton Head), Inc.
(b) Amisub (Irvine Medical Center), Inc.
(b) Tenet HealthSystem Spalding, Inc.
(c) Health International, Inc.
(c) Tenet Primary Care Clinic, Inc.
(b) Amisub (North Ridge Hospital), Inc.
(c) FL Health Complex, Inc.
(c) North Ridge Carenet, Inc.
(c) North Ridge Partners, Inc.
(c) North Ridge Physician-Hospital Organization, Inc. - OWNERSHIP - AMISUB (NORTH RIDGE
HOSPITAL), INC.(50%); PHYSICIANS (50%)
(b) Amisub of California, Inc.
(c) Valley Doctors' Hospital
(d) Family Medical Services
(c) Physician Practice Management Corporation
(c) Park Plaza Retail Pharmacy, Inc.
(b) Amisub of North Carolina, Inc.
(b) Central Carolina Management Services Organization, Inc.
(b) Amisub (SMHS), Inc.
(b) Amisub of South Carolina, Inc.
(c) Piedmont Medical Services Company
(c) Piedmont One, Inc.
(c) Piedmont Two, Inc.
2
<PAGE>
(c) Piedmont Three, Inc.
(c) Piedmont Four, Inc.
(c) Piedmont Five, Inc.
(c) Piedmont Six, Inc.
(c) Piedmont Seven, Inc.
(c) Piedmont Eight, Inc.
(c) Piedmont Nine, Inc.
(b) Amisub (PSL), Inc.
(b) Amisub (Saint Joseph Hospital), Inc.
(c) Creighton Saint Joseph Regional HealthCare System, L.L.C. - OWNERSHIP -
AMISUB (SAINT JOSEPH HOSPITAL), INC. (73.82%)
CREIGHTON HEALTHCARE, INC. (26.18%)
(c) Saint Joseph Mental Health Plans, Inc.
(c) Home-Based Psychiatric Services, Inc. - OWNERSHIP -CREIGHTON SAINT JOSEPH REGIONAL
HEALTHCARE SYSTEM, L.L.C. (75%)
JAMES T. WHITE, PH.D. (25%)
(c) Saint Joseph Mental Health Physicians, Inc.
(b) Amisub (SFH), Inc.
(b) Amisub (Sierra Vista), Inc.
(b) Amisub TGDA, Inc.
(b) Arkansas Healthcare Services, Inc.
(b) Brookwood Center Development Corporation
(c) Hoover Doctors Group, Inc.
(c) Medplex Outpatient Medical Centers, Inc.
(b) Brookwood Development, Inc.
(c) Alabama Health Services, Inc. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (33-1/3%);
EASTERN HEALTH SYSTEM, INC. (33-1/3%);
ST. VINCENT'S HOSPITAL (33-1/3%)
(c) Alabama Health Services (St. Clair), L.L.C. - OWNERSHIP -
BROOKWOOD DEVELOPMENT, INC. (50%);
HEALTH SERVICES, INC. (50%)
(c) Group Administrators, Inc. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (33-1/3%);
EASTSIDE VENTURES, INC. (33-1/3%);
LLOYD NOLAND FOUNDATION, INC. (33-1/3%)
(b) Brookwood Health Services, Inc.
(c) Brookwood Medical Center of Tampa, Inc.
(c) Brookwood - Riverchase Primary Care Center, Inc.
(c) Estes Health Care Centers, Inc.
(b) Central Arkansas Hospital, Inc.
(c) Amisub (Central Arkansas), Inc.
(b) Columbia Land Development, Inc.
(b) Cumming Medical Ventures, Inc.
(b) East Cooper Community Hospital, Inc.
(c) Charleston Health Services Organization, Inc.
(b) Eastern Professional Properties, Inc.
(b) Florida Health Network, Inc.
(b) Frye Regional Medical Center, Inc.
(c) Frye Home Infusion, Inc.
(c) Piedmont Health Alliance, Inc. - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (50%);
PHYSICIANS (50%)
(c) Frye Home Care Services, Inc.
(c) Tenet Claims Processing, Inc.
(b) Georgia Health Services, Inc.
(b) Heartland Corporation
(c) Prairie Medical Clinic, Inc.
(c) Heartland Physicians, Inc.
(b) Inhalation Therapy Services, Inc.
(b) Kenner Regional Medical Center, Inc.
3
<PAGE>
(b) Lucy Lee Hospital, Inc.
(b) Medical Center of Garden Grove
(b) Medical Collections, Inc.
(b) Mid-Continent Medical Practices, Inc.
(b) Missouri Health Services, Inc.
(b) National Park Medical Center, Inc.
(b) New H Holdings Corp. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC. (99%);
AMISUB OF CALIFORNIA, INC. (.5%);
BROOKWOOD HEALTH SERVICES, INC. (.5%)
(c) New H Acute, Inc.
(d) New H South Bay, Inc.
(d) AMI West Alabama, Inc.
(c) Amiwoodbroke, Inc.
(b) North Carolina Health Services, Inc.
(b) North Fulton Imaging Ventures, Inc.
(b) North Fulton Medical Center, Inc.
(c) North Fulton Health Care Associates, Inc.
(c) North Fulton Regional Cancer Center, Inc.
(c) North Fulton 001, Inc.
(c) North Fulton 002, Inc.
(c) North Fulton 003, Inc.
(c) North Fulton 004, Inc.
(c) North Fulton 005, Inc.
(c) North Fulton 006, Inc.
(c) North Fulton 007, Inc.
(c) North Fulton 008, Inc.
(c) North Fulton 009, Inc.
(c) North Fulton 010, Inc.
(c) North Fulton 011, Inc.
(c) North Fulton 012, Inc.
(b) North Fulton MOB Ventures, Inc.
(b) Occupational Health Medical Services of Florida, Inc.
(b) Palm Beach Gardens Community Hospital, Inc.
(b) Partners in Service, Inc.
(b) Physicians Development, Inc.
(b) Piedmont Home Health, Inc.
(b) Piedmont Rehab Center, Inc.
(b) Pinnacle Healthcare Services, Inc.
(b) Professional Healthcare Systems Licensing Corporation
(b) ProMed Pharmicenter, Inc.
(b) Roswell Medical Ventures, Inc.
(b) Saint Joseph Mental Health Physicians, Inc.
(b) San Dimas Community Hospital
(b) SEMO Medical Management Company, Inc.
(b) Sierra Vista Hospital, Inc.
(b) South Carolina Health Services, Inc.
(b) St. Mary's Regional Medical Center, Inc.
(c) Amisub (St. Mary's), Inc.
(c) St. Mary's Medical Group, Inc.
(b) Tenet (Brookwood Development), Inc.
(c) Health Advantage Plans, Inc. - OWNERSHIP - TENET (BROOKWOOD DEVELOPMENT), INC. (33-1/3%)
EASTSIDE VENTURES, INC. (33-1/3%)
LLOYD NOLAND FOUNDATION, INC. (33-1/3%)
(b) Tennessee Health Services, Inc.
(b) Texas Healthcare Services, Inc.
(b) Texas Professional Properties, Inc.
(b) Tenet East Cooper Spine Center, Inc.
(b) Tenet Physician Services of the Southeast, Inc.
4
<PAGE>
HUG Services, Inc. (77%)
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
(c) Hyacinth Sdn. Bhd.
(a) Medicalia International, B.V. - Netherlands
(a) NME Spain, S.A.
(a) NME UK Properties Limited
Tenet Healthcare (Australia) Pty., Limited
NME Headquarters, Inc.
Tenet HealthSystem Hospitals, Inc.
(a) Brookhaven Hospital, Inc.
(b) Brookhaven Pavilion, Inc.
(a) Manteca Medical Management, Inc.
(a) Tenetsub Texas, Inc.
(a) Tenet Hospitals Limited - OWNERSHIP - TENET HEALTHSYSTEM HOSPITALS, INC., G.P. (1%)
TENETSUB TEXAS, INC., L.P. (99%)
(b) Providence Community Care Network
(a) National Managed Med, Inc.
(a) National Med, Inc.
(a) National Medical Hospital of Tullahoma, Inc.
(b) Harton Medical Group, Inc.
(a) National Medical Hospital of Wilson County, Inc.
(b) Wilson County Management Services, Inc.
(a) National Medical Services, Inc.
(b) Barron, Barron & Roth, Inc.
(a) National Medical Ventures, Inc.
(b) Litho I - LP
(b) McHenry Surgery Center Partners, Ltd - LP
(b) Redding Surgicenter - LP
(b) Alvarado Outpatient Surgery Center - LP
(a) NM Ventures - California, Inc.
(a) NM Ventures of North County, Inc.
(b) North County Outpatient Surgery Center, Ltd.
(a) Tenet HealthSystem 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, Inc.
(a) Physician Network Corporation of Louisiana
(a) NMV-II, Inc.
(a) Preferred Medical Systems of California, Inc.
(a) Rehabilitative Driving Resources, Inc.
(a) West Coast PT Clinic, Inc.
(a) Teneet HealthSystem Memorial Medical Center, Inc.
(a) Tenet Healthcare-Florida, Inc.
(a) Tenet Beaumont Healthsystem, Inc.
(a) South Bay Practice Administrators, Inc.
(a) Sierra Vista Sub One, Inc.
(a) Sierra Vista Sub Two, Inc.
(a) Tenet Missouri JV, Inc.
(a) Tenet Birmingham Management, Inc.
5
<PAGE>
(a) Practice Partners, Inc.
(a) MHJ, Inc.
(b) Jonesboro Health Services, L.L.C. - OWNERSHIP - MHJ, INC. (95%)
ST. VINCENT TOTALHEALTH CORPORATION (5%)
(c) Healthstar Ultima of Jonesboro, Inc.
(a) NPMC Healthcenter - The Heart Clinic, Inc.
(a) NPMC Healthcenter - National Park Surgery Clinic, Inc.
(a) NPMC Healthcenter - Cardiology Services, Inc.
(a) NPMC Healthcenter - Physicians for Women, Inc.
(a) NPMC Healthcenter - Cardiology Care Center, Inc.
(a) Tenet California Medical Ventures I, Inc.
(a) LMC Physician Clinics, Inc.
(a) Diagnostic Imaging Services, Inc.
(a) Metro Physicians Management Organization, Inc.
(a) Tenet Louisiana Medical Ventures I, Inc.
(a) Northeast Texas Healthcare Enterprises
(a) Tenet Hialeah HealthSystem, Inc.
(b) Tenet Hialeah (H.H.A.) HealthSystem, Inc.
(b) Tenet Hialeah (ASC) HealthSystem, Inc.
(b) Hialeah Real Properties, Inc.
(a) Mid-Tennesse Health Partners, L.L.C. - OWNERSHIP - TENET HEALTHSYSTEM HOSPITALS, INC. (50%)
SMITHVILLE HEALTHCARE VENTURES, L.P. (50%)
NME Properties Corp.
(a) Cascade Insurance Company, Ltd.
(a) NME Properties, Inc.
(b) Lake Health Care Facilities, Inc.
(b) NME Properties West, Inc.
(a) NME Property Holding Co., Inc.
NME Rehabilitation Properties, Inc.
(a) R.H.S.C. Prosthetics, Inc.
(a) Rehabilitation Facility at San Ramon, Inc.
(a) Rehabilitation Facility at San Diego, Inc.
(a) R.H.S.C. Modesto, Inc.
(a) Pinecrest Rehabilitation Hospital, Inc.
(a) R.H.S.C. El Paso, 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.
6
<PAGE>
(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.
(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) Psychiatric Facility at Michigan 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 ASHEVILLE, INC. (49%)
(GENERAL PARTNERSHIP) - P.I.A. HIGHLAND REALTY, INC.(1%)
PSYCHIATRIC FACILITY AT ASHEVILLE, 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.
7
<PAGE>
(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.
(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 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.
</TABLE>
8
<PAGE>
ACCOUNTANTS' CONSENT AND
REPORT ON CONSOLIDATED SCHEDULE
The Board of Directors
Tenet Healthcare Corporation:
Under date of July 25, 1996, we reported on the consolidated balance
sheets of Tenet Healthcare Corporation and subsidiaries as of May 31, 1996
and 1995 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, 1996, as contained in the 1996 annual report to shareholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for fiscal year 1996. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as 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, 1996, in the Company's Registration Statements on Form S-3 (Nos.
33-39130, 33-39563, 33-40212, 33-45689, 33-57801, 33-57057, 33-55285,
33-62591 and 33-63451), 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, 33-57375, 333-00709 and
333-01183).
KPMG Peat Marwick LLP
Los Angeles, California
August 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 89,000
<SECURITIES> 112,000
<RECEIVABLES> 1,466,000
<ALLOWANCES> 156,000
<INVENTORY> 128,000
<CURRENT-ASSETS> 1,545,000
<PP&E> 4,598,000
<DEPRECIATION> 950,000
<TOTAL-ASSETS> 8,332,000
<CURRENT-LIABILITIES> 1,134,000
<BONDS> 3,191,000
16,000
0
<COMMON> 0
<OTHER-SE> 2,620,000
<TOTAL-LIABILITY-AND-EQUITY> 8,332,000
<SALES> 0
<TOTAL-REVENUES> 5,559,000
<CGS> 0
<TOTAL-COSTS> 4,491,000
<OTHER-EXPENSES> 86,000
<LOSS-PROVISION> 290,000
<INTEREST-EXPENSE> 312,000
<INCOME-PRETAX> 746,000
<INCOME-TAX> 348,000
<INCOME-CONTINUING> 398,000
<DISCONTINUED> 25,000
<EXTRAORDINARY> 23,000
<CHANGES> 0
<NET-INCOME> 350,000
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.86
</TABLE>
